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The buyer’s blueprint: Purchasing off the plan vs house and land

There are many decisions to make when purchasing your home – choosing between an ‘off the plan’ property or a ‘house and land’ package. This is a high stakes, yet thoroughly enjoyable phase of your purchasing journey. Since buying a house is probably one of the most expensive decisions you could make, it pays to invest time and resources in doing your research and getting your facts right to make informed decisions.

What are ‘off the plan’ properties

When you buy a property off the plan, you are buying a property before it is built. The building plan or display suites will be the main factors in your decision to buy the property. 

One of the primary motives for buying a property off the plan is the expectation of an increase in prices once the actual construction is completed. House prices normally move north with time, and it could be fair to expect that your house would be worth more when it is completed.

Risks associated with off the plan

There are some big considerations that need to be addressed before deciding to buy off the plan.

Understanding the contract

It is important to review the contract carefully when purchasing properties off the plan, since you would make an advance payment to secure the property and settle the balance amount upon completion of the construction. When you secure the property, you commit to buying the property that is not constructed yet, and it helps to seek legal or expert advice before signing on the dotted line.

Dealing with agents and developers

You may also want to consider whether you are buying the property from the developers themselves, or through agents. It is customary for builders to market their properties through multiple agents, and hence prices may differ for the same property from one source to the other. As always, take your time to consider the pros and cons before making your decision. 

Buying ‘house and land’ packaged property

As the name suggests, when you buy a house and land property, first you buy the land, and then you build the home. 

They come with the freedom to choose your own place, space, design and structure, giving you a free hand to discuss your ideas with the builder, rather than being constrained by designs imposed on your property.

However, there are concerns that need to be addressed before deciding to build your own home.

Cash flow issues with construction in phases

One of the key issues with house and land packages is that it’s being completed and funded in phases. In effect, you could consider two parts to the house and land package financing – you are financed for the land initially (i.e. a regular mortgage), and then you get financed for the house as each section of the house gets built (i.e. a construction loan).

What this means is that you have incremental loans accumulating on your account with every stage of the house being built, and you’ll need to plan carefully to ensure you have good cash flow.

Fluctuating prices of building a house

When building a home, you will be faced with countless decisions that all have the ability to affect your budget. 

For example, the actual price that you end up paying your builders could be dependent not just on the area or the locality and the size or the style of your property, but also on the way it is structured and the soil that it is grounded on. If part of your land area happens to be on the slopes, or if the soil is not of the best consistency, this could result in significantly higher investments in time and equipment before you get to the desired structure and design. This could overshoot your planned budget significantly.

Published: 19/8/2018


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