Off plan buying could be referred to as signing an agreement to purchase a property that is yet to be built. You can view the design and building plans but there is no physical property to see or inspect. Kenya today, many developers have utilized off the plan sales in order to finance development of the properties and also to lock in buyers which is seen as a way of making faster sales;
Some of the important considerations you will need to make when buying a property is; should I buy an established home/office/building or off plan buying? There exists some common pitfalls that you need to be aware of if you intend off plan buying.
This article will help you to establish the pros and cons of buying a ready built home off the plan.
Benefits off plan buying :
- Lock in a price – One of the advantages of off plan buying is that you will pay the current market price for a property, even though it will be completed in the future. By paying the early bird price, you will not experience increament in prices as it is the norm during the construction period.
- Securing a high value asset for a low initial capital outlay – While a deposit is made to secure the property (usually 10%), the entire payment doesn’t need to be paid until the property has been built. This provides you with time to organise your finances and if required sell your existing home or other properties without the need for bridging finance.
- Increase in property value – If the market experiences growth, the property you purchase off the plan today may increase in value when you settle two years later;
- Ability to influence the design and finishes– for some developments, you will be present during the construction period and you can point our design issues and even influence the nature of finishes to be used. In some instances, the buyers my even chip in more money to have more superior finishes and fittings;
- Flexible payment terms; During the construction period, the buyer may negotiate for a more friendly payment term which includes payment in well distributed installments to which reduces the financial strain of the buyer;
Risks of off plan buying:
- Falling property market – There is a risk that you may pay too much for a property if the market falls between the exchange of contracts and building completion. If this does occur you may find it difficult to secure finance for the full amount.
- Failed expectations – In many cases, you may not be present to see the progress of the property development and sometimes not until construction has completed, there is a risk that what you envision is not what you will receive. The quality of work may also not meet your standards.
- Rising Interest rates – Interest rates could increase before you settle on the property which is problematic if you wanted to fix the term of the loan at the current interest rate.
- Bankruptcy – Many buyers fear the developer could go into liquidation before the project is completed. You need to ask what the options are if this occurs; will you get your money back and what guarantees do you have? Ensure you have a lawyer check the terms of the agreement to ensure you are protected should this occur.
- Change in government polices e.g. taxation policies, legal requirements surrounding transfer of property upon completion: During construction period, there may be change in government policies and law e.g. the recent introduction of VAT on sale of commercial properties. These changes may in turn increase the amount payable before completion.
Before you sign the dotted line…
1. Check the Location and Neighborhood;
Visit the property site and check the location. If there are other constructions in the area, it may affect your view. Scan the neigbourhood for informal settlements that are coming up which may in future affect the value of your properties negatively.
2. Inspect the show House
In most cases, the developer will build a first show house that represents the upcoming units. Carefully inspect the display home, models and plans. Investigate the fixtures, fittings and finishes. Let the furniture and interior design lie to you since the developer spends more time working on display units so as to impress buyers. Always insist on seeing the next few units that will be completed so as to confirm consistency in quality.
3. Research the market conditions and speak to an expert to determine the property prices:
Talk to a professional regarding the “early bird prices” and confirm whether you are getting a good deal.
4. Research the developer and his supportive professionals;
Find out how long they have been in the industry and how many properties they have built., Visit your developer’s previous work, inspect the quality and speak to previous clients to determine their satisfaction with the properties.
Also research on the site engineers, architects, quantity surveyors and confirm their credibility and whether they are registered.
5. Confirm what the purchase price covers;
Ask questions to determine what is covered as part of the purchase price, for example, what fittings, floor coverings, painting and decorating is part of the package and what is additional. In case of offices, the purhcase price may not cover the fit-out costs and this may lead to future disagreements.
6. Discuss your expectations with the developer;
Discuss your expectations for the property with your developer and have them written into the contract to avoid disagreement with the developer at the completion of the project. Let it be clear on the agreement on the exact components of the final product.
7. Obtain Guarantees;
If possible, obtain guarantees of their financial status written into the contract if possible, to avoid encountering financial complications with the developer. Ask to see the developer’s balance sheet to determine their financial strength as there is a risk that if the developer goes into liquidation before the property is finished you may lose your deposit and other costs.
8. Seek Legal Advice;
Carefully review the contract with a legal professional. Take note of the following:-
· The completion date and whether there are any penalties if you withdraw from the contract.
· When and how you can visit the site during construction;
· If you can make changes to finishes and fixtures to fit your own tastes and preferences;
· What happens if the developers run into financial problems and what happens to your deposit;
· What happens if faults are identified post-completion and the nature and period of warranties you will be given by the developer;
With these considerations, you stand not loose while off plan buying;