Buying property off the plan means completing the transfer before you actually know exactly what you’re in for. You sign a contract to buy a home or apartment before it has actually been built.
The benefits of this option are typically financial, as you will receive tax benefits as well as a lower purchase price if you can complete the property transaction early. The drawbacks, however, are just as important to consider. More specifically, here are 5 risks you will face when buying off the plan.
1) Uncertainty About the Finished Product
Perhaps the most significant drawback of this type of transaction is the fact that you simply don’t know exactly what you’re signing up for. Before the property is finished, you can only go off of concept drawings and theoretical models. But what if the final house or apartment is not up to your specifications?
In many off the plan contracts, the builder reserves the right to make changes to each property as needed. That’s a necessary provision, considering that council approvals or permits may hinge on a change of plans that cannot be anticipated early on.
Other changes, such as cheaper finishes than promised, are also possible. Depending on the contract, your vendor may be able to make changes and updates without your permission, leaving you with uncertainty whether the final product actually matches your expectations when signing the contract.
2) Potential Cancellation Down the Road
Read your contract carefully. It may stipulate that under a certain condition, the vendor/builder reserves the right to cancel the transaction before its completion. In other words, you may be forced to change your plans simply because the other party has decided that investing in building the property you are buying off the plan is no longer viable for them.
Similarly to changes to your property, not all cancellations are intentional. If a vendor goes bankrupt, for example, the development may never be finished. As a result, the contract could be canceled, forcing you to recalibrate and change your plans as a result.
3) Construction Delays Can Waylay Plans
Cancellation, in many cases, is among the worst-case scenarios for off the plan property transactions. Another, less serious consequence of this type of sight-unseen contract is even more common: construction delays.
Anyone who has worked in or with parties in the construction industry knows that delays are almost inevitable. From unexpected issues to a delay in construction materials, a set timeline can quickly expand by weeks and even months without anyone at fault.
That, in turn, requires significant flexibility on behalf of the buyer. You may need a longer lease for your existing home than expected, or wait on putting your current home on the market. Worse, some contracts don’t allow you for cancellation, even during significant delays.
4) Finalising the Loan When the Property is Finished
When you buy a property off the plan, you sign the contract and enter into a legal relationship with the other party before the end of construction. You will not, however, be responsible immediately for the loan. The vendor doesn’t look into your finances, and typically only requires a down payment of about 10 per cent to ‘hold’ the property for you.
That, of course, can come with its own challenge. What happens if you have signed the contract, paid the down payment, but cannot get the loan you want and need once the property is finished? In that case, you might be out of luck, as well as the 10 per cent you paid at the time of signing.
Home buyers who choose an off the plan option can mitigate this risk by getting pre-approval for a loan the moment the contract is signed. A larger down payment can also offset some financial risk. But that risk will exist at least to some degree, regardless of how well you plan ahead.
5) Complexity of Transaction Documents
Finally, even though buying property off the plan typically comes with a number of financial benefits, it’s important not to underestimate the potential complexity of this transaction.
Getting the paperwork right is absolutely vital to avoid some of the above pitfalls and ensure a successful transition once the property is complete. The complexity of the paperwork, of course, can make that process more difficult than anticipated.
Off the plan contracts tend to be lengthy and complicated, and so are the Section 32 vendor statements you are required to submit. Significant penalty fees apply for sections that are not filled out correctly.
Finding the Right Professional to Remove Uncertainty
While the benefits of buying off the plan are undeniable, its disadvantages cannot be underestimated. If you don’t plan the process carefully, you risk putting yourself into financial and even legal jeopardy. Weighing benefits against risk is a crucial part of making sure that this property transaction option is actually right for you.
One decision that can help to ease that choice is finding a qualified professional who can help you through the process. You will notice that many of the above risks are defined and can be mitigated through someone who understands every aspect of the paperwork process. Finding a conveyancer that can take on that role for you can help you take advantage of some of this strategy’s benefits, without many of its risks.
In other words, you need a licensed conveyancer or solicitor with extensive experience in working with clients who are buying off the plan. Fortunately, our large database of qualified conveyancing professionals can help you find that individual, helping you make the most out of purchasing a property before it is complete.