Buying Off The Plan
Many properties offered by property marketers are sold ‘off the plan’ often well before the development even starts. In fact many lenders will require a percentage of pre-sales before lending to the developer as this lowers their risk.
When buying ‘off the plan’ you are signing up to buy something, sight unseen at completion. The risks are many. When you signed, it is a biding contract. In other words you can’t change your mind about buying later. Settlement is often a year or more in the future, and the start can often be delayed until enough pre-sales are obtained. Markets change as do interest rates. What was affordable when you signed may be otherwise when it comes time to settle. There have been many instances of this where people who bought with a view to on-selling have been caught when the chance of a quick resale evaporated and tenants failed to materialise.
In a rising market where there is demand for the property, buying ‘off the plan’ may bring a windfall to those who resell at or shortly after settlement. The late entrants however can be caught having to settle a property perhaps years after they signed to buy it, and when new buyers and money have dried up. That is particularly galling if at the same time the developer is letting his unsold units go at reduced prices.
This is very much a case of buyer beware. No one should enter a contract to buy unless they are sure that if the worst happens, they can still afford to settle the deal.
POSTED: 20-Jul-2009