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Buying off the plan

Buying off the plan

31 January 2018

There are obviously risks and disadvantages for purchasers buying off the plan, but most of these can be minimised by doing some research, while some can even be turned to the purchaser’s advantage.

Developers often offer units or townhouse for sale before they are completed because it reduces their risk and makes it easier for them to raise any necessary finance; not only do they know the properties are sold, but the price is already set in concrete and lenders can feel confident.

One of the main concerns for buyers is that the property market may fall between exchange of contracts and taking possession, but of course the converse is also true: it could, in fact, rise. This is where the research is important – it would make sense to buy off the plan in a rising market, when the property could be secured at a price lower than the value upon taking possession, and less sense to buy off the plan when the market is undergoing a downturn.

Other disadvantages include the possibility of the developer going into liquidation before the project is complete or the potential for the quality of the finished product to be inferior to that utilised in the display. Purchasers should ask for the addresses of other buildings – completed or in progress - which the developer can lay claim to, and where possible talk to owners of individual properties. It is also possible to assess a developer’s reputation with a few well-placed phone calls.

No matter how good the reputation, make sure the contract includes a reasonable completion date. Some delay between the purchaser’s deposit payment and taking possession is normal and may suit some people as it means they have time to sell an existing property or shop around for a loan, but anything longer than twelve to eighteen months increases the risks posed by market forces or the developer’s liquidity.

Some buyers do very well out of buying off the plan and intending buyers can minimise risk by doing their homework properly and by making sure the contract is reviewed by their legal adviser.