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Buying off-plan: What one should know

Buying a home is always an exciting experience, but it’s not always a matter of searching the websites and property supplements, viewing flats or houses and making a decision based on the asking price.

There is another option: buying a brand-new home off-plan directly from a developer – in other words, before it has been built. This can be a daunting prospect: stories abound of developers going out of business, the design failing to live up to the marketing hype, fittings and finishes turning out to be cheap and nasty, and early occupants of a development finding themselves living on a building site.

But, the fact is, the risks are minimal if a purchaser goes into this kind of development with their eyes wide open, and then the advantages are significant.[/fusion_text][fusion_text]

1. Why buy off plan?

When buying a property from a developer, the buyer does not pay transfer duty, which applies whenever a property changes ownership. However, the price of a property sold by a developer does include 14% VAT and includes the other transaction costs that apply to all property purchases: attorneys’ fees and Deeds Office fees.

The most important financial incentive for buying from a developer is that the bank will finance the total cost of the house, including the VAT and all fees. Buying an existing house, one will have to budget 8 to 10 % of the purchase price for attorneys’ and Deeds Office fees – unless the bank is willing to give a mortgage bond in excess of 100 %, which is very unlikely.

Also, when buying an existing home, the sale is voetstoots, which means that any defect or repairs are for the buyers’ expense. When buying from a developer, the purchaser gets a brand-new product, which should not require any major maintenance nor refurbishments for 3-5 years.

One of the most appealing aspects of buying a home that has yet to be built is that one can influence the final product instead of having to compromise on the features of a completed and lived-in home. And one gets to choose the carpet and tile colours![/fusion_text][fusion_text]

2. Does the value drop after occupation?

Unlike motor vehicles, new homes don’t lose value on handover or when the development nears completion, unless there is something drastically wrong with them.

Homes almost always increase in value between the date when the sale is agreed and the date when the property is handed over, and many developers will increase the price of unsold units 2 or 3 times as sales continue and building progresses.  On average, schemes in good areas will appreciate by 10 % or more in the development period, which usually lasts from 12 to 24 months depending on the scheme size.

Early buyers can do particularly well if they buy at the launch or pre-launch, because most developers will kick-start their developments with very competitive prices. And the risk is minimal.

Banks usually require presales of 50% plus 1, before they will grant the developer a bond (which means he must have sold 51 homes in a complex of 100 homes), so homes in the early phases are generally sold at lower prices to bring in buyers. When these homes are valued 6-8 months later, they may have increased in value more than expected – usually by the discounted amount plus a bit more.[/fusion_text][/fusion_builder_column][fusion_builder_column type=”1_3″ last=”no” spacing=”yes” center_content=”no” hide_on_mobile=”no” background_color=”” background_image=”” background_repeat=”no-repeat” background_position=”left top” hover_type=”none” link=”” border_position=”all” border_size=”0px” border_color=”” border_style=”” padding=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”” animation_speed=”0.1″ animation_offset=”” class=”” id=””][fusion_imageframe lightbox=”no” gallery_id=”” lightbox_image=”” style_type=”none” hover_type=”none” bordercolor=”” bordersize=”0px” borderradius=”0″ stylecolor=”” align=”none” link=”” linktarget=”_self” animation_type=”0″ animation_direction=”down” animation_speed=”0.1″ animation_offset=”” hide_on_mobile=”no” class=”” id=””] [/fusion_imageframe][/fusion_builder_column][fusion_builder_column type=”2_3″ last=”yes” spacing=”yes” center_content=”no” hide_on_mobile=”no” background_color=”” background_image=”” background_repeat=”no-repeat” background_position=”left top” hover_type=”none” link=”” border_position=”all” border_size=”0px” border_color=”” border_style=”” padding=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”” animation_speed=”0.1″ animation_offset=”” class=”” id=””][fusion_text]

3. Lag between buying and building

One problem with buying into a new development at a very early stage is that there will be occupants in Phase 1 of an Estate, while the second phase has not started. Also, while the other homes are going up, it may feel as though one is living on a building site and might be subject to inconveniences such as temporary disruptions in the delivery of water or power.

Sectional title developments are however less risky than plot and plan, in which the developer sells you an individual plot with a ready-made design (usually giving you a choice of several designs and positions within the development). Each plot-and-plan home is bought and paid for separately, whereas a sectional title development is treated as a single entity with each buyer paying for a share of the whole upon completion.[/fusion_text][fusion_text]

4. Can I be sure of what I am getting?

One can never be sure that the completed home will be 100 % as the plans and illustrations promised, because most building agreements allow the developer to deviate from the plans by 5-10% without buyer consent.

The developer’s site office will generally show illustrations of the homes and the initial plans, or will have a completed show unit that can be viewed.  A sale agreement will be signed, attached to a copy of the working drawings containing any changes. When confirmation that the working drawings and building plans have been passed by the local authority is given, the municipal building regulations require the building contractor to build strictly according to these drawings.

