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Guide to ‘Off the Plans’ Buying

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Guide to ‘Off the Plans’ Buying

Martin Dunn from City Sales believes a ‘property cycle’ has made buying off the plans a timely investment option.

Complex risks associated with buying property ‘off the plans’ are periodically outweighed by benefits unearthed by the ‘property cycle’. Martin Dunn from City Sales believes now is a time when property investors can prosper from buying ‘off the plans’ and gives advice on what to look for and what to avoid.

“Of the ten or so new apartment projects being currently marketed off the plans in the Auckland CBD, City Sales is involved with one of them”, says Martin. “We’re incredibly selective in what we sell – City Sales hasn’t supported any new builds since The Statesman in 2004. For us to be involved in a new development, we need to be certain that it ticks all of the boxes for us, and right now The Sugartree on Union Street does just that.”

Dunn places a great deal of importance on these boxes to tick, and compares getting it wrong to the Blue Chip debacle “Here we are, four years on from Blue Chip and we’re still trying to extricate terribly damaged families from a financial Armageddon.”

But Dunn believes that the time has come in the ‘property cycle’ when buying off the plans can be extremely rewarding.

“I believe the Auckland residential market is in a long term growth phase that will be slightly tempered in the coming two years by interest rate rises and political intrigue.

But the growth will continue relentlessly and the technical manpower to build for this growth is hopelessly inadequate. We don’t possess the trade skills and personnel to cope with the Christchurch rebuild let alone provide for Auckland’s growth.

I predict a steady continued growth in Auckland residential real estate and gearing into this market with as little as a 10% deposit in a rising market might put you in very good stead come settlement time.”

Dunn adds that a buyer must understand the risks completely before making such a commitment.

“When you sign that contract to buy something that does not exist, you are effectively contracting to the developer’s bank that on completion you will pay the $485,000 or whatever you’ve agreed to – and you can’t change your mind. You can get your lawyer to OK the documents by buying conditionally for say five days, which we generally suggest is prudent, but then you’re locked in.

No matter how friendly or approachable the developer is, don’t be lulled into a false sense of comfort. Your agreement will be immediately passed out of his hands to his bankers and if your personal situation goes pear shaped for whatever reason in the 12 to 18 months it takes to build your new suite, it is the bank you will be speaking to, not your friendly developer.”

City Sales has outlined further risks to be aware of when buying off the plans in a checklist below.

Is the development to actually go ahead? What happens to your deposit if it doesn’t?

Does the developer hold your deposit or is it protected in a lawyer’s/agent’s audited trust account until settlement?

Does the developer know how to develop an apartment building?

Does the successful tenderer construction company have experience in building apartments?

Does the developer own the land?

Are you buying through a ‘spruiker’ (unlicenced sales organisation) cribbing the law or a Licenced Real Estate Agent with all the protections that offers?

Is the size of your apartment clearly spelled out and do you understand the significance of what this means?

On what basis is the price demanded e.g. is this sale price justifiable with other new builds or is it out of kilter in comparison with what City Sales terms ‘the secondary market’ i.e. existing apartments. On this count, brand new suites built to more demanding construction codes are likely to be dearer than existing stock but… by how much and are you dealing with a broker who can justify this to you with day to day market facts?

If the developer/agent is touting potential rentals achievable and Body Corp charges can he/she demonstrate examples as to why those figures are justifiable?

Is the location pioneering or established?

ENDS

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