Building Dreams Or Buying Trouble?
A Guide To Purchasing Off-Plan Properties In South Africa

Buying property off-plan offers an opportunity to secure a brand-new home, built to modern standards, before construction is complete. This type of purchase means investing in a property that exists only on blueprints and architectural plans, with decisions guided by the developer’s vision and artist impressions rather than a finished structure.

 

While the idea of moving into a home no one else has ever lived in is exciting, buying off-plan has both advantages and inherent risks. Benefits include the possibility of customising finishes to personal taste and securing a property at today’s prices, often resulting in capital growth by completion. However, this approach also requires careful consideration, as factors like construction delays, quality variations, or changes in market conditions can impact the outcome.

 

Prospective buyers should evaluate all aspects carefully and ensure they understand the legalities involved, setting a strong foundation before making a commitment to purchase off-plan.

 

Understanding the purchase process

 

Firstly, although buying a property off-plan, you will still be required to enter into a written Sale Agreement. This is a statutory requirement in terms of the Alienation of Land Act which requires that the sale of immovable property be reduced to writing in a sale agreement.

 

The sale agreement will typically record the terms of the purchase such as purchase price, when it is to be paid, if the purchase price is to be secured by a mortgage bond, expected completion date, and other pertinent details. Understanding your obligations as a home buyer in terms of this document is important.

 

Prospective purchasers should carefully consider the payment terms and particularly the time frames for meeting the payment deadlines. Frequently asked questions are, what happens to my deposit? Do I earn interest on my deposit? and What happens if there are delays in construction? Buyers are encouraged to ask these questions and ensure that they understand the risks and consequences of suddenly changing their mind about purchasing the property.

Buyers should also verify the developer’s credibility by researching their financial stability, reputation, and past projects. Check if the construction company is registered with the National Home Builders Registration Council (NHBRC) for added peace of mind.

 

Financing and bond registration

 

For most off-plan purchases, you’ll likely need pre-approval for a home loan. Once approved, the bond will be registered at the Deeds Office simultaneously to the registration of transfer of the property. Many developers however, require an upfront deposit, so ensure that it’s held securely in an attorney’s trust account until transfer is complete. Typically, a developer would have engaged with a conveyancer long before the property is advertised to market. Once the conveyancer has received an instruction to process a transfer they will call for a deposit which will usually be invested in an interest bearing account.

 

Additionally, a good development will usually be supported by multiple banks who will offer competitive rates on mortgages. On signing a sale agreement for a property in a new development, a competent developer will usually refer buyers to a trusted mortgage originator who will assist you with applying for a mortgage bond to various banks and present you with the best offer.

 

It is usually a good idea to seek a pre-approval from a bank before embarking on any property purchase. This will save you time and give you a good indication of what your affordability is.

 

It is also advisable to make sure that you have some flexibility with your finance as there may be added costs such as bond registration or transfer costs. Most developers will advertise the purchase of the property with transfer and bond costs included but it is a good idea to make sure that you understand such costs and exactly what is included in the purchase price.

 

The enticing benefits of buying off-plan

 

So, what makes off-plan properties so appealing?

• You have the opportunity to own a brand-new home, being the first to live in a property that has never been occupied before.
• Some developers offer design input, allowing for a choice of finishes and extras during the early stages of construction.
• Modern finishes and new developments often attract tenants, which can lead to higher rental yields for investors.
• Buying off-plan reduces upfront costs, with typically no transfer duty or transfer costs.
• The Consumer Protection Act (CPA) offers protections for buyers, providing recourse in cases of misrepresentation or construction defects.

 

Be aware of the risks so you don’t get caught off guard

While the benefits of buying off-plan are undeniable, it is important to be cognisant of the potential risks:

• Construction may face unexpected delays or, in the worst case, may not be completed.
• The finished property might not align with the initial glossy renderings.
• Financial instability or bankruptcy on the developer’s part could lead to project abandonment.
• Site shutdowns from safety hazards or unpaid bills can bring construction to a halt.
• Buying in the early stages of a development may also result in continued construction on further phases of the development thereby causing an inconvenience to you before final completion of the entire project.
• Buying in a residential complex may mean that Body Corporate or Home Owners Association levies are applicable. It is important for a prospective investor to understand the cost of rates and levies and determine whether such property acquisition is a good investment.

 

Fortunately, various legal measures can help reduce these risks. Penalty clauses in the sale agreement enforce accountability for developer delays, while choosing developers who provide completion guarantees offers reassurance on timelines. Using trust accounts – where funds are securely held in a trust until specific conditions are met, add an extra layer of security. Conducting thorough final inspections and compiling a “snag list” of any defects ensures these issues are resolved before completion. Finally, seeking professional legal advice to review the sale agreement helps safeguard your interests throughout the process.

 

The CPA: your safety net

The Consumer Protection Act (CPA) also offers valuable protection when buying off-plan. Under circumstances where the consumer has entered into an agreement following direct marketing, it provides you with a “cooling-off” period to cancel the agreement within a specific timeframe and requires developers to disclose any potential defects.

 

Additionally, the CPA protects consumers from unfair business practices by prohibiting misleading or deceptive conduct. It clearly outlines consumer rights, ensuring fair treatment and access to redress. Moreover, in the event of a dispute with a developer, the CPA offers mechanisms for resolution, such as mediation or arbitration, making it a valuable tool for protecting your interests in off-plan purchases.

 

By understanding the protections offered by the CPA, you can make more informed decisions and protect your interests when buying off-plan property. It’s essential to familiarise yourself with the specific provisions of the CPA and consult with a legal professional if you have any questions or concerns.

 

The final word: knowledge is power

Buying off-plan property can be an exciting opportunity, but it’s important to go in with your eyes wide open. By understanding the process, its advantages and disadvantages, and the steps to mitigate risks, you’ll be well-equipped to make an informed decision that builds your dream, not trouble. So, do your research, seek expert advice, and embark on your off-plan property journey with confidence!

 

Blog by: Neil Mc Kinon

Neil Mc Kinon: NeilM@hammondpole.co.za