Layout and size of units can have up to 5% variance.  Sometimes finishes and fittings are also changed due to stock levels or discontinuations ie: tile colours change according to the batches.  The sales agreement will have annexure of the specification list, that will give details as to what the finishes and fittings will be, some of which can be as per developers’ specifications.

The entire sectional title block must be completed before the buyers pay for their units.[/fusion_text][/fusion_builder_column][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_text]

5. Choosing the fittings?

This kind of flexibility is not usually an option with inexpensive homes, where the price is carefully controlled based on the discounts reputable developers can negotiate on materials bought in bulk. The developer decides on the range of materials, and a choice of various colours and designs is given to purchasers. If the buyer insists on supplying fittings and finishes of their own, and the developer agreed, it would usually be at the buyers cost, with no discount or credit passed on the contracted price.

Whatever the purchase price, it is important to see samples of materials that will be used, such as tiles, lighting, carpets etc.  Reputable developers will always have samples available and most will have a show unit on site that will give you a good idea of the finished product.[/fusion_text][/fusion_builder_column][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_images picture_size=”auto” hover_type=”zoomin” autoplay=”yes” columns=”3″ column_spacing=”13″ scroll_items=”” show_nav=”yes” mouse_scroll=”yes” border=”yes” lightbox=”yes” class=”” id=””][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/December-2017-Newsletter-3.jpg” alt=””/][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/December-2017-Newsletter-4.jpg” alt=””/][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/December-2017-Newsletter-6.jpg” alt=””/][/fusion_images][fusion_text]

6. Mortgage finance?

The methods of finance and repayment terms vary according to whether one buys a sectional title unit or a freehold home in a cluster development. Sectional title is straightforward: a deposit is paid to secure a unit, but no further payment is made until the development is complete and the unit is registered in the buyers’ name.

Developers generally do not insist on a particular lender, so if a bank or mortgage originator can offer a better deal than the one the developer has negotiated, the buyer would be free to sign up with that lender.

The payment of a deposit to secure a unit will depend on the contract and requirements of the developer, but 10- 20% of the purchase price is usual. The deposit will reduce the loan and thus the monthly repayments.[/fusion_text][fusion_text]

7. What if the developer goes out of business?

Off-plan buyers are well protected, thanks to the banks ‘policy of paying in stages.

In other words, if the building stalls at the halfway stage, the developer will have been paid just half of the money. The rest of the money will be in the bank and available to pay another contractor for completing the building.

If the developer goes bankrupt before the land is transferred into the buyers’ name, the sale can be cancelled and the deposit can be claimed back with interest. Developers are required to keep deposits in a trust account for safekeeping, so there should be no risk, except the risk of wasted time.[/fusion_text][/fusion_builder_column][fusion_builder_column type=”1_3″ last=”no” spacing=”yes” center_content=”no” hide_on_mobile=”no” background_color=”” background_image=”” background_repeat=”no-repeat” background_position=”left top” hover_type=”none” link=”” border_position=”all” border_size=”0px” border_color=”” border_style=”” padding=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”” animation_speed=”0.1″ animation_offset=”” class=”” id=””][fusion_imageframe lightbox=”no” gallery_id=”” lightbox_image=”” style_type=”none” hover_type=”none” bordercolor=”” bordersize=”0px” borderradius=”0″ stylecolor=”” align=”none” link=”” linktarget=”_self” animation_type=”0″ animation_direction=”down” animation_speed=”0.1″ animation_offset=”” hide_on_mobile=”no” class=”” id=””] [/fusion_imageframe][/fusion_builder_column][fusion_builder_column type=”2_3″ last=”yes” spacing=”yes” center_content=”no” hide_on_mobile=”no” background_color=”” background_image=”” background_repeat=”no-repeat” background_position=”left top” hover_type=”none” link=”” border_position=”all” border_size=”0px” border_color=”” border_style=”” padding=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”” animation_speed=”0.1″ animation_offset=”” class=”” id=””][fusion_text]

8. What if the dwelling was badly built?

The developer and contractor of a development should be registered with the NHBRC. All companies that are in the business of home-building are required to register with the council, which evaluates their competence and financial standing, and to renew their membership annually – the buyer can ask to see the NHBRC certificate confirming this.

The benefits of this system for consumers is that NHBRC builders are obliged to:

• Enter into a written agreement with clients before construction begins;
• Ensure that the home is constructed in accordance with the NHBRC’s Home Builders Manual, which sets minimum quality standards, and in accordance with the terms and specifications of the agreement;
• Rectify snags relating to workmanship or materials within a period of 3 months from date of occupation;
• Repair any roof leaks that occur within 1 year of occupation of the home, if they are attributable to workmanship, design or materials; and
• Rectify major structural defects that appear within a period of 5 years from date of occupation.

