How to buy a home off-plan
Our City is being rebuilt around us - it’s exciting and there aren’t many places in the world you can live and witness an urban transformation before your very eyes. Here, we are lucky enough to see buildings take shape, cafés and restaurants spring into life and new outdoor spaces filling up with people, almost every week.
The reconstruction is also supporting our local economy - 700 hectares of land is expected to be allotted to either commercial use or new housing. In addition, our population is almost back up to its pre-earthquake level and with more residential areas planned the numbers are only going up. It would seem the philosophy of “build it and they will come, is true.”
Stats NZ has forecasted that the population of within Christchurch’s City Council boundaries could grow from 388,000 to 526,000 in 25 years, an increase of 35% - this is a whopping shift in scale and is going to radically change our City.
With construction happening all-over and increasing pressure on available space, buying off-plan has become a more popular option - in this blog we delve into what this is, and its advantages and disadvantages.
What does it mean to buy a home off-plan?
When someone commits to buying a property that hasn’t been built yet, that person is buying off-plan. While it can be more affordable, it takes a specific kind of buyer, that is someone who is comfortable with buying a property they haven’t seen - some would say this is more risky but there are also other advantages.
Why off-plan is even an option?
The simple answer is money makes the developers’ world go around - if a developer has financial commitment from buyers before building the planned property, it provides a foundation on which to fund the development. If you buy off-plan you will need to pay a deposit and it’s this money that gives the developer, and the funder, confidence for construction to start.
Advantages of buying off-plan
While it isn’t as straightforward, technology has made it easier with video fly-throughs of future homes and online design programmes to help you see what your home will look like. Here are some other plus points:
A property that’s yet to be built will often have a lower value than one that’s been around for a while. This attractive pricing enables a developer to secure the support pre-construction. While the property is being built, it may still increase in value meaning you may have capital growth even in the construction phase. This can also mean the home you settle into is more valuable than its agreed price, which is always a bonus for a buyer.
To secure your interest you will need to make a down-payment at the start with the remaining balance due when the property is ready. Another option is often to make staggered payments at intervals during the construction process. This approach may be an advantage as you won’t need to take the full mortgage out ahead of time - it helps with your planning and cash-flow.
You can customise the home to your wishes
Buying a property off-plan gives you the freedom to decide how you want the layout and finish to look. As long as your tastes are not extreme, you can be sure if you like it, other people will too, whether you sell the property or rent it out in the future. You also need to ask the developer if they have a builders’ warranty so that any defects or faults will be repaired at no extra cost.
Easy as properties
Off-plan properties are usually apartments, units or townhouses and have a whole range of advantages when it comes to lifestyle - we talk a lot about this in our blog about apartments being a first step on the property ladder.
Looking to the future
Off-plan is a way of securing a home in an area of the City that is set for growth - we already know this from the population statistics above. This is good for two reasons: future capital gains, and future rental value. You may think it’s a good idea to get into central City property sooner rather than later to take advantage of these potential gains in the future.
Disadvantages to buying off plan:
We’ve already pointed out that your property may turn out to be more valuable than its agreed price, once it’s complete. But of course, this means the opposite may also be the case especially if the real estate market declines between the construction start and finish date. As you haven’t seen the finished property, there are potential downsides. Like any purchase, buying off-plan has its risks.
The final product is yet to be seen
While you can watch the construction you won’t be able to experience your property fully. Technology will help you visualise but it can also make the image of your property more polished than reality. Stylised or photo-shopped images can be misleading.
Beware of the size of floor-plan images
Like photos, floorplans can also be misleading so take a very careful look at the measurements of each room and then map them out using tape or ribbon placed on the floor in the house where you are currently living. This the best and simplest way to see if the dimensions of the rooms in your new home meet your requirements.
Floorplan images of beds, chairs and tables are often drawn at a smaller scale than they should be to make the plan of the room look bigger. Get your tape measure out and be careful you fully understand how big each room actually is. Buyer beware is a phrase you should always keep in the back of your head.
Moving deadline goalposts
This is another big pothole as once you’ve paid your deposit you are at the mercy of time delays, which are always likely in a pressurised construction market like New Zealand. It is always worthwhile checking the contract to see if there are any penalties for delay or other clauses that will put pressure on the developer. Any delay will also increase your costs, as you will still have to live somewhere as you wait for your new home to be ready.
The case of the disappearing developer
Anyone with an eye on the media will know that builders go out of business. Before buying off-plan you need to do your research on the developer, and the individuals involved in running the company. Thankfully, this is reasonably easy to do through a detailed online search. Do your homework.
Off-plan will mean different mortgage criteria
While buying off-plan is increasingly common, it is not the usual way to buy a house, and therefore the mortgage criteria will also be slightly different. Mostly, this is due to the gap of time between the downpayment date and the final payment. The best way to be reassured is to talk to a mortgage expert like Taurus Home Loans.
Off-plan is worth considering
Buying off-plan means taking a different approach to securing finance, seeking legal advice and making sure you research your options thoroughly. It’s definitely not for everyone, simply because you are not buying something you can see, touch and walk into!
With the ongoing development in our City there are likely to be more opportunities to buy off-plan, in the future - it’s worth considering even if you end up buying an existing house in the end.
We would love to be able to help you into your new home, whether or not it is off-plan. If you would like a chat, some initial advice and a coffee, please just give us a call.
Posted 26 Jun 2019