Avoid the pitfalls when buying a home off plan

 While buying a second hand home affords the purchaser the opportunity to sample the goods, buying off plan presents a different challenge and astute buyers need to exercise caution and follow the golden rules before committing to what could be the largest investment they make in their life, property experts warned this week. 

Not only do off-plan buyers need to concentrate on the location of the development but even more importantly they need to look closely at who is underwriting the product, in other words the developer.

This has become even more pertinent in the current residential boom that has seen many new developers entering the market. In fact the proliferation of new residential developments launched in the past two years has been staggering but not all of these will come to fruition.

In the Cape Town CBD alone, only 38 of the 75 of the developments “launched” in recent years will actually be built, according to research undertaken by Theodore Yach Property Services and Nedbank Corporate.

There are similar stories elsewhere. In Claremont, two of the five previously announced conversions of commercial to residential properties - Intaba West in Protea Road and The Sphere (three floors of Stadium on Main) – have been cancelled, according to Anthony Davies, executive manager of the Claremont Improvement District Company. The conversion projects which are proceeding are 7 Miles South - the former ABSA building on the corner of Old Stanhope and Main roads; The Claremont( the block of shops between Stegmann Road and Draper Stree) t and Intaba East (the former Norwich and, thereafter Fedsure building on the corner of Corwen Street and Protea Road).

According to Yach and John Chapman of Rabie Property Projects, there are numerous reasons behind many of the proposed residential developments being cancelled both in the city CBD and elsewhere. These include the fact that:

• Actual building cost increases have been higher than were projected by some developers and their professional teams, leaving the project no longer viable.
• A more detailed analysis and understanding of the costs, particularly in relation to converstions from office to residential accommodation, have shown that initial concepts were not feasible.
• A current shortage of management and construction skills to tackle high-rise buildings.
• Even with a pre-determined number of pre-sales, banks are reluctant to provide development finance to companies which do not have a proven track record because of the many development risks.
• In buoyant times leading contractors will only undertake work for clients (developers) with whom they have enjoyed a good working relationship as they know they are assured of being provided with information timeously and their payments are guaranteed.

Chapman, a director of Rabie Property Projects, the largest independent property developer in the Western Cape, which has a 25 year track record in development and has been responsible for many of the most successful residential projects during this time, has these tips for anyone considering buying into a new residential development.

• Check who the developers are and whether they have a proven track record. “Many of the developments launched recently don’t even name the developer with the only known name provided on the marketing material being that of the sales agency. Leading estate agents are no guarantee as to the credentials of the developer and their mandate is only to sell and move onto the next project!”
• Check that the rezoning and subdivision approvals are in place as delays in achieving these can be considerable and could tie up your deposit money for years.
• Check the small print to ensure that there are reasonable time frames in which development is assured to get underway and completed. Some developers have tried to wriggle out of contracts and resell at higher prices.

Chapman said they were aware of at least one development in the greater Cape Town area where the rezoning and subdivision approvals were still not in place after three years and purchasers’ deposits had been held in trust for this entire period with no sign of the development being any closer to coming out of the ground.

“In many instances purchasers might not have had the resources to put a deposit down on a second property in the interim and would thus have been prevented from entering the property market over this period and benefiting from the significant capital gains residential property owners have enjoyed in recent years,” he said.