North Durban suburbs have seen a flurry of development activity over the past five years with billions of Rands being invested in residential, off-plan sales, but a question often asked is: ‘Is buying off-plan versus an existing home still a good idea?’
While there are pros and cons to buying off-plan, if you avoid a few simple pitfalls you are likely to enjoy your new-build and have a positive investment experience for many years to come, according to Gareth Bailey, Pam Golding Properties area principal for Durban Coastal.
Bailey says that one of the most important factors to consider when buying off-plan is the pedigree and track-record of the developer and the professional team, because this speaks to the likelihood that the development will be delivered on time and to specification. “When friends share stories about negative development experiences, they usually relate to delays and the quality of the delivered product.
“Although the price of off-plan properties often exceeds the price of existing properties, one should bear in mind that off-plan properties are brand new and that buyers have the option to report any snags to the developer upon handover for remediation. Together with building guarantees, this means that it is unlikely that a buyer would need to spend much money on renovations for a good, few years.”
He while the new Property Practitioners Act requires agents to obtain a signed declaration of defects upfront from sellers, the Voetstoets clause – meaning ‘bought in the current condition at the purchaser’s risk’ – still applies to the extent that any latent (hidden) defects arise.
However, it’s important to note that if a seller conceals a defect or fails to disclose a known defect, he/she cannot hide behind the voetstoots clause. After transfer, buyers will need to attend to any wear-and-tear types of expenses or renovation work that may arise due to the age of the property.
“Another factor to consider is that properties bought off-plan include VAT and therefore no transfer duty is payable over and above the purchase price. With existing properties, buyers still need to budget for transfer duty. This applies at a sliding scale, for example, about R90 000 for properties priced at R2.5m and around R250 000 for properties priced at R4m. Banks are willing to calculate their bond offers on the selling price including VAT, but they will not usually take transfer duty into account when processing bonds on existing homes.
“Off-plan properties may often accompany the launch of totally new areas with unique outlooks and sea views, or offer formats, such as apartments or gated-estates, that have yet to be seen in the existing surrounding property market.”
Bailey says there has been a general long-term trend toward estate and sectional title living due to the quality of their surrounding managed environments and, of course, due to security. “While Covid has bucked this trend by driving demand for freestanding homes which offer more space for a home office and the opportunity to maximise lifestyle at home, I suspect that the long-term trend will resume at some stage, and this will prop up price growth in these types of properties.
“Importantly, buying off-plan offers investors the opportunity to put down a relatively small deposit, secure a brand-new property customised to suit your preferences at today’s price and enjoy the growth in value of the property from signature date until handover which is often 12 to 18 months later.
“In our marketplace, in the last few years during Covid, we have launched to the marketplace two apartment block developments both of which have been a tremendous success. Kent in La Lucia (on the La Lucia Mall site) completely sold out in just over 12 months and The Onyx in uMhlanga Ridge Boulevard (diagonally opposite Busamed Gateway Private Hospital) has all but sold out within 18 months.
“Earlier this month (April 2022), we launched York at Sanctuary Private Estate, well-positioned in a prime location on a greenbelt in front of FNB Umhlanga Ridge. This FWJK development offers one, two and three-bedroom apartments tightly integrated with the beautiful surrounding natural environment and sea views. Prices range from R1.695 million, including VAT.
“Most of the units have on-grade parking which is a great selling point, as it enables residents to park on the same level as their apartments. Another differentiator is that Sanctuary Private Estate has direct access to the adjoining greenbelt, which offers wildlife sightings and recreational activities, such as trail running and fishing, right on the doorstep. This is highly appealing, given the fact that the location is uMhlanga Ridgeside, in the heart of uMhlanga, so we anticipate this new residential development will be well received by the marketplace.”
“So, although there are pros and cons to buying off-plan versus existing properties, if the unique opportunity of an off-plan product or position piques your interest, just ensure that you choose a quality development team, and this will most likely yield long-term rewards both in terms of lifestyle and capital appreciation.”
To say that there seems to be a lot happening in the world recently would be a massive understatement, and tracking the implications for investment economics presents an interesting challenge, . “Notably however, the Rand has bucked expectations and held up despite increased global volatility, and South African assets are still an attractive option globally.
“Within the property asset class, the residential market has remained surprisingly healthy throughout the Covid period, driven by shifting housing demands brought about by the new work-from-home trend and the banks’ appetite for quality lending. National house price growth has slowed slightly over the past two years but remains stable around the 4% mark, according to FNB’s March Property Barometer Report, and areas like KwaZulu-Natal’s North Coast and the Western Cape are outperforming this national average.