Buying a home off-plan or directly from the developer has many benefits for first-time buyers and other would-be homeowners who don't have large sums of cash saved up to cover transfer duties and various additional transaction costs.
However, there are also some challenges to be aware of before signing an offer to purchase.
Pros
One of the biggest attractions of buying an off-plan or newly-built home is that tax is included in the sales price in the form of VAT. This means you won't be liable for transfer duty, a tax payable to the SA Revenue Service (SARS), if you buy an existing home that costs R1 million or more.
If you are buying a property priced at over R1 million, this results in considerable savings on upfront expenses. There may also be savings if you are buying a lower-priced home because developers will often cover bond registration costs and transfer legal fees as an incentive to buy into a development.
Another advantage is that you will be moving into a brand new home in a planned community that will usually offer good security measures and various communal amenities.
In most developments, you will also be able to customise the layout and finishes of your new home to suit your requirements.
Keep in mind that when buying off-plan, you are essentially securing your property's current market value, as the development would be priced in line with market conditions at the time of sale. It may well be that your property will have appreciated by the time you take transfer. However, this will depend on whether or not the broader economic climate is conducive to positive and real price growth.
Cons
One of the challenges of buying off-plan is that you will often be choosing a home based on building plans and architects’ impressions rather than an actual home that has already been built. Computer-generated imagery (CGI) has largely filled this gap, and many developers are able to show viewers simulated walkthroughs of the homes to be built.
Another point to note is that if you are buying into a freehold development such as a cluster village or an estate, you must be sure to sign two sales agreements. One is for the purchase of the land, and another is for the purchase of the home to be built on that land. This is in order to make sure that payments to the builder or developer can be linked to building progress and completion.
To avoid possible future disputes, the building contract in an off-plan purchase must include details of every item and specification agreed to with the builder or developer. These include:
- Price
- Floor plans
- Electrical wiring and plumbing
- Fixtures and fittings
- Paint specifications
- The completion date
It goes without saying that you should only buy off-plan from a known developer with a solid track record of successful projects.
Reputable developers usually have the backing of one or more large financial institutions and are usually also associated with reputable bond originators and sales agents. In some instances, developers or their marketing agents get pre-approval from one or more banks. Because these banks are already familiar with the development before it is launched, it is often easier for buyers to obtain finance.
Writer: Sarah-Jane Meyer