Off-plan purchases: Is it time to jump in?

As things turn positive for the real estate market, developers are quickly becoming more active than they have been for some time - and offering a wide range of off-plan options to attract both homebuyers and investors to their new projects.

“And because off-plan units are often sold at a discounted price to incentivise buyers, they do offer the prospect of accelerated appreciation in the years immediately following the purchase, especially if there is still a low supply of similar units in the area,” says Stephen Whitcombe, MD of the First Realty group.

“We are seeing projects that have been mothballed for two or three years being brought back to the market now as developers ready themselves for a rapid increase in homebuying as interest rates continue to fall. There is a growing number of new projects being launched too, especially in Johannesburg and Cape Town.”

This surge in activity, he notes, follows a significant recovery in the value of building plans passed this year compared to the steady decline in value last year. In July, for example, StatsSA figures show that the total value of plans passed in the major municipalities was R8,33bn, compared to the low of R4,64bn reached in January.

“These new projects span the whole price spectrum but will definitely bring more affordable housing stock to a market that has been short of options for first-time battling inflation and high interest rates. And to make the prospect of homeownership even more attractive to such buyers, who sadly only account for around 40% of current home sales, many developers offer great off-plan deals – often in partnership with one or more banks willing to offer 100% bonds.”

Whitcombe says the discounts being offered on off-plan purchases not only make it easier for prospective buyers to qualify for home loans, but also create the potential for a fairly rapid increase in value – and home equity - by the time the units are built. “This reduces the risks associated with 100% loans and can also be a strong incentive for buy-to-let investors.

“However, that is not the only potential advantage of buying off-plan. Others include the possibility of being able to personalise your living space by customising the fixtures, fittings and finishes, and the fact that newly-built homes typically feature energy-efficient technologies and modern, low-maintenance building materials.

“In addition, all newly-built homes in South Africa come with certain structural guarantees that cover potential defects for several years and provide peace of mind for buyers.”

But buying off-plan does also come with some risks that homebuyers and investors need to keep in mind, he says. “Firstly, property values can fluctuate and there's a risk that the market might decline before the development is completed, resulting in a decrease in its value and potential difficulty in selling or refinancing your unit.

“Secondly, delays in construction are common in the real estate industry and these can postpone your move-in date and disrupt financial planning, particularly if you have to make other living arrangements in the interim.”

Third, says Whitcombe, there is always a risk that the developer could run into financial difficulties or go bankrupt before completing the project. If this happens, you could lose your investment or incur significant additional costs to complete the property.

“Fourth, you cannot physically ‘see’ what you are buying when you purchase off-plan, and if the developer retains the right to change plans, and designs during the construction process, you could end up with a unit that is quite different from your original expectations.

“This is why it is extremely important for off-plan buyers to carefully research the track record of any developer they deal with – and ensure that any deposit they pay will be held safely in an attorney’s or estate agent's trust account until their new home is completed and transferred into their name.”

Issued by Firzt Realty

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Stephen Whitcombe on

082 412 2949

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About Firzt Realty 

Established in 2003, Firzt Realty initially focused on residential real estate, but has since expanded to offer a broad range of services in both the residential and commercial property sectors, including sales, rentals, auctions and property management.