What is ‘off the Plan’? Off the plan occurs when a builder/developer is developing 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 decision to purchase based on the plans and drawings.
The standard transaction is a deposit of 5-10% is going to be paid at the time of signing the agreement. No other payments are essential whatsoever until construction is done upon in which the balance of the funds must complete the purchase. The length of time from signing from the contract to completion can be any period of time really but generally no more than 2 years.
What are the positives to purchasing Ki Residences Off the plan? Off the plan properties are marketed heavily to Singaporean expats and interstate buyers. The reason why many expats will purchase Off the plan is it takes a lot of the stress from getting a property back in Singapore to buy. As the apartment is brand new there is no must physically inspect the site and generally the area will certainly be a good location close for all amenities. Other features 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 purchaser with comfort around prices,
2) In a rising property market it is far from uncommon for the value of the apartment to increase resulting in a great return on your investment. When the deposit the purchaser put down was 10% and also the apartment increased by 10% over the 2 year construction period – the buyer has seen a 100% return on their own money as there are hardly any other costs involved like interest payments etc in the 2 year construction phase. It is not uncommon to get a buyer to on-sell the apartment prior to completion turning a quick profit,
3) Taxation benefits who go with purchasing Ki Residences Floor Plan. They are some terrific benefits and in a rising market purchasing Off the plan can be well worth the cost.
What are the negatives to buying a house Off the plan? The main risk in purchasing Off the plan is obtaining finance with this purchase. No lender will issue an unconditional finance approval to have an indefinite time frame. Yes, some lenders will approve finance for Off the plan purchases nonetheless they are always subjected to final valuation and verification from the applicants financial circumstances.
The highest time frame a lender will hold open finance approval is six months. Which means that it is really not possible to arrange finance prior to signing a contract with an Off the plan purchase just like any approval would have long expired when settlement arrives. The danger here would be that the bank may decline the finance when settlement is due for one of many following reasons:
1) Valuations have fallen so the property is worth lower than the initial purchase price,
2) Credit policy is different resulting in the house or purchaser no longer meeting bank lending criteria,
3) Interest rates or the Singaporean dollar has risen resulting in the borrower no more having the capacity to pay for the repayments.
The inability to finance the balance of the purchase price on settlement can result in the borrower forfeiting their deposit AND potentially being sued for damages in case the developer sell the home for less than the agreed purchase price.
Examples of the above risks materialising during 2010 throughout the GFC: Throughout the global economic crisis banks around Australia tightened their credit lending policy. There have been many examples where applicants had purchased Off the plan with settlement imminent but no lender willing to finance the balance from the purchase price. Here are two examples:
1) Singaporean citizen residing 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 the internal space of 30sqm. Lending policy in 2008 ahead of the GFC permitted lending on such a unit to 80% LVR so just a 20% deposit plus costs was required. However, after the GFC financial institutions begun to tighten up their lending policy on these small units with many lenders refusing to lend at all and some wanted a 50% deposit. This purchaser did not have enough savings to pay for a 50% deposit so needed to forfeit his deposit.
2) Foreign citizen living in Australia had purchase Jadescape Off the plan during 2009. Settlement due April 2011. Purchase price was $408,000. Bank conducted a valuation and also the valuation arrived in at $355,000, some $53,000 beneath the purchase price. Lender would only lend 80% from the valuation being 80% of $355,000 requiring the purchaser to place in a bigger deposit than he had otherwise budgeted for.
Must I buy an Off the Plan Property? The author recommends that Singaporean citizens living overseas considering purchasing an Off the plan apartment should only achieve this if they are in a strong financial position. Ideally they would have no less than a 20% deposit plus costs. Before agreeing to purchase an Off the plan unit you need to contact whmrna specialised mortgage broker to verify which they currently meet mortgage loan lending policy and really 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 buying of these properties. There are however downsides and risks to purchasing Off the plan which must be considered before committing to the investment.