Is buying off-plan still a good way to invest in property? Gareth Bailey weighs up the options.
To say there seems to be a lot happening in the world would be a massive understatement and tracking the implications on investment economics can present an interesting challenge. The rand has bucked expectations and held up despite increased global volatility and South African assets are still an attractive option globally.
Within the property asset class, the residential market has remained surprisingly healthy throughout the Covid period driven by shifting housing demands brought about by the work-from-home trend and the banks’ appetite for quality lending. National house price growth has slowed slightly over the past two years but remains stable around the 4% mark, according to FNB’s March Property Barometer Report, and areas like KZN’s North Coast and the Western Cape are outperforming this national average.
Our North Durban suburbs have seen a flurry of development activity over the past five years with billions being invested in residential, off-plan sales. Is buying off-plan versus an existing home still a good idea?
While there are pros and cons to buying off-plan, if you avoid a few simple pitfalls, you are likely to enjoy your new-build and have a positive investment experience for many years to come.
One of the most important factors to consider when buying off-plan is the pedigree and track-record of the developer and the professional team because this speaks to the likelihood that the development will be delivered on time and to specification. Bad development experiences usually relate to delays and the quality of the delivered product.
While the price of off-plan properties often exceeds the price of existing properties, one should note that off-plan properties are brand new and that purchasers have the option to report any snags to the developer upon handover for remediation. Together with building guarantees, this means it is unlikely that a purchaser would need to spend much money on renovations for a good few years.
Conversely, while the new Property Practitioners Act requires agents to get a signed declaration of defects upfront from sellers, the Voetstoets clause (meaning “bought in the current condition at the purchaser’s risk”) still applies to the extent that if any latent (hidden) defects arise after transfer, purchasers will need to attend to any wear-and-tear types of expenses or renovation work that may arise due to the age of the property.
Another factor to consider is that properties bought off-plan include VAT and therefore no transfer duty is payable over and above the purchase price. With existing properties, purchasers still need to budget for transfer duty. This applies on a sliding scale, for eg, about R90 000 for properties priced at R2,5-million. Banks are willing to calculate their bond offers on the selling price including VAT, but they will not usually take transfer duty into account when processing bonds on existing homes.
Off-plan properties often accompany the launch of totally new areas with unique outlooks and sea views, or offer formats (eg, apartments or gated estates) that have yet to be seen in the existing surrounding property market.
There has been a general long-term trend toward estate and sectional title living due to the quality of their surrounding managed environments and, of course, due to security. While Covid has bucked this trend by driving demand for freestanding homes which offer more space for a home office and the opportunity to maximise lifestyle at home, I suspect the long-term trend will resume at some stage, and this will prop up price growth in these types of properties.
Last but not least, buying off-plan offers investors the opportunity to put down a relatively small deposit, secure a property at today’s price, and enjoy the growth in value of the property from signature date until handover which is often 12 to 18 months later.
In our marketplace, Pam Golding Properties has launched two apartment developments during Covid, and both have been a tremendous success. Kent, La Lucia completely sold out within just over 12 months, and The Onyx in uMhlanga Ridge Boulevard has all but sold out within 18 months.
Pam Golding Properties launched York at Sanctuary Estate in March which is positioned on a greenbelt in front of FNB uMhlanga Ridge. This FWJK development will offer one-, two- and three-bedroom apartments tightly integrated with the beautiful surrounding natural environment and sea views.
In summary, there are pros and cons to buying off-plan versus existing properties, however, if the unique opportunity of an off-plan product or position piques your interest, make sure you choose a quality development team which will most likely yield long-term rewards both in terms of lifestyle and capital appreciation.