No country has done away with the off-plan house buying method, and neither shall we. Off-plan properties remain a popular investment option, particularly among keen investors with little to no experience, and first-time homebuyers.
In 2017 for example, off-plan sales accounted for more than 65 per cent of real estate property purchase transactions in Dubai, increasing 54 per cent.
It is also a common trend in the UK, especially with the government’s incentive schemes like the ‘help to buy equity loans offered solely on new builds.’
Despite its universal challenges, this scheme has made it easier for first-time buyers with small deposits to buy property.
Considering the glaring risks around the off-plan model, what are its advantages and why has it been a popular model for most homeowners in Kenya?
First, off-plan property procurement is often available at a substantial discount than an already existing property. A residential project scheduled to take two years’ construction period, if Buyer A takes the risks to buy a house off-plan even before the project ground-breaking and Buyer B buys a similar house but just upon completion, Buyer A will pay less for the same house than buyer B?
Even if for no other reason than the time value of money – the two-year construction period advance purchase. Off-plan offers buyers a property at a cheaper cost.
Secondly, is the ability to stage your property payments. Unlike existing, finished 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.
Consider a property to be constructed over two years and Buyer A buys a house off plan before ground breaking for about Sh10 million. In most scenarios, the buyer is only required to make a 10 per cent down payment being Sh1 million and then pay the balance monthly or based on agreed milestones. The opportunity to customise a property to your specifications during the actual build process is another reason off-plan is more advisable. This can be more cost effective than having to redo work already done if you bought an existing property. Lately, most developers have been accommodating to buyers’ changes. It has undoubtedly become an area for competition among developers - the level of flexibility to allow buyers changes.
Off-plan purchase can allow you decide whether you want an open or closed kitchen, and it can allow you to choose your house tile or paint colours. This flexibility is not available when buying complete project.
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Lastly, it has large gains upon selling especially for buy-to-flip investors. As I had alluded to earlier normally, especially in scenarios where a developer intends to finance a project through off-plan sales, good discounts are usually offered for the initial units to attract quick sales. Still, we need to bulletproof off-plan model, probably buttress it with some legislation.
-The writer is author ‘Don’t Buy That House’