Home, sweet (brand-new) home!

Home, sweet (brand-new) home!

18 May 2020

Buying property off-plan is a great way for first-time homebuyers to get a foot on the property ladder. It comes without transfer duty as there is no prior owner, and the VAT is included in the purchase price. For these same reasons, it is also an appealing option for someone looking to purchase an investment property that can be rented out to generate income.

Early purchasers have an added advantage of getting great deals as the early phases of a development are often very competitively priced, and prices will increase as new phases are launched.

BetterBond National Development Manager, Jenny Rushin, says the traditional concern about buying off-plan, namely not being able to view a property in person, is of increasingly less concern, thanks to modern technology. "Yes, buying off-plan means purchasing a property you cannot view - except perhaps walk through a show unit that has been erected on-site. But modern technology makes it possible to get a very good idea of what a place will look like once it's finished. Nowadays, you've got 3D renders, virtual tours, augmented reality experiences and everything in-between! So, prospective buyers can get a very good idea of what a new development will offer."

Interest-rate savings

Another compelling argument for buying off-plan right now, is the fact that the interest rate is at its lowest for almost 50 years. There has been two 100-basis-point rate cuts in the space of a month and this is making many people who are currently renting, consider buying.

Rushin says, "Long-term affordability has to be the main consideration, however, along with the fact that the monthly bond repayments are not the only costs associated with owning property. There will most likely also be levies, rates and taxes, utilities and more. It is essential to include these in all calculations."

To give you an idea of the difference that the two drops in interest rate have made, see the table below, based on a typical 20-year bond term.

Monthly bond instalment
Bond amount 9,75% 8,75% 7,75%
Monthly saving
(9,75% - 7,75%)
Interest saving
over 20 years
R250 000 R2 371 R2 209 R2 052 R319 R76 541
R500 000 R4 743 R4 419 R4 105 R638 R153 082
R750 000 R7 114 R6 628 R6 157 R957 R229 623
R1 million R9 485 R8 837 R8 209 R1 276 R306 163
R1.25 million R11 856 R11 046 R10 262 R1 594 R382 705
R1.5 million R14 228 R13 256 R12 314 R1 914 R459 246
R2 million R18 970 R17 674 R16 419 R2 551 R612 328
R3 million R28 456 R26 511 R24 628 R3 828 R918 491
R4 million R37 941 R35 348 R32 838 R5 103 R1 224 656
R5 million R47 426 R44 186 R41 047 R6 379 R1 530 819
R6 million R56 911 R53 023 R49 257 R7 654 R1 836 984

Capital growth

In terms of the value of your property, time is one of your greatest allies when purchasing off-plan. Because the construction period (typically around 12 to 18 months from launch) between time of purchase and date of occupation could conceivably see your investment increase significantly in value. Some estimates say 5%-10%, although there are several factors that play a role, including area, type and size of the development, and levels of supply and demand in the market. All things being equal, however, your property could be worth a tidy sum more by the time it is built, compared with when you bought it.

Easier to finance

All new developments are pre-approved by the major financial institutions. This could make obtaining finance to buy into such a development easier for prospective buyers. Rushin adds, "If you've taken the time to get pre-approved for a home loan, you would be in an even stronger position to get your bond approved, as soon as you decide to buy. This makes the property purchase process quicker and easier all-round."

Developer track record

One of the best protections against the insecurity of not being able to view the property upfront, is to do a thorough check of the developer's track record. This will give you a fair look at other developments they undertook, look at purchase prices over time and consultant an area specialist

While the development that you're buying into is under construction, it is a good idea to take an active interest in the project as it progresses. Stay in touch with the developer and view the property at regular intervals if you can. Raise concerns as they arise and insist that they are addressed.

Fine print

Before signing on the dotted line, take care to familiarise yourself with your rights as purchaser of an off-plan property. Pay careful attention to stipulations around the completion and transfer dates because, if they don't coincide (and they often don't!), you could be liable for occupational rent. Also known as occupational interest, this is the monies payable when you occupy a property that you do not yet own, for example if you moved in before registration and transfer of the property.

Before the transfer of the property into your name, inspect the place together with a representative of the developer. This is your opportunity to ensure everything was done according to plan.

The consumer is covered by the Consumer Protection Act, which offers some protection around non-compliance. For properties approved by the National Home Builders Registration Council (NHBRC) - and most major developments are - a five-year structural guarantee applies, and for smaller snags you would typically have three months in which to report and have them sorted.

Bottom line

"Buying off-plan provides a tremendous opportunity at making your dream of homeownership come true. And, provided you make your calculations carefully, could prove a good investment over time. Always remember, however, that property is not a short-term commitment and as the biggest asset you'll ever buy, it's vital to take all the important factors outlined here, into consideration," concludes Rushin.

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