Attention to details important in choosing a property
Kevin Lampen-Smith
Buying a brand-new home off the plans can seem extremely attractive, especially if you are struggling to find a property that meets all your needs.
If you decide to go down this route, it is absolutely crucial to enter the process with your eyes wide open. Reading the fine print – starting with the photo caption advising you that ‘some images are an artist’s impression’ – is just the beginning.
Some benefits
There are many benefits to buying off a plan. Not only are you signing up for a new home that should meet all the latest building specifications, but you are also buying something at a set price with an initially low outlay.
A long settlement period (while the development is completed) gives you time to get your finances in order.
In theory, if the market remains buoyant then the property will increase in value over this period so you will be getting more than what you paid for at the outset.
Some risks
However, the process is not without risks.
If the market falls, then you may encounter problems if you try to sell. Also, the property may not meet your expectations and the build may take longer than expected. You are entirely reliant on the developer, so you are at risk if their business fails and/or the development is on-sold to another company.
Buying off plan requires the same due diligence and care as buying an existing property.
Start by putting in some solid research.
Do not be swayed by pre-sale sweeteners and flash show homes that may bear little resemblance to the actual finished product. Do your homework about the developer and the construction firm – find out what their track records are, examine their credentials and look at any previous developments in which they have been involved.
Remember that you are giving these people your hard-earned money and you need to be confident that they will deliver the goods.
Financial implications
Generally, buying off a plan means providing a deposit upfront to secure the property. The remainder of the money is due on completion, but you will have to prove that you have the finance from the outset. While the long lead-in period provides time to save money, there is also a risk that interest rates may go up or lending criteria may change. I suggest that you discuss these issues with your bank or financial advisor to make sure that you are prepared if the situation changes.
If a real estate agent is involved in selling properties in a proposed development, they can help you navigate the process.
Legal counsel
It is also important to engage a lawyer to help you understand all the details of the sale and purchase agreement and any covenants on the title.
These may extend to the ‘look and feel’ of a development or new subdivision, and include restrictions regarding fences, landscaping, exterior colour and cladding choices and may even include car parking rules for you or your visitors.
Developers will approach selling off plans in many different ways. Some contracts are designed to allow the buyer to choose their own floor plan; others may allow the developer to change the layout without checking first.
Every detail of the property, from the expected timeline to the finishes used, must be spelled out in the contract.
It is vital to get legal advice before signing anything.
The Sunset Clause
If you do not go through these details very carefully before you sign; you may be in for some unpleasant surprises later. Remember to check the contract to see if there is a ‘sunset clause’ that specifies what will happen if the development is not finished in time.
Do not forget to ask what will happen if the developer goes into liquidation and the project is sold to another company.
The last thing you want is for your dream home, not to mention your deposit, to vanish into thin air.
For independent advice on buying or selling property, check out www.reaa.govt.nz.
Kevin Lampen-Smith is Chief Executive, Real Estate Agents Authority based in Wellington.
