Buying off the plan refers to a situation where an investor buys into a new development before construction begins.
Although this may sound like a risky business, the off-plan home buying concept is fast gaining popularity among prospective home buyers in Kenya.
Before you commit to this arrangement, you should consider both the benefits and risks of this type of investment.
The Benefits:
1.) Lock in a price – The main benefit of purchasing off the plan is that you get the opportunity to buy a home at a discount. Even if the property values go up during construction you will still pay the discounted amount for the property.
2.) Low initial capital outlay – In most cases, when buying property off-plan the developer requires you to make a 10 per cent deposit to secure the property. The full payment is made when the property has been built. This enables you to secure a high value asset for a low initial capital outlay.
3.) Property appreciation – Depending on the prevailing market trends, the home you buy off the plan may increase in value when you make entire payment two or three years later.
The Risks:
1.) Unfulfilled expectations – There is a risk that the quality and standards of fixtures of the home will be different from those you had imagined or saw in a display house at the time of the sale.
2.) Price fall – Property prices rise and fall. There is no guarantee that the price will go up and you may find yourself paying too much for the house if the market falls during construction. If this happens you may find it hard to secure finance for the total amount.
Even if the prices rise over the construction period, it may not be easy for you to sell the house on completion especially if there are many investors in the same property development.
3.) High interest rates – Banks may increase interest rates before you settle on the property and this can make things hard for you if you are planning to fix the term of the loan at the current interest rate.
