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Pros and Cons of Buying Off the Plan

construction projectsYour property portfolio may be a mix of two separate draws of real estate purchase. You can-quite at the same time- be a person who focuses on each auction/private treaty and also remains geared up for those brilliant off-the-plan purchases. So are the off the plan purchases any good?

Off-the-plan purchases

To define, these are purchases where the buyer negotiates for a property that’s still in its pre-construction phase. Of course, there are benefits aplenty but the buyers also need to be a little circumspect. First, let me carpet out the advantages of buying off the plan.

Benefits:

You offset inflation when buying off-the-plan

Let us say you settle with the developer on a property in August 2014 and pay the little deposit they ask for today. Naturally, the price you need to pay will be based on the current market price. Let’s further suppose you get the keys to the home in December 2015. Now, it is only expected that had you bought a ready unit in Dec 2015, you would have had to pay more because it is only fair to assume that property prices would have escalated by then. So by buying off the plan, you offset the ubiquitous factor called inflation.

Less upfront to manage

Because the pre-construction purchase arrangement asks you to put forth a 10% (or so) upfront, you do not feel the heat of distancing yourself with too much money at one go. Also, you are more likely to be able to arrange money for the remaining deposit when you know the pre-stipulated date of settlement a year or two in advance.

Greater chances of customisation

Of course, the question of personalisation is beautifully answered by the off-the-plan arrangement, too. Yes, the developers wouldn’t meddle with their ‘open plan’ or ‘aspect’ just because it makes you happy, but they can certainly make alterations in the colours, layouts and finishes, quite in accordance with your choice.

Depreciation claims

And before I move on to the other side of the picture, let me tell you about the tax benefits you can claim. Depreciation deductions can be posted by the buyer for the pre-construction purchases; fixtures and fittings, capital works, plants and equipments, among others.

Demerits:

Sunset Clause

My great fear with the off the plan idea is the dreadful Sunset Clause. I don’t mean that developers would set a trap for you (not for a moment) but then if there is a spurious deal floating in the air, the Sunset Clause can make the deal even more difficult to swallow. Let me tell you why.

The Clause permits the developers to annul a contract which is delayed beyond a pre-determined time limit. Now, sometimes, developers get buyers who are ready to pay a better price than the one at which the property is already settled. In such cases, the developers can merrily cancel an already-running contract citing completion difficulties and then sell the same thing to another buyer for a higher price.

This can not only ruin your dreams of settling into a home that you have seen being developed over the last year or two but it can also hit your pocket. The Sunset Clause, I say should be an exclusive right of the buyer.

Developer’s constraint

And what if the developers feel constrained by their finances, feel let down by their lenders or just turn bankrupt? Won’t it lead to a really embarrassing situation that brings nothing but pain to you? Such projects never see the light of the day and if at all they do, the delay is excruciatingly difficult to handle.

So while you can definitely go for something like off-the-plan and the economy will only thrive if you do, you need to be careful about what you wish.

Have you ever been on the bad side of the Sunset Clause?