6 things you need to know about buying off plans
Have you ever thought about buying off plans? By that, I mean buying a home or apartment that hasn’t actually been built yet (for example Latitude Residences). Sounds a bit scary, I know, but...
Buying off plans can be a good option for a few reasons:
- You're securing a property for today's market value, but you're only paying the deposit now
- It will be brand new with all mod cons
- There's often a chance to add your touch to decor, fixtures and fittings
- And there's sometimes less competition.
However, if you decide to buy off plans it's important to do your due diligence. You'll need to form an accurate understanding of the end product and be assured that the development will be built to the specification and timeline promised.
Here are my tips on what to look out for.
1. The developer's track record
First up, you should investigate the track record of the builder/developer.
How many houses/apartment complexes have they built? Look at their developments. Are they of the standard you're expecting? Have there been any issues? How long has their company been around? How likely are they to go bust before the project is finished?
Remember that you're giving these people your hard-earned cash so you need to be confident they'll deliver the goods.
2. The contract
Engage a lawyer to help you understand all the details of the sale and purchase agreement and any covenants on the title before you sign the contract. One of the most important items to check is the sunset clause. It specifies what will happen if the development is not finished on time. You should also ask what will happen if the developer goes into liquidation and the project is sold to another company.
3. The valuation
It's a good idea to get a registered valuation on the property. A valuer can value a property based on the plans to give you the reassurance you aren't paying too much. But find your own valuer — one that hasn't had any dealings with the project or developer to date.
4. The design and location
Because the property hasn't been built yet, it can be tricky to visualise what it would be like to live in. Most good designers/developers will supply realistic renderings and even virtual walkthroughs to help you visualise what it will be like. But don't be too sucked in by the glamorous pictures — you also have to think practically. Is it in a good area? Close to amenities? What is the sun aspect like? How windy will it be? Is there much road noise? What's the parking like? Storage? If it's an apartment you'll want to find out about the body corporate — how will that work and what are the fees?
5. Your finances
Generally, buying off a plan means paying a deposit upfront, with the remainder of the money due on completion. While the long lead-in period gives you time to save money, there is also a risk that interest rates may go up or lending criteria may change. Discuss these issues with your bank or financial advisor to make sure your finances can cope. It's also worth noting that new builds are exempt from the 40% deposit LVR restrictions.
6. The code of compliance
Make sure that you don't settle until the full code of compliance is issued by the Council. To be on the safe side try to be in a position where you don't necessarily have to move in on the settlement date. Ideally, you want to have the settlement date extended until after the Code Compliance Certificate is issued by your local Council.
Don't be put off
A good real estate agent can help you navigate the process. It's not that scary really. And armed with the right information, you can have confidence buying off plans, just as with any other real estate transaction.
It's just a matter of homework.
Rodney Fong is a Licensed Salesperson and Auctioneer working with clients throughout Tauranga, Mt Maunganui and Papamoa.< Back to Blog Articles