How to avoid the pitfalls of buying off plan

The steep drop in interest rates during the first months of the Covid-19 pandemic and the resulting huge increase in first-time buying saw many property developers rushing back into the market - and shone a spotlight on the potential pitfalls of buying "off plan" than continues to shine.

"Buying off-plan - or before a development is built - can of course have distinct advantages," says Gerhard Kotzé, MD of the RealNet estate agency group. "It often means that the homebuyer or investor can secure a property at a substantially lower price than the developer will charge once the project has been completed.

"In the case of a sectional title development, buyers also do not have to take transfer until a sectional title register has been opened by the developer, so usually only a small holding deposit is required while the units are being built. This creates opportunities for investors to make substantial profits simply by buying off-plan and then reselling as soon as the homes are built."

However, he notes, first-time buyers in particular need to understand the need to take special precautions when opting to buy off-plan.

"For a start, they must ensure that any deposit they are asked to pay will be held in trust on their behalf, by a registered estate agent or an attorney. Otherwise, it is all too easy for a bogus developer to present an impressive-looking development plan and attractive impressions of what the finished units will look like, gather in deposits from unsuspecting buyers and disappear with all their money."     

Buyers must also, says Kotzé, ensure that the size and amenities of the property they are acquiring, as reflected on the development plan and in any marketing materials, is fully and accurately described in their specific agreement of sale.

"There have been all too many instances where the room sizes when built were much smaller than indicated on the plan, where the fittings and fixtures were not as described in the marketing brochures, or where things like a swimming pool that was shown on the plan has not been included in the agreement of sale - and not been built."

In addition, he says, when it comes to sectional title units, the agreement of sale must clearly stipulate any exclusive use areas and the "real rights" that apply to these parts of the common property, including staff accommodation, parking bays, garages and garden areas.

"And finally, it is vital to ensure that any levies quoted are not merely wishful thinking on the part of the developer. In any finished communal housing scheme such as an estate or a sectional title complex, the levies needed to maintain and run the scheme become the responsibility of the owners, and if these have been under-calculated or under-stated by the developer initially, the off-plan buyer could be in for a rude shock when they move into their new homes."