What is ‘off the Plan’? Off the plan occurs when a builder/developer is constructing a set of units/apartments and will turn to pre-sell some or all of the apartments before construction has even began. This kind of purchase is call purchasing off plan as the customer is basing the choice to buy based on the plans and drawings.
The conventional transaction is actually a deposit of 5-10% is going to be paid at the time of signing the contract. Not one other payments are needed whatsoever until construction is complete upon that the balance from the funds are required to complete the acquisition. The amount of time from signing of the contract to completion can be any amount of time really but generally no longer than two years.
Do you know the positives to buying 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 it takes most of the stress out of finding a property back in Singapore to invest in. As the apartment is new there is absolutely no must physically inspect the web page and generally the area is a good location close to any or all amenities. Other advantages of purchasing Off the plan include;
1) Leaseback: Some developers will offer a rental guarantee for a year or so post completion to provide the purchaser with comfort around prices,
2) In a rising property market it is really not uncommon for the value of the apartment to improve resulting in a great return on investment. If the deposit the buyer put down was 10% and also the apartment increased by 10% over the 2 year construction period – the purchaser has seen a 100% return on their own money as there are not one other costs involved like interest payments etc within the 2 year construction phase. It is not uncommon to get a buyer to on-sell the apartment before completion turning a fast profit,
3) Taxation benefits who go with purchasing Ki Residences Floor Plan. They are some good benefits and in a rising market purchasing Off the plan can be well worth the cost.
What are the negatives to buying a property Off the plan? The primary risk in purchasing Off the plan is obtaining finance with this purchase. No lender will issue an unconditional finance approval for the indefinite period of time. Yes, some lenders will approve finance for Off the plan purchases nonetheless they are always susceptible to final valuation and verification in the applicants financial situation.
The utmost period of time a lender will hold open finance approval is 6 months. Because of this it is not easy to arrange finance before signing an agreement upon an Off the plan purchase as any approval could have long expired by the time settlement is due. The danger here is the fact that bank may decline the finance when settlement is due 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 causing the property or purchaser will no longer meeting bank lending criteria,
3) Interest rates or the Singaporean dollar has risen leading to the borrower no longer having the ability to pay for the repayments.
Being unable to finance the balance from the purchase price on settlement can resulted in borrower forfeiting their deposit AND potentially being sued for damages in case the developer sell the property cheaper than the agreed purchase price.
Examples of the above risks materialising during 2010 during the GFC: During 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 from the purchase price. Listed here are two examples:
1) Singaporean citizen living 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 with an internal space of 30sqm. Lending policy in 2008 before the GFC permitted lending on this kind of unit to 80% LVR so only a 20% deposit plus costs was required. However, after the GFC the banks started to tighten up their lending policy on these small units with many lenders refusing to lend in any way while others wanted a 50% deposit. This purchaser was without enough savings to pay a 50% deposit so were required to forfeit his deposit.
2) Foreign citizen located in Australia had purchase Jadescape Off the plan in 2009. Settlement due April 2011. Purchase price was $408,000. Bank conducted a valuation and the valuation arrived in at $355,000, some $53,000 below 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.
Do I Need To buy an Off the Plan Property? The author 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 no less than a 20% deposit plus costs. Before agreeing to purchase an Off the plan unit one should contact whmrna specialised mortgage broker to ensure they currently meet home mortgage lending policy and should also consult their solicitor/conveyancer before fully committing.
Off the plan purchasers can be great investments with a lot of many investors doing very well out from the acquisition of these properties. There are however downsides and risks to purchasing Off the plan which have to be considered before committing to the investment.