14 Mar Off-plan property buyers caught unawares with development delays
Off-plan property buyers caught unawares with development delays
Buying a property off-plan is often perceived as a smart option for people looking for a good deal. Negotiating directly with developers on your requirements and even sometimes benefiting from a lower price can seem attractive. However, Wilhelm Jonker, business developer at lending specialist Paragon Lending Solutions warns buyers that unforeseen delays in the development could see them in for some nasty surprises if they aren’t careful.
The Latin phrase, Caveat Emptor or Let the Buyer Beware, is commonly heard in relation to buying property. And while South Africa has been making strides in regulating for the consumer, there are still times when it falls to the buyer to inform themselves fully before agreeing to a sale and signing a contract.
Over the past few months, Paragon has heard of buyers who have been taken by surprise by delays in off-plan property developments. Typically, off-plan contracts do not stipulate a completion date and will define the occupation date simply as: the first day of the month following the month in which the architect certifies that the unit is ready for occupation. This, unfortunately, leaves the buyer with no enforceable completion and occupation date.
While delays will be frustrating for a family looking forward to moving into their new home, there are times it could cause serious financial loss. In some instances, buyers may have already sold their existing property and could incur occupational rent fees, or even need to find another place to stay while they wait. Extended delays could also impact their finance for the new development as lenders will be looking to capitalise their loan as soon as possible and may not be prepared to wait months for a late occupation.
It’s important to remember that it is very rare that a developer would willfully delay completion. As off-plan development grows in popularity, especially in the main centres such as Johannesburg, Cape Town and Durban, developers trade on their reputation in these competitive markets. However, unintended issues relating to municipal delays or even funding challenges can sometimes result in unforeseen delays.
That being said, some contracts are drafted to protect the developer rather than the buyer. More than just no clear completion date, some contracts have clauses which allow the developer to increase the sale price of the unit if the construction commencement date is significantly delayed, which could result in a very nasty surprise for an unsuspecting buyer.
We have also encountered a few occasions where the developer and buyer may reach a mutual agreement for the developer to access the buyer’s deposit in return for a more favourable price. The developer will then further bond the property in order to capitalise development costs. While perfectly legal, if done consensually, this can leave the buyer and developer at risk should there be delays or unexpected cost increases. The difference in the bonded price with the bank and the agreed sale price with the buyer will leave a shortfall that can delay transfer and even scuttle the deal.
Carefully reading sale contracts to see how you are protected from delays is imperative. Logic would suggest that it is in the bank’s or lender’s interest to check contracts for these issues since it could impact their business as well, but the fact remains that it is the responsibility of the buyer to critically read their contracts and be fully informed before they sign them.