The recent surge in negative sentiments towards off-plan house purchase is not new. Among other potential pitfalls, the main risk in this type of property purchase is the uncertainty on whether a buyer will actually get the house in the first place. This concern is not bespoke to us, the real estate industry world-wide grapples with it.
The reasons against off-plan properties have been well documented, especially lately, with majority of the pundits strongly advising against this kind of purchase. There are revelations that buyers have been duped and left out of pocket by phony developers.
However, off-the-plan properties remain a popular investment option world-wide, particularly among keen investors with little to no experience, and first time home buyers. In 2017, off-plan sales accounted for more than 65 per cent of total real estate property purchase transactions in Dubai. It is also a common trend in the UK, where it has made it easier for first-time buyers with small deposits to buy their first property.
So, why buy property off plan? To begin with, off plan refers to properties under construction. Possibly the foremost argument for off plan property procurement is that it is often available at more substantial discounts than existing properties. The earlier you buy, the cheaper it will be. The risk of solely relying on the guarantee and credibility of those building it requires you to carry out substantial due diligence on the developer before entering into a contract.
You will want research on developers’ past projects and visit any of his previous works to inspect quality. Seek references from previous clients and assess chances of developer going into liquidation before project completion.
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The second major argument for off-plan purchase is the ability to stage your payments. Unlike existing properties that may require one-off payments or large upfront sums, off plan purchases can be split over several weeks or months, based on agreed milestones, during the construction period. The opportunity to customise a property to your specifications during the actual build process is another reason why off plan is more advisable.
This can be massively easier and more cost-effective than having to redo work already done if you bought an existing property. Lastly, it has large gains upon selling especially for the buy-to-flip investors. Normally, developers want to sell their units as quickly as possible and that’s why prices are lower for early comers. By purchasing off plan, an investor stands the chance to net high returns when they ultimately resell.
We stand to lose if we demonise off plan property purchase that hitherto has driven this sector that largely contributes to our GDP. Instead, let us introduce regulations to strengthen this sector and weed out phony developers.
In 2016, Dubai introduced a regulation that require developers and brokers to get approval from Dubai’s Real Estate Regulatory Authority (RERA) before they advertise property in the media. The new regulation was aimed at cracking down on fake property ads, protecting both buyers and genuine developers.
They further strengthened the property industry by introducing a regulation that requires a development to first attain 50 per cent completion before they can begin off-plan sales. Why can’t we have such regulations here? Off plan property purchase model is here to stay, it is us to be vigilant and ingenious amidst its challenges. Let us not throw the baby out with the bathwater – at least for now.
- The writer is chairman of Association of Construction Managers of Kenya. [email protected]