Is the idea of buying property off the plan something you would be interested in considering today’s real estate market especially in Nigeria? As a first-time buyer, there are quite a number of things you should know before you make that decision of buying off the plan.
We will examine the concept of buying property off the plan, what it really means as well as the pros and cons you should look out for.
What is an Off-Plan Property?
An off-plan property is a property that it sold as a house even before a visible structure has been constructed. Under this arrangement, the pre-construction of the house is offered to property buyers and developers that are open to buying a property still under construction. This helps the buyer secure good finance terms from their potential lenders especially for those who plan to acquire the property with a loan. The documentation eases the process of acquiring the loan.
Off-Plan Property: How Does It Work?
When you decide to buy an off-plan property, the idea behind it is to make a substantial capital gain over a specific period of time. When developers market an off-plan property to you for sale, it comes with some financial incentives to you. This often comes at a discount or a reasonable opportunity to grow your investment in a market with visible indices of growth as well as a steady cycle of development spread over 12-24 months.
Before you append your signature to any document, please confirm that there will be a rise in the level of infrastructure in the neighbourhood where the property is located. What this means is that if you are acquiring a property in a neighbourhood in Lagos, you should ensure that it has a very compelling tendency of having infrastructures like a university, polytechnic, an express road or a library. If they already exist, better! If there is a current shortage of such infrastructure, ensure there is an 80 percent assurance that they will be constructed in the next few years.
Pros of Buying Property Off the Plan
Like every investment opportunity, the off-plan property comes with quite a number of advantages that have made them very attractive over the years. It is a popular model in Nigeria, which explains why developers and real estate companies have kept it in the forefront of their plans over the years.
1. You Buy at a Lower Price
When you buy a property off the plan, it gives you an opportunity to buy at a lower cost than if you wait for the seller to begin construction work on the house.
2. Strengthens Your Power of Negotiation
Acquiring a property off-plan puts you in a stronger position to negotiate better. For instance, you can buy a property at a particular location or express your preference for certain features; something that might not be possible if the property is already constructed.
3. Gives You an Opportunity to Buy Now and Pay Later
The fact that you get an opportunity to make a small upfront commitment to own a property with the benefit of paying later makes a world of difference. In some scenarios, all you are required to part with is 10% of the value of the property while the balance is spread over the time it takes the developer to complete the property. This explains why it is a popular option for investors who are not eager to commit a large chunk of capital into a property all at once.
4. You Will Not Spend Money on Property Maintenance
You are buying a new property and not an old house. A new property that is built with high-quality materials ideally comes in pristine condition. What this means is that you will not be spending money on maintenance and renovation works, which you would have had to do if you were buying an old property.
Cons of Buying Property Off the Plan
This house-buying option comes with a number of disadvantages
1. You May Not Be Satisfied
Another risk that works against off the plan property is the possibility that you might not be satisfied with the house that has been constructed because it just doesn’t meet your expectations. You may have a subjective reason for this or it might be a case of realising that the materials used in construction are of questionable quality. Don’t forget that the fact that a house is new does not mean that you cannot find over 30 defects in it.
2. Builder Going Bankrupt
In a situation where the builder or developer of the property goes bankrupt before the property gets completed, you automatically find yourself in a tight spot. At that point, what you have on your hands is an incomplete property, which makes neither a great investment nor a good home. The problem with this is that you might not be able to recover the money you paid to the developer or builder. There have been cases like this in Nigeria and to protect buyers like you, property developments should be backed by guarantees from the bank. This provides sufficient protection for you in the eventuality that a builder goes bankrupt.
3. Hard to Tell If You’re Getting a Fair Market Value
Buying a property off the plan means you are buying a property that will have its average cost pegged at homes currently in the neighbourhood rather than the structure that is actually going to get constructed in the future. This makes it quite difficult to know whether you are being offered a fair market value or not. The unfortunate side of this is that if the real estate market suffers a decline while the property is still under construction, it leaves you with a loss. Before you buy, ensure you consult an expert to appraise the property through a feasibility study. Another thing you can do is to ask the developer for a copy of the feasibility report for confirmation. This helps you get a fair market value.
4. Stretching Your Borrowing Capacity
If you intend to finance the acquisition of a property that is off the plan with a bank loan, bear in mind that you would be putting a strain on the bank’s willingness to provide you with an additional loan for other investments. This is particularly crucial if you intend to spread the payment for the property over a long period of time.
Things You Should Look Out For When Buying a Property Off the Plan
There are several things that you need to pay attention to when buying a property off the plan and most of them are hinged around not taking anything for granted.
1. Crosscheck the Developer’s Track Record and Reputation
You will most likely be handed slides of what the property looks like but be warned – Don’t take photos and brochures as a direct substitute for what obtains in reality. You don’t want a situation where you are thrown off balance by the reality of what the property will look like upon completion. You need to carry out due diligence. How do you do this? Simple! Take a look at buildings and construction projects that they have worked on in the past and check to see if they had problems with building works they handled in the past.
2. Ask About Hidden Maintenance Charges
The property you are about to pay for might have fascinating features like a swimming pool, a gym, a tennis court and a basketball court but it is important to find out if there will be other maintenance levies you will be expected to pay. Don’t put yourself in a situation where you are paying so much more for maintenance costs that you never knew about.
3. The Inspection of the Off-Plan Property is Crucial
Images of a property that is off the plan usually look really good but they are what they are; pictures. You should dedicate enough time to a physical inspection of the property. You need to see things for yourself. Take a good look around to be sure you are satisfied with the location, spacing and other details around the property.
4. You Will Need Local Insights
It is important to know the neighbourhood where your off-plan property is located. Find out what kind of infrastructure the district enjoy and which ones they lack. For instance, you don’t want to own a property in a neighbourhood that has a bad reputation of having its transformer (providing electricity) blown too frequently. Will the neighbourhood be getting new schools, new road, new hospitals and new shopping malls in the future? These details will have a huge impact on the future valuation of your property. You should also find out what the supply of similar homes in the neighbourhood is likely to look like.
5. Consider the Sunset Clause
Have you asked detailed questions about the estimated time it would take to complete the property? You should and also ensure that you are comfortable with the time frame that you are given.
6. Get the Builder’s Guarantee For Defects
Work with your budget and avoid spending money on problems you could have avoided. One way to achieve this is by getting the builder’s guarantee to cover construction defects the property might have upon completion. It’s a new house and you should ordinarily not be spending money on renovation or maintenance works.
7. Find Out If You Can Transfer Your Interest in the Property
In a situation where you need to relocate out of the country or state permanently, will you be able to transfer your interest in the off-plan property to someone else? These are crucial questions that you need to ask the developer.
Final Thoughts
One way you can get a good deal when buying property off the plan is to go in early before all the prime slots get taken. If you go in early, you’re more likely to get a better deal in terms of pricing because property developers and builders are usually on the lookout for quick deals to cover their financial requirements.
Buying property off the plan is a fantastic way to secure a property especially if you are buying a property for the first time. It is also a fine option for you if your plan is simply to lock down a property right now yet having more time to save and make payment.
As an investor, an off-plan property gives you an opportunity to own a manage a property with an upfront deposit that is relatively low. Buying an off-plan property or any other property for that matter is always done better when you are informed and have insights into knowing what exactly you are paying for. If you need experienced real estate specialists to help you with, contact our team of property experts to guide you.
