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Buying off-plan isn't safest investment

By unknown | May 15, 2007 | COMMENTS [ 0 ]

Isaac Moledi

Isaac Moledi

Many people like to buy property off-plan, but how safe is it?

Property experts agree that buying in new developments is appealing, but buyers must remember that building delays and fine print can obstruct the path to a dream package.

The process is sometimes risky because the decision to buy is made on the strength of glossy brochures and marketing skills.

It can take months, if not years, for the actual property to materialise. By that time, one's financial situation might have changed.

Susan van Aswegen of Sotheby's International Realty, operated by Lew Geffen, says buying off-plan allows the buyer to put down a 10percent deposit, delaying their responsibilities of bond repayments, which usually only kick in 18 to 24 months later.

"In that period the value of their investment can grow substantially, especially if current buoyant conditions in the property market persist."

She believes that delayed payment responsibilities make off-plan buying ideal for first time home buyers, giving them time to save and arrange mortgages.

AMC Hunter Inc, a Durban- based firm of conveyancers and attorneys, says developers usually gear their developments. This means that a bank will fund the development with a loan registered against the land and the developer will take draw-downs from the loan as construction proceeds.

Unlike plot and plan developments, Hunter commends the developments that take place in terms of the Sectional Title Act. He says all funds paid towards the purchase price are retained by the conveyancers in their trust accounts pending completion.

If the developer goes insolvent and the sale is cancelled, all money paid as purchase price will be refunded to the buyer.

Hunter says in a plot and plan development the buyer usually takes transfer of the land before building begins and the developer will receive payment for the land value against registration of transfer.

The property will then be built in terms of a building contract and progress payments will be made to the developer when certain milestones are reached.

If the developer goes insolvent, the buyer will own a half-completed home and will have to find another builder, at great expense.

Another disadvantage says Van Aswegen, is that what one sees in the images of the plot and plan developments might not represent exactly how close properties are to one another or the quality of the workmanship.

Van Aswegen's advice is to read all the fine print and ensure that strict guarantees are in place.

Van Aswegen and Hunter advise buyers to check the credentials and track record of the builder and the developer, and view their previous developments. Their enrolment number with the National Home Builders Registration Council should also be checked beforehand.


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