Buying Off-Plan: Purchasing Something That Isn't There Yet
So, you read the write-ups, saw the videos, the pretty pictures, inspected the floor plan; the only thing missing is the place itself. This is the case when buying off-plan property. Rather than opting for completed, established projects, we buy into a promise that our dream home will be delivered according to plan. While it is always nice to be the first one living in a home and having the luxury of selecting your preferred layout, floor and view, there are a few things to consider and even avoid before buying off the plan.
What you need to do
1. Research the developer
There is nothing more worrying than having committed to a unit only to find out the developer has a less than satisfying track record. Most would be dazzled by the shiny prospects and offer that they jump and commit to a deposit, not full knowing of who the developer is. Be diligent when researching, it isn't enough to visit their website and reading the corporate info. No one will have anything bad to say on their own website. Dig deeper, check the registrations, research the names, ask the forums, talk to people who are in the industry. Sometimes things can be shiny on the outside but rotten at the roots.
2. Visit the site
If you are buying a place to live in, you should at least know the area. Looking at a map is no substitute for actually being on-site. Get a feel for the location, drive around and see what amenities are available and more importantly, see if they are up to standard. For example, the map might highlight a public park nearby, go have a little inspection and see if it filled with families or if it is a suspected addicts' nest. Ask yourself, do I feel comfortable here, do I feel safe? Park yourself in the area for an hour or two and get a feel for the community, the amenities, facilities, sound levels, the density etc. Visit during peak hours to see if the traffic is bearable or just insane. Also, consider the influence this development will have on the area once it is completed, for better and for worse.
3. Get your documents and contracts in check
Assuming you have done the calculations and figured out your finances, it is now time to get to the paperwork. Starting off with the signing of the Letter of Offer (LO), this document is followed promptly by the Sales and Purchase Agreement (SPA) which must be signed within a specified time agreed in the LO. Note that 10% of purchase price must be paid upon signing the SPA. Loan agreements will follow and your bank may even prompt you to take out an insurance. A Memorandum of Transfer (MoT) or stamp duty will also be signed together with the SPA and will be submitted to the land office.
1. Locking in price
The initial release of the off-plan property will be a good time to lock in prices. The best thing about buying during this time is the ability to base the property on current market prices instead of future value, and will almost certainly increase by the time it is completed. This is why off-plan properties attract plenty of speculators looking to flip and cash-in on capital appreciation.
2. Financing structure/promos
Buying off-plan property means buying from the developer. Buyers may benefit from this as there will be more competitive financing options and packages from developers. One of the mechanisms deployed by developers in previous years was the Developer Interest Bearing Scheme (DIBS) where developers absorb the buyers' loan interest throughout construction period. Developers are no longer allowed to use the DIBS following the announcement from the Prime Minister in Budget 2014. That said, this has only allowed for more creative packages from the developers in the form of rebates, lower deposits, free maintenance, stamp duty waivers, rental guarantees, even loan packages, to name a few.
3. Your choice
The best part of buying off-plan is selecting your unit. The sense of excitement when picking out a place from a broad plan is tremendous. Whether you like corner lots, the ground floor, the fifth floor or right at the top in the penthouse, you have the final say. If you are extremely picky, you can even opt for Feng Shui advice and pick the best orientation for your unit - if you must.
When buying off the plan, there is a real risk that the project goes past the completion date. Or even worse, declared abandoned. Buyers will fear the developer filing for bankruptcy before the project is completed. In the case this does happen, will you be compensated? What guarantees do you have? This would be the best time to check your agreements. Better yet, make sure these clauses are in the agreements before you sign.
2. Expectation VS reality
Artistic impressions, computer generated images and impressive floor plans sure looks the good part of a dream home but can the developer deliver on the promise? There have been plenty of cases where buyers are left unsatisfied with the end product. Cracked walls, crooked ceilings, defective doors and smaller built-up areas are some of the issues raised by buyers. This is why picking a reputable developer with a good track record is recommended. When you find yourself in this situation, make sure to escalate the issue to the developers and have them address the issue.
3. Not established
Starting from the ground up means that the location may not have a matured community. This in turn may mean that amenities and facilities are either lacking or not available at all. With land space getting scarce in Kota Kinabalu city, developers are looking at the outskirts to build, areas which may not be easily accessed, have few schools, fewer commercial centres etc. These things might come into place one day but it will take awhile more before they pop up.