MARKETING AFRICA MAL 18/17 mal 18:17 online - Page 38

some disgruntled clients claiming to have been asked for extra money without delivery to the initial promise. The State Department for Co-operatives through the Commissioner for Co-operative Development has hence launched investigations on the company following these allegations. This article seeks to demystify off plan investment in real estate. We start by introducing off plan investments, the processes involved, the potential gains and risks and conclude by advising buyers what they should look out for when purchasing property off plan. Introduction Off plan investment refers to the purchase of property before completion, generally driven by the high price of real estate and the long time taken to deliver units. The buyer hence buys the property off the plan or design stage in the development. It has become increasingly popular as the prices of the property sold are much lower than market rates, and can be up to 50% less than the price of a completed house. Processes Involved The process of purchasing a property off plan begins with the signing of three documents: (i) the reservation form, (ii) the Letter of Offer and, (iii) the Sales Agreement, where a developer promises to deliver a parcel of land, a house or land package to a buyer at an agreed price at a future date, subject to the developer obtaining all necessary approvals in respect of the development from the relevant authorities and satisfying any conditions necessary to finalize the development. In most cases, the buyer must pay the developer a deposit upon signing the contract, with the balance of the purchase price due at the settlement date, or via a specific payment plan. 36 MAL 18/17 ISSUE ‘‘ In order to reduce potential risks, the buyer has to conduct proper due diligence before purchasing the property off plan. The buyer should research and have background information on the developer, the proposed projects and the contracts he or she is signing.’’ Advantages of Purchasing Real Estate Off Plan Potential capital gains: Buying off plan allows you to acquire a future asset at today’s price and hence in a rising or a peaking market, the buyer achieves capital gains, and on completion they have a significant margin. Developments have delivered over 50% price appreciation. For instance, The Alma in Ruaka by Cytonn Real Estate, which is at 55% price appreciation 9-months into construction. Flexible payment plans: To purchase a property off plan all one needs is a deposit, which is usually 10% to 20% of the purchase price, and the rest of the amount is either paid on completion, or in flexible periodic installments. This allows individuals without the financial muscle to purchase houses immediately to acquire homes they would otherwise not afford. Preference: The buyer is able to select the best location for his or her house and can also get to pick the finishes of the house and hence get a house that is in line with their preference as opposed to buying a complete house where he/she has to settle for whatever has been provided for by the developer in th e locations that have been left over by early buyers. Disadvantages of Purchasing Property Off Plan Risk of loss of capital: The buyer can lose the money invested in case the developer goes bust or if the developer was fraudulent. Poor quality of construction: Sometimes developers use very attractive brochures to advertise, but deliver substandard products hence the buyers do not get value for money unlike when buying a complete unit where one negotiates the purchase price based on tangible evidence. Delayed projects: More often than not, developers aren’t able to complete the houses in the promised time frame and this can affect the buyers’ financial plans. Lower returns: In rare cases, market conditions may change or the developer may over promise returns such as rental yields and capital appreciation and on completion the buyer achieves lower than expected returns and hence doesn’t earn expected gains. Factors to Consider When Purchasing Off Plan In order to reduce the above risks, the buyer has to conduct proper due diligence before purchasing the property off plan. The buyer should research and have background information on the developer, the proposed projects and the contracts he or she is signing. Developer Due Diligence The buyer ought to establish the following facts about the developer before signing up for an off plan purchase with them: Company information: The buyer