Off-the-plan

the plan Off

VIEW speaks with Don Ha, from RE/MAX Revolution in New Zealand, who specialises in the marketing of projects such as subdivisions, apartment towers, house and land investments, and mixed-use developments. TODAY: Don is involved with well over one billion dollars in listings and projects nationwide.

What is the meaning of ‘buying off-the-plan’?

When you buy ‘off-the-plan’ you are purchasing a house, apartment or land that is not fully developed but comes with an ‘artist impression’ and plans. Buyers generally pay 10% deposit of the total purchase price with no further payment until separate titles are issued for each property. This process may take up to 18 to 24 months from start to finish.

What about infrastructure and new residential developments?

There can be as many as 50 to 100 site developments within the same area, which have all the handy facilities already in place. Similarly, this occurs with apartment developments, and especially in the CBD where old buildings are being demolished to make way for the new. Larger housing developments are usually away from the main centres. However, if the development scopes out to 5000 houses, the practice is to create extra shops, schools, child care centres and so on to service what are effectively ‘new towns’.

How do I tell a good development from a poor development?

You can tell by the track record of the developers. They will also have display suites and samples of products used. The marketing budget comes into play and, generally speaking, the bigger the budget the greater the quality (and the commission paid to agents). Purchasers should conduct a background check on the developer. It is important to have confidence in the developer’s financial position and legal position in relation to the land resource. Who are their financiers for the project? Does buying off-the-plan make it easier to get into the property market?

Yes, it can. This occurs, for example, because lenders can fund up to 90% of the new build price versus up to 70% on the purchase of an established home. The time delay through construction may also allow for capital growth by the time the purchaser settles. In our experience, the prices usually have a 10% increase from start to finish. This way, it has fast-tracked the purchaser into wealth once they settle the property and it also allows the purchaser time to save up more money or to sell down some properties to swap for a better one.

Are there potential savings in buying off-the-plan?

Yes, the developer needs the buyer, so they usually offer a discount. They need the buyers to

fund their project presales so that the funds are available to build the project. This is unlike completed projects where the roles reverse, and it is the buyer paying for the finished product.

Are there other benefits?

All new homes or apartments must comply with the current building code and all products come with the necessary guarantees and warrantees. If the property resells in the next few years, the home is likely to be still like new so will hold it value.

What about potential downsides?

A potential downside is a project not being completed on time as stated. For home buyers, this may mean delays in moving in and the possibility of paying extra rent while waiting for their home. On the other hand, the longer it takes until completion, the more opportunity for capital growth. Another downside is if a project cannot go ahead due to funding or non-approvals. This is a potential opportunity lost to the purchasers as they may have invested this money in a better project that delivered on time. We have seen these cause delays of up to eight months. Projects may also overrun costs and developers go into receivership. As long as the purchaser’s deposit is in a trust account, their money is safe. Are there any risks in buying in a new development and how can I be sure to protect myself?

There is no risk in buying into developments as long as your deposit is in a trust account until settlement. There are a number of things you can do to minimise risk, including getting good professional advice. The contract should reflect that your solicitor has five working days to read your contract and advise you if there is anything they have concerns about. To further protect yourself, you can get the property valued off the plans and make sure it values up now at the purchase price you paid, before you go unconditional.

If I decide buying off-the-plan is for me, where do I begin?

Talk to the experts who sell off plans. These people will understand the project better than the developer and even the lawyer, through their track record, their knowledge of contracts, reading the plans and understanding all clauses. They should be able to explain to you as if they were your teachers. If they cannot do these things, then they may not have the product and area knowledge or the skills to market and sell the product. View Don’s listings from page 28.