Friday, 27 August 2010

Buying Off-Plan has Pitfalls

Although buying off-plan has the big benefit of no transfer costs, it also holds some pitfalls of which buyers need to be aware।

Paul Henry, the managing director of Rawson Developers, has warned that there is always a danger that the final product may not be as good as the computer graphics and plans have led the buyer to expect।

He said there is also a danger that the specifications list will be vague and non-specific, thereby allowing the developer considerable leeway in his selection of the fittings and fixtures।

Another possible danger, said Henry, is that the contract can be open-ended as regards the time. “With bank finance hard to come by and banks insisting on a high percentage of sales before they advance money, projects can be held up for long periods before the first work begins on site.”

On the other hand, buying off-plan enables the buyer, in return for a small deposit, to get a fixed price related to today’s values and then to watch it escalate in value for a year or two, during which time no further outlays are called for।

“Experience has shown that this can be a highly profitable form of investment – with the huge advantage that the investor is able to gear it। This is seldom possible with the majority of other investments.”

He says the only real safeguard against these dangers is the developer’s reputation.
“If he has been in business some time and has a good track record, you can probably be confident that the final product will be on time and up to standard। If he is a new name on the scene, with little development experience, it will pay to have a good lawyer go through the deed of sale, to insist on guarantees and, above all, to ensure that your deposit goes into a ring-fenced trust।”

Three questions, said Henry, should be put to the clients of all developers।

The first is: “Did the finished product exceed your expectations for a unit in this price range?”। If the developer is good, the answer will always be “yes”.

The second question is: “Has your unit experienced capital growth?”। That, said Henry, may be a tough proposition in today’s market but many good developers can even now show significant value growth on their units over the last year or two, as well as on those due to come on stream in the next year.

The third question, in many ways the most important, is: “Did the developer attend conscientiously to the snag list?”।

All too often, said Henry, developers have been hard to contact once a unit has been transferred. "This is disgraceful behaviour because 70% of units will require some post-handover attention."
Henry added that, although some very big projects have been highly successful, he personally would always be wary of any project on which the work is likely to be ongoing for years and years।

“This type of scenario can lead people to feeling they are living on a permanent building site. Reasonably small schemes – say, with not more than 200 units – in good areas still offer the best and safest investments.”

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