Off-plan sales now outweigh ready property sales, representing 55% of sales transactions in October, and on track for similar in November. Q3 in particular witnessed the highest number of off-plan sales transactions in the past decade.
Over the previous 2 years, we’ve noticed end users becoming more comfortable with purchasing off-plan, yet reservations and questions still arise when making the decision between a ready and off-plan property. So, what are the benefits and drawbacks of buying an off-plan property?
WHY ARE OFF-PLAN SALES DOING WELL?
The key driver of the sharp increase we’ve seen is due to lack of supply in the ready market for units which property seekers are looking for. They can’t get to the available properties quick enough and don’t have enough time to make an offer before the unit has gone in some of the prime areas. Alongside this, developers have taken time post-covid to assess the demand, understood what buyers want and have built to cater for this. So buyers are now looking towards the off-plan market as it’s catering to their requirements.
DON’T I HAVE TO WAIT AGES TO MOVE INTO AN OFF-PLAN PROJECT?
For end users, one of the biggest barriers towards buying off-plan has typically been the time it takes to handover the project, meaning buyers need to pay out for the property as well as continue paying rent as a place to reside before handover. However, the timeframe in off-plan resale may not be too different to a ready property now.
It has become increasingly difficult to find a ready property which is vacant upon transfer. More tenants are choosing to stay put and take on rent increases from their landlords as opposed to re-entering the open market where rent prices have increased dramatically. What used to be an easier transition to move into a ready property, has become a 12-18 month wait while the current tenants are served an eviction notice and vacate the property. In off-plan, when buying a resale property, you may only find wait times of 18-24 months. Some buyers no longer see this wait as a barrier towards buying off-plan, and rather something they expect in both markets.
ARE OFF-PLAN PROPERTIES CHEAPER TO BUY?
The next question mark for buyers when comparing off-plan and ready properties, are the costs involved. Depending on the project, unit and location, the outright cost of buying an off-plan property is now comparable to buying a ready market property, yet in some cases cost more. However, with the right developer incentives in place, off-plan buyers can save on some of the upfront costs. When comparing purchase fees, there is little difference with the buyer still paying the 4% DLD fee and, if going through a broker, the 2% brokers fee. What you can find when buying off-plan, are some DLD fees waived, as well as service charges or heavily discounted to entice buyers. These deals are becoming harder to come by however as developers are managing to sell out projects without having to offer these.
WILL I HAVE TO PUT DOWN A BIGGER DEPOSIT FOR AN OFF-PLAN PROPERTY?
With the maximum LTV (loan to value ratio), buyers pay 20% for a ready property. For off-plan, payment plans can vary, with some offering 5% booking fees and payments of 5-10% scattered over a long period of time. This allows buyers to spread out their capital outlay as opposed to paying in a large chunk. Off-plan buyers must however ensure they are prepared to pay each installment, factor in rent increases where they currently reside and plan for any unexpected payments. Preparation is key. Payment plans vary depending on the developer, the location and how much demand there is. On the market today, some payment plans vary from 60/40 payment plans with 60% due before handover, to more aggressive payment plans with 100% due before handover.
With Fed interest rate increases, mortgages have become more expensive which has affected affordability for some buyers, encouraging them towards buying off-plan units to avoid these rate increases.
AFTER HANDOVER, ARE OFF-PLAN PROPERTIES CHEAPER TO MANAGE?
Upon handover, warranty will be provided for off-plan units and maintenance costs are lower due to the newer build and design, whereas in ready properties maintenance costs typically cost much more. If a buyer wishes to renovate a ready property (wish is a popular trend now due to capital appreciation on these units), then you may be required to vacate the property for a period of time while renovation work is done. This will incur short term rental costs which have increased in recent months due to growing tourism numbers.
HOW DO I KNOW WHAT DEVELOPER I SHOULD CHOOSE?
Choosing the right developer is one of the most crucial decisions when buying off-plan. Due to the nature of these projects, sometimes you can face heavy delays which can at times set you back years from handover. Choosing a developer that has a strong track record of project delivery, has the skill set to deliver with any issues that may arise and develops the surrounding land is important. This is where you really need to do your homework to understand the developer so you feel comfortable in your purchase decision.
There’s no right now wrong answer between buying off-plan or a ready property. As an end user, you have to do your own research and feel comfortable with whichever route is best for you. This is not just a property, this will be your home. So take the time to learn and understand both sides of the market so that when the right property arises, you’re ready.