The NHBRC carries out site inspections and offers the consumer free warranty cover for major structural defects for up to 5 years from occupation.[/fusion_text][/fusion_builder_column][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_text]

9. Selling before taking transfer?

It is possible to sell a property before taking transfer, but caution must be exercised. If one is buying specifically to sell at a profit before transfer, you may be disappointed. This worked for a number of people when the property market was booming, but quick profits are less likely now, with property prices relatively stagnant.

It is not uncommon for the deed of sale to stipulate that buyers may not sell their units before transfer without the written consent of the developer. If the developer wants to reserve the right to prevent on-selling of properties in a development before transfer, a clause to that effect must be included in the deed of sale.[/fusion_text][/fusion_builder_column][fusion_builder_column type=”1_3″ last=”no” spacing=”yes” center_content=”no” hide_on_mobile=”no” background_color=”” background_image=”” background_repeat=”no-repeat” background_position=”left top” hover_type=”none” link=”” border_position=”all” border_size=”0px” border_color=”” border_style=”” padding=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”” animation_speed=”0.1″ animation_offset=”” class=”” id=””][fusion_imageframe lightbox=”no” gallery_id=”” lightbox_image=”” style_type=”none” hover_type=”none” bordercolor=”” bordersize=”0px” borderradius=”0″ stylecolor=”” align=”none” link=”” linktarget=”_self” animation_type=”0″ animation_direction=”down” animation_speed=”0.1″ animation_offset=”” hide_on_mobile=”no” class=”” id=””] [/fusion_imageframe][/fusion_builder_column][fusion_builder_column type=”2_3″ last=”yes” spacing=”yes” center_content=”no” hide_on_mobile=”no” background_color=”” background_image=”” background_repeat=”no-repeat” background_position=”left top” hover_type=”none” link=”” border_position=”all” border_size=”0px” border_color=”” border_style=”” padding=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”” animation_speed=”0.1″ animation_offset=”” class=”” id=””][fusion_text]

10. Registration and Transfer Costs

Generally, a buyer should allow for between 8-10% of the amount of the purchase prices of a property for other costs in purchasing a new home.  This cost excludes the deposit and is referred to as transfer or registration costs.

• The conveyancers’ fees are fees for the services of the Transferring Attorneys to get a new home transferred from the seller into the buyers and get it registered in the buyers’ name
• Bond registration fees are for the services of the Registering Bond attorneys to get the bond registered over the title deeds
• Deed office Registry Fee is charged by the Deeds Office for the legal registration of bonds
• Sundries/Postage and petties are for deeds office searches, documents to agents, banks, buyer etc

The costs incurred by the seller are:

• Transfer Duty is the government tax levied to transfer the property from the sellers’ name into the buyers’ name. If the seller is registered as a VAT vendor, no transfer duty is payable and the VAT is included in the purchase price,
• Electrical, rates and taxes, levy and Clearance certificates
• Agents commission and marketing costs
• Conveyancers fees for cancellation of his bond over the property

[/fusion_text][/fusion_builder_column][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_text]

11. Can the contract be cancelled?

Section 29A of the Alienation of Land Act 68 of 1981 (which regulates the sale of land) allows a buyer, or a prospective buyer, of property off-plan to terminate the deed of alienation (the sale in instalments), or revoke the offer to buy, as the case may be, by providing written notice to the seller or his agent within 5 business days of signing an offer to buy land or a deed of alienation in respect of land.

However, this right applies only if the purchase price of the land is less than R250 000 (or the amount prescribed from time to time by the Minister of Human Settlements) and the buyer is a natural person.

Section 56 of the CPA gives rise to an implied warranty of quality to the extent that the seller guarantees that the goods comply with the requirements and standards contemplated in section 55 (the right to safe and good quality goods). Therefore, the buyer may return the property to the seller, without penalty and at the risk and expense of the seller, if the goods fail to satisfy the requirements and standards contemplated in section 55. Consequently, the seller, must either repair or replace the failed, unsafe or defective property; or refund the price paid for the property.

The defect in the property will have to be material for this right to operate, though.

One couldn’t claim a newly built house was defective because a doorway was built slightly askew, for example, but one could claim the property to be materially defective if the foundations were unstable.[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container][fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_text]SOUTH AFRICAN ASSOCIATION OF RETIRED PERSONS

We found an interesting website this month, of an organisation – the South African Association of Retired Persons. SAARP was started in 1982, with the aim of promoting the interests of senior citizens in South Africa.  SAARP negotiates with various appropriate companies in order to provide very competitive prices and excellent services and value for money, at greatly reduced costs to members.

SAARP membership is free. The only qualifying requirement is that members are 50 years of age or older.

https://saarp.net[/fusion_text][fusion_text]Sources:

Property Power – February 2016

Personal Finance – March 2015

www.housecheck.co.za[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]