What is ‘off the Plan’? Off the plan is 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 type of purchase is call purchasing off plan as the purchaser is basing the decision to purchase based on the plans and drawings.
The typical transaction is really a deposit of 5-10% will be paid during signing the contract. Not one other payments are required whatsoever until construction is complete upon that the balance in the funds are required to complete the investment. How long from signing in the contract to completion can be any amount of time really but generally no more than two 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 reason why many expats will purchase Off the plan is it takes many of the stress away from choosing a property back in Singapore to invest in. As the apartment is brand new there is not any must physically inspect the site and customarily the place is a good location close to all amenities. Other benefits of purchasing Off the plan include;
1) Leaseback: Some developers will offer a rental guarantee to get a year or so post completion to offer the customer with comfort around prices,
2) In a rising property market it is really not uncommon for the need for the apartment to increase leading to a great return on investment. If the deposit the purchaser put down was 10% as well as the apartment increased by 10% over the 2 year construction period – the purchaser has seen a 100% return on their own money because there are hardly any other costs involved like interest payments etc within the 2 year construction phase. It is far from uncommon to get a buyer to on-sell the apartment just before completion turning a fast profit,
3) Taxation benefits who go with purchasing Ki Residences Floor Plan. These are generally some great benefits and in a rising market purchasing Off the plan can be a smart investment.
Exactly what are the negatives to buying a house Off the plan? The key risk in purchasing Off the plan is obtaining finance for this purchase. No lender will issue an unconditional finance approval for the indefinite time period. Yes, some lenders will approve finance for Off the plan purchases but they are always subjected to final valuation and verification of the applicants finances.
The maximum period of time a lender will hold open finance approval is six months. Because of this it is far from possible to arrange finance before signing an agreement with an Off the plan purchase as any approval could have long expired by the time settlement is due. The danger here would be that the bank may decline the finance when settlement arrives for among the following reasons:
1) Valuations have fallen and so the property is worth less than the original purchase price,
2) Credit policy has changed resulting in the home or purchaser will no longer meeting bank lending criteria,
3) Interest rates or even the Singaporean dollar has risen resulting in the borrower no longer being able to pay for the repayments.
Not being able to finance the balance from the purchase price on settlement can resulted in borrower forfeiting their deposit AND potentially being sued for damages should the developer sell the property for under the agreed purchase price.
Examples of the above risks materialising in 2010 through the GFC: Through the global financial crisis banks around Australia tightened their credit lending policy. There was many examples where applicants had purchased Off the plan with settlement imminent but no lender ready 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 a studio apartment with the internal space of 30sqm. Lending policy in 2008 before the GFC permitted lending on this type of unit to 80% LVR so only a 20% deposit plus costs was required. However, right after the GFC financial institutions started to tighten up their lending policy on these small units with many lenders refusing to lend in any way and some wanted a 50% deposit. This purchaser was without enough savings to cover a 50% deposit so had to forfeit his deposit.
2) Foreign citizen living 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 started in at $355,000, some $53,000 below the purchase price. Lender would only lend 80% in 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 article author recommends that Singaporean citizens living overseas considering purchasing an Off the plan apartment should only do so if they are in a strong financial position. Ideally they would have at least a 20% deposit plus costs. Before agreeing to purchase an Off the plan unit you need to contact whmrna specialised mortgage broker to confirm which they currently meet home mortgage lending policy and must also consult their solicitor/conveyancer before fully committing.
Off the plan purchasers can be great investments with many many investors doing very well from the buying of these properties. There are however downsides and risks to buying Off the plan which need to be considered before committing to the investment.