Buying off plan: Why you should sign two sales agreements
Buying off plan or directly from the developer has its benefits, especially for first-time buyers or those who don’t have cash for transfer duties and various other transaction costs.
Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s largest mortgage originator, says that one of the most appealing aspects of buying an off plan or newly built home is that tax is built into the sales price, in the form of VAT.
“For anyone buying a property priced at more than R750,000 this means a considerable saving when it comes to up-front expenses, because there is no transfer duty payable,” he says, noting that there may even be savings for those buying lower-priced homes because developers will often cover bond registration costs and transfer legal fees as a purchase incentive. “In short, in new developments it is often the case that ‘the price you see is the price you pay’.”
Other feathers in the cap include moving into a brand-new home and a planned community that most likely offers excellent security measures and communal amenities. “On top of that, off-plan buyers are often able to customise the layout and finishes of their new homes to suit their personal preferences,” says Rademeyer.
A serious drawback of buying off plan is that buyers have to base their decisions on two-dimensional visual materials such as building plans and architects’ drawings, as opposed to actually seeing the physical home that is on offer.
“In addition, off-plan buyers in any freehold development such as a cluster village or an estate must ensure that they sign two sales agreements – one for the purchase of the land, and a second for the purchase of the home that is to be built on that land,” he says. “This is done so that payments to the builder or developer can be linked to building progress and completion.
“Indeed, the building contract in any off-plan purchase should contain details of every item and specification agreed to with the builder or developer – including price, floor plan, wiring, plumbing, fixtures, fittings and even paint specifications, as well as a completion date.
“This is very important in order to avoid possible future disputes with the developer, and buyers should of course only purchase off plan from a known developer with a track record of successful projects. Such developers usually have the backing of a large financial institution and are usually also associated with reputable bond originators such as BetterLife Home Loans.”