A guide to purchasing a home in a new development
The sale of new developments, also known as off-plan properties, continues its upward trajectory in South Africa.
The demand for these lock-up-and-go properties is largely driven by homebuyers seeking a brand-new home, lower upfront costs, community living, increased security, and various amenities right on their doorstep.
“We continue to see more home loan applicants opting for homes in new developments,” says Rhys Dyer, ooba Group CEO.
What does buying ‘off-plan’ mean?
If you are interested in a specific new development but the developers have not yet completed or begun the construction of the houses, one option is to buy ‘off-plan’. “Potential homebuyers are generally able to visit show units, and view architect drawings and 3D renderings of their future home before making their final purchasing decision.”
Important to remember is that, at the time of your purchase, you are literally buying your property off a plan, as the home has not been constructed yet.
Aiding affordability in South Africa
While this option does require confidence in the property developer and their track record, you don’t have to pay for your home until it is complete. “The biggest drawcard of off-plan properties is undoubtedly their affordability. Bond repayments are delayed until construction is complete – usually giving you up to 24 months to put money aside and budget accordingly. Savvy buyers can also use this as an opportunity to accrue interest on the deposit amount.”
In addition, homebuyers investing in a new development will not pay transfer duties on the property. “This is because the payment of transfer duty does not apply where the purchase price includes VAT and this will likely be the case when purchasing a newly-built home in a new development,” says Dyer. “This is a big saving considering that any existing property priced over R1 000 000 requires the payment of transfer duty – and as the price of the property increases, so does the transfer duty.”
However, Dyer does caution that the purchase of a newly-built home in a development is still subject to VAT. “You will still need to pay VAT as the house is registered in the name of the development company and still subject to that tax,” he says.
Most off-plan homes are sold as sectional title units. “Sectional title simply describes the separate ownership of a unit within a complex or development,” explains Dyer. Additional expenses such as insurance, security and maintenance, or even a generator are shared by all the homeowners, thus is adding to the attractiveness of sectional title. “You will be subject to the rules of a Body Corporate, but such rules should protect everyone’s interests.”
Added benefits unpacked
Aside from the financial rewards, there are numerous benefits to buying in a newly-built development:
– The home is a blank slate. You can choose the finishes, furnish, and fit to your personal taste and requirements.
– Newly-built homes are constructed with energy efficiency in mind, often incorporating green technology.
– These homes, as they are part of estates, are generally equipped with security features such as access control, biometric access, perimeter fences and CCTV.
– Many developments include amenities such as gyms, pools, restaurants, bars, fibre, and kiosks.
– Community living is part of the package.
Top tips for purchasing off-plan
New developments are on the rise, as developers respond to the high demand for these cost-efficient, trendy homes. However, the onus is on the buyer to do their research prior to putting in an offer to purchase (OTP).
Dyer shares his top tips as follows:
Receive a pre-qualification: Before starting your search, make sure that you know what your home loan affordability is. “Receive a pre-qualification on a home loan prior to shopping around, to avoid disappointment.”
Save up for a deposit: “New developments generally require a deposit, usually of 10%, to secure your purchase.”
Do your homework: Check out your developer’s previous projects before signing on the dotted line. “While you don’t always have the opportunity to check out the actual unit prior to putting in an offer, there will be an inspection before you take transfer and make payment.”
Consider the future: “Conduct thorough research on the area and what’s available – at what cost. Remember, you need to make sure that when it comes time to sell, there is demand for your property. Be sure not to overspend or overcapitalize, and to have a clear understanding of the market trends in your chosen area.”
Dyer’s final piece of advice is to ‘shop around’ for a bond. “Choosing to purchase a home in a new development is a savvy financial decision, but you should still maximise your savings by using a home loan comparison service such as ooba Home Loans to secure the best possible interest rate on a home loan. This will put real rand savings back in your pocket over the life of the loan.”
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