What is ‘off the Plan’? Off the plan is when a builder/developer is developing a set of units/apartments and will look to pre-sell some or all of the apartments before construction has even began. This type of purchase is call purchasing off plan as the buyer is basing the decision to purchase based on the plans and drawings.
The standard transaction is a deposit of 5-10% will likely be paid at the time of signing the agreement. Hardly any other payments are essential whatsoever until construction is done upon which the balance in the funds must complete the acquisition. The amount of time from signing of the contract to completion can be any length of time really but generally no more than 2 years.
Do you know the positives to purchasing Ki Residences Off the plan? Off the plan properties are marketed heavily to Singaporean expats and interstate buyers. The key reason why many expats will purchase Off the plan is that it takes many of the stress away from getting a property back in Singapore to invest in. As the apartment is new there is no need to physically inspect the site and usually the location will certainly be a good location close to any or all amenities. Other benefits of purchasing Off the plan include;
1) Leaseback: Some developers will offer you a rental guarantee for a couple of years post completion to provide the buyer with comfort around prices,
2) In a rising property market it is not uncommon for the value of the apartment to boost causing an excellent return. If the deposit the customer put down was 10% and the apartment increased by 10% over the 2 year construction period – the buyer has seen a 100% return on their own money because there are not one other costs involved like interest payments etc in the 2 year construction phase. It is far from uncommon to get a buyer to on-sell the apartment just before completion turning a simple profit,
3) Taxation benefits that go with purchasing Ki Residences Floor Plan. These are some terrific benefits and in a rising market purchasing Off the plan can be a smart investment.
Exactly what are the negatives to purchasing a house Off the plan? The primary risk in purchasing Off the plan is obtaining finance for this purchase. No lender will issue an unconditional finance approval for an indefinite time period. Yes, some lenders will approve finance for Off the plan purchases however they will always be susceptible to final valuation and verification of the applicants financial situation.
The utmost time frame a lender will hold open finance approval is 6 months. This means that it is not easy to arrange finance prior to signing an agreement on an Off the plan purchase just like any approval might have long expired by the time settlement arrives. The danger here is that the bank may decline the finance when settlement arrives for one of many following reasons:
1) Valuations have fallen therefore the property is worth lower than the initial purchase price,
2) Credit policy has changed resulting in the home or purchaser no more meeting bank lending criteria,
3) Interest rates or even the Singaporean dollar has risen causing the borrower no longer having the capacity to pay the repayments.
Not being able to finance the balance in the purchase price on settlement can resulted in borrower forfeiting their deposit AND potentially being sued for damages in case the developer sell the house cheaper than the agreed purchase price.
Examples of the above risks materialising in 2010 throughout the GFC: Throughout the global financial crisis banks around Australia tightened their credit lending policy. There were many examples where applicants had purchased Off the plan with settlement imminent but no lender prepared to finance the balance in the purchase price. Listed below are two examples:
1) Singaporean citizen located in Indonesia purchased an Off the plan property in Singapore in 2008. Completion was due in September 2009. The apartment was actually a studio apartment having an internal space of 30sqm. Lending policy in 2008 prior to the GFC permitted lending on this kind of unit to 80% LVR so just a 20% deposit plus costs was required. However, right after the GFC the banks began to tighten up their lending policy on these small units with lots of lenders refusing to lend in any way and some wanted a 50% deposit. This purchaser did not have enough savings to cover a 50% deposit so were required to forfeit his deposit.
2) Foreign citizen residing in Australia had purchase Jadescape Off the plan in 2009. Settlement due April 2011. Purchase price was $408,000. Bank conducted a valuation as well as the valuation came in at $355,000, some $53,000 underneath the purchase price. Lender would only lend 80% of the valuation being 80% of $355,000 requiring the purchaser to put in a bigger deposit than he had otherwise budgeted for.
Should I buy an Off the Plan Property? The writer recommends that Singaporean citizens living overseas considering purchasing an Off the plan apartment should only do this should they be in a strong financial position. Ideally they might have at least a 20% deposit plus costs. Before agreeing to buy an Off the plan unit you need to contact whmrna specialised mortgage broker to verify that they currently meet home loan lending policy and should also consult their solicitor/conveyancer before fully committing.
Off the plan purchasers can be great investments with lots of many investors doing very well out of the acquisition of these properties. You will find however downsides and risks to buying Off the plan which must be considered before investing in the purchase.