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Real Estate

What is Off-Plan Mode of Property Purchase?

BY Soko Directory Team · May 5, 2017 07:05 am

Off plan, investment is the process of buying the property before it is completed according to Cytonn Investments Limited.

Property Investors and potential homeowners prefer buying off the plan since it is seen a more affordable and flexible mode of purchasing property other than when the property is already complete or going for an already existing property.

Generally, a lot of people will go for this type of acquiring property due to the high price of real estate and the long time taken to deliver units. The buyer buys the property of the plan or design stage in the development. It has become increasingly popular as the prices of the property sold are much lower than the market, and can be up to 50 percent less than the price of a completed house.

When purchasing property using this mode, it should be noted that there are key things to be considered which involve signing of three documents: The reservation form, letter if offer and the sales agreement. With these documents, the buyer will have a binding agreement with the developer just so as to ensure that whatever will be taking place is legally agreed upon.

Most of the times, a deposit is needed at the time of signing the contract then the remaining amount will be paid as the property is being developed, as agreed between the buyer and the developer.

Things to Consider When Buying Off-the-Plan:

  1. Developer due diligence
  2. Project due diligence
  • Contracts due diligence

Advantages of buying off-the-plan:

There are a number of benefits that comes along with using the off-plan mode of acquiring property and they include the following:

  1. Allows the buyer to acquire a future asset at today’s price which in the process of its completion, the price will have appreciated to over 50 percent.
  2. The modes of payment are flexible enough to enable the buyer to acquire property and pay for it slowly depending on the agreement with the developer. This allows individuals without the financial muscle to purchase houses immediately to acquire homes they would otherwise not afford.
  • The buyer is able to select the best location for his or her house and can also get to pick the finishes of the house and hence get a house that is in line with their preference.
  1. Most of the times, the buyer is protected by the developers’ warranty insurance while their property is being built, which means certain structural or interior building faults that emerge within a certain timeframe must be repaired by the developer.

Disadvantages of purchasing property off-the-plan:

  1. The buyer may end up losing the money invested in case the developer goes bust or if the developer was fraudulent.
  2. Sometimes developers use very attractive brochures to advertise but deliver substandard products hence the buyers do not get value for money.
  • More often than not, developers aren’t able to complete the houses in the promised time frame and this can affect the buyers’ financial plans.
  • Market conditions may change or the developer may over promise returns such as rental yields and capital appreciation and on completion, the buyer achieves lower than expected returns

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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