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 basically go by the advertisement for sale even before the property has been constructed. In essence, all you have is the building plan by the promoters (or a display suite) to determine if you would want to invest in and move into the property.

One of the primary motives that buyers have in buying a property off the plan is the expectation of an increase in prices with time when 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 over time.

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 and follow appropriate due diligence before making a decision.

Buying ‘house and land’ packaged property

Developers tend to acquire land as it is released by the government, develop them in terms of roads, utilities and other infrastructure, and then build homes or sell many customisable home designs for you to choose from.

Buying properties from house and land packages has many benefits, such as having the freedom to choose your own design and the ability to incorporate other options such as sustainable features. However, there are some concerns that need to be addressed before deciding to build your own home.

Cash flow issues with construction in phases

House and land packages 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.

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

One of the advantages of house and land packages is that you have an advertised price that serves as benchmark for you to plan your construction, so you would know the budget you have earmarked for purchase and construction.

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.

There are many perspectives to your choice between off the plan properties and house and land properties. Doing your research could save you money and result in better homes.

If you’re looking to buy a home - either off the plan, house and land, or an existing property, make the right call and get a Loan Market broker working for you by calling 13 56 26 or explore our website to get started.