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.
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‘‘ 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