Are you looking to buy a real estate property “off the plan”, but not entirely sure what that means? What exactly does the mean? It’s a good question as most people aren’t familiar with the term and what it entails.
In this article, we’ll go over the essential things that you must know about buying off the plan real estate — what it means and the corresponding pros and cons. Only then can you decide if it’s the right investment decision for you.
What are off the plan real estate properties?
When people that you’re buying an apartment off the plan, it merely means that you’re prepurchasing the property from a developer before the start of the construction. All purchase decisions are based on marking schemes and illustrations of what the apartment will look like once it’s done.
Buyers for off the plan real estate signs a contract with the developer and pays up to 10% of the contract price. No other amount is paid until construction is started and subsequently completed.
Completion of an off the plan contract typically takes around 2 to 3 years (from the time the contract is signed until the property is turned over to the buyer).
What are the advantages?
Off the plan real estate is mainly geared towards ex-pats and interstate purchases for buying a property in the future and avoid the stress that comes with. Also, these properties are strategically located close to stores, schools and other essential amenities.
The property would be brand new, so there’s no need for buyers to inspect the property.
Consider the following advantages of buying off the plan real estate:
- Leaseback opportunities for people looking to prepurchase the property as a future source of income.
- It’s not uncommon for real estate property to drastically increase in value in just a few years. Many buyers often make back the deposit that they paid by the time the property is turned over.
- Tax benefits that make buying off the plan real estate a good investment in an increasing market.
Are there any downsides to buying off the plan real estate?
Everything has tradeoffs and off the plan real estate is no exception. Perhaps the most significant one has to do with buyers getting financing to acquire the property.
Keep in mind that no lender will provide unconditional financing over an indefinite period. Yes, some financial institutions will approve funding for off the plan real estate purchases, but these are almost always subject to stringent assessment and verification.
Finance approval typically takes around six months — not enough time to iron out the financing before a buyer has to sign the contract. At that time, loan approvals would have already expired before payments are due. There’s nothing to stop the lender from say, decreasing the finance which can happen for the following reasons:
- Interest rates have increased significantly casting doubt on the debtor’s ability to repay the amount.
- Any changes in credit policy that results in the debtor no longer meeting criteria set by the lender.
- A decrease in property appraisals suggesting the property is worth less than the contract price.
As you might imagine, problems with the financing can be a huge problem for buyers. This can lead debtors to forfeit their deposits and even lawsuits for breach of contract.
So there you have it — all that you need to know about the pros and cons of buying off the plan real estate. As you might have already realized, the latter is an excellent investment authority, but only for those who have a solid plan to finance the acquisition of a property that is yet to undergo construction.