What is ‘off the Plan’? Off the plan is 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 type of purchase is call buying off plan as the purchaser is basing the choice to purchase based on the plans and drawings.
The typical transaction is really a deposit of 5-10% will likely be paid during signing the agreement. Not one other payments are essential whatsoever until construction is done upon in which the balance in the funds have to complete the purchase. The length of time from signing of the contract to completion can be any length of time really but generally no more than two years.
Exactly 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 key reason why many expats will purchase Off the plan is that it takes most of the stress out of getting a property back in Singapore to invest in. Since the apartment is completely new there is not any have to 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 a rental guarantee to get a couple of years post completion to provide the customer with comfort around prices,
2) In a rising property market it is really not uncommon for the need for the apartment to boost leading to an outstanding return on investment. If the deposit the buyer put down was 10% and also the apartment increased by 10% within the 2 year construction period – the buyer has seen a 100% return on the money since there are no other costs involved like interest payments etc in the 2 year construction phase. It is far from uncommon to get a buyer to on-sell the apartment just before completion turning a simple profit,
3) Taxation benefits which go with purchasing Ki Residences Floor Plan. These are generally some good benefits and in a rising market purchasing Off the plan can be a great investment.
Do you know the negatives to purchasing a property Off the plan? The key 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 however they are usually susceptible to final valuation and verification of the applicants financial circumstances.
The maximum period of time a lender will hold open finance approval is half a year. Which means that it is far from easy to arrange finance prior to signing a legal contract on an Off the plan purchase just like any approval would have long expired by the time settlement arrives. The chance here is the fact that bank may decline the finance when settlement arrives for one of many following reasons:
1) Valuations have fallen and so the property is worth less than the initial purchase price,
2) Credit policy has changed resulting in the property or purchaser will no longer meeting bank lending criteria,
3) Interest rates or perhaps the Singaporean dollar has risen leading to the borrower will 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 house for under the agreed purchase price.
Examples of the aforementioned risks materialising in 2010 during the GFC: Through the global economic 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 ready to finance the balance from the purchase price. Here are two examples:
1) Singaporean citizen located in Indonesia purchased an Off the plan property in Singapore in 2008. Completion was due in September 2009. The apartment had been 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, after the GFC financial institutions started to tighten up their lending policy on these small units with lots of lenders refusing to lend in any way while others 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 residing 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 came in at $355,000, some $53,000 underneath the purchase price. Lender would only lend 80% from the valuation being 80% of $355,000 requiring the purchaser to set in a bigger deposit than he had otherwise budgeted for.
Should I buy an Off the Plan Property? The 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 could have a minimum of a 20% deposit plus costs. Before agreeing to get an Off the plan unit you need to contact whmrna specialised mortgage broker to verify 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 many many investors doing very well from the acquisition of these properties. There are however downsides and risks to buying Off the plan which have to be considered before investing in the purchase.