Questions to ask when buying property off plan
There’s always a risk associated with buying something that you can’t see.
Buying property off-plan means exactly that - you are buying your new home or investment property in a sectional title complex, luxury apartment, or cluster home scheme before it has been built. This means that you will be depending on the developer and builder to complete your home properly, within your desired construction design requirements and timeously.
"There are many benefits of purchasing a house off-plan, firstly there is no transfer duty as you are purchasing the property directly from the developer," said Jonathan Kohler, Chief Executive of the Landsdowne Property Group.
The largest benefit is that you are purchasing at today’s value, and only start paying once the development is complete, therefore getting capital appreciation on the property while it is being built. Another advantage from a buy-to-let perspective, is that tenants like to rent brand new properties that have never been lived in before. The owners can demand a slightly higher rental in this case.
"You need to be very careful that the developer you are purchasing from has a good track record. It is advisable to have a look at previous completed developments and make sure they were built well, on time and look like the architectural drawings and renderings promised in the glossy brochures," said Kohler.
It is also important to make sure that historically the occupation and the transfer dates are more or less the same.
"If this is not the case, you could be forced to take occupation on the agreed date and pay occupational rent to the developer until the apartment is transferred," added Kohler.
Be careful about believing that the developer is reputable because there is a reputable estate agency selling the development. A good estate agency does not equal a good developer. Some developers require 80-90 percent of the development sold before the bank will release the first portion of the building finance.
"If you are purchasing a property on the precedent that you will get occupation when the developer says you will, and the development doesn’t sell well, it might never materialise," said Kohler.
Top tips for purchasers to ask their developers when planning to buy property off-plan:
1. How many years have you been in business?
2. How many developments have you completed?
3. Could I have a list of your completed developments?
4. In your previous developments, does transfer and occupation generally occur at the same time?
5. Are your renderings a true reflection of what the development is going to look like?
6. Who is the managing agent who prepared the budget and levies for this development?
7. Do your levies include provision for maintenance, or are there generally special levies imposed for major maintenance?
Taking an off-plan example, there are 16 new developments currently underway in Rosebank, one of these is 100 Oxford, with contemporary apartments ranging from the R1.6 million to R4 million mark.
Rosebank has become a favoured destination for investors because of its vibrant mixed-use of commercial, retail, entertainment and residential attractions. It is undoubtedly one of Joburg’s fastest growing and fashionable places to be and is linked to the Gautrain. In terms of affordability, buying off-plan upmarket apartments are a compelling buy in the current market.
The average rental price for an unfurnished 1-bedroom apartment in Rosebank is about R 13 000 a month, R18 000 for a 2-bedroom home, and R24 000 for a 3-bedroom place. There is an increase in Joburg execs relocating their families to Cape Town and choosing to fly in weekly to work in Sandton and Rosebank. Whether private investors buy apartments like these to rent, or corporates buy into an apartment to house their international contract execs, there is no doubt that Rosebank property will appreciate substantially in the coming 5 – 10 years.
Landsdowne did the math on the following scenarios, which range from private investors to commercial investors looking to invest in a big city apartment. Rosebank is Johannesburg’s trendiest zone offering long-term returns if you want to own a big city apartment.