The highs and lows of buying a house off-plan

Off-plan purchasing is a trend that has seen many aspiring homeowners acquire their dream homes by putting their money on nothing more than an architectural plan. It is a route to home ownership that some are not comfortable with, but one which has served others well.

Ms Muthoni Wagenga, a conveyancing advocate, belongs to the latter group and describes off-plan purchasing as “the buying of real property before construction begins or during the construction period”.

“The selection of units for sale by potential purchasers is made from paper, like the site layout plan and the architectural models (reduced dummy versions of the completed project), which give potential purchasers a feel of what the project will look like when completed,” she explains.

For many Kenyans, who say seeing is believing, that does not sound like the most ideal and safe way to invest their money, but Ms Wagenga says the concept it is slowly gaining momentum locally.

The biggest attraction, she says, is that, in an off-plan purchase, payments are usually flexible and can be made as the construction goes on.

This means that a buyer can pay an initial deposit of 10 or 20 per cent, or even more, and then agree with the seller on how and when to settle the balance, which may be done in instalments.

This flexible arrangement allows a buyer to make piecemeal payments against the purchase price, thereby reducing the balance payable on completion.  

Mr Chris Gachiengu, the developer of Chania Gardens in Thika, says that, given that most buyers like saving, the off-plan purchase scheme is an attractive way of buying a house because of the packages that come with it.

“We all like to save money,” says Mr Gachiengu. “When developers first offer their new products to the market, they usually start with a low price to encourage faster sales. When construction begins and the developer has met the construction finance requirements, prices usually rise. Therefore, for buyers who commit early to the project, there is often a good price incentive.” 

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Mr Daniel Ojijo, the managing director of Mentor Group Holdings, concurs, adding that when buying off-plan, a buyer can secure the property at today’s price, yet often not have to settle for up to 12 months, or, in some cases, even longer.

“What this means is that while you pay a 10- to 20 per cent deposit upon signing the contract, you don’t have to pay the balance until the property is completed. In the meantime, especially in a growing market, you can enjoy the benefit of any capital growth that occurs on the property,” he says.

Mr Gachiengu says that one of the greatest benefits of buying off-plan is that the buyer gets to choose a property by taking into consideration everything that is available in the development.

“Normally, you don’t have that opportunity. If you are quick off the mark, the selection is even bigger as it will give you a wider array of choices, which means a greater opportunity for you to purchase the best placed property. For instance, it’s quite common for corner units, or those with the best views and bigger gardens, to be sold first. This can, in turn, offer better potential for strong capital growth and maximise rental yields,” says Mr Gachiengu. 

So, does this kind of purchase ease repayment on the units?

“Yes it does!” Mr Gachiengu beams. “If you buy property off-plan or early during the construction stage, the extra time before settlement can be used to save money if purchasing using mortgage. While the deposit needs to be paid when the contract is signed, the balance of the purchase price does not have to be paid until construction is complete. This means you don’t actually need your bank finance until settlement.”

Mr Ojijo also says that since construction can take 12 months or longer, it is easier to build substantial savings over time, which can be used to help reduce your mortgage. For those paying cash, buying off-plan allows them to spread payments over the construction period until the completion of the property. 

Buying off-plan also affords the buyer the advantage of putting things in order before they move in. Coordinating the sale of an existing property can be stressful, but knowing that you have some time before your new property is ready for occupation provides you with valuable time to plan for your move and can reduce stress considerably.

However, Mr Gachiengu also acknowledges that it is not easy selling units this way if the buyers cannot get a true picture of the developments, adding that for most developers, it is the second and subsequent phases of the projects that can be sold using this system.

“With Chania Gardens, for example, the buyers now have the opportunity to purchase off-plan units in the second phase of the project because the first phase is already sold. They will have confidence in us because they can see the completed phase to get a true picture of the finished product. It also helps allay any fears and uncertainties associated with purchasing a new project, where one has to visualise the property they are buying,” he says. 

Most buyers also opt for this route to home ownership because it gives them a window of flexibility with regard to finishings, designs, and additions.

Mr Harun Nyamboki, who is building the second phase of Lukenya Hills Apartments in Athi River, says that is one of the selling points he has crafted to enable his buyers to have their preferences incorporated.

“In the second phase, I will give any client who has purchased a house a window to have their colours, interior designs, and arrangements factored in. They will be able to customise their houses to their taste and also choose the kitchen and bathroom fittings... as long as it does not affect the exterior design of the houses and also sticks within the unit costs,” says Mr Nyamboki.

In contrast, Mr Gachiengu says he does not offer flexibility in changing designs and finishes, but “we can consider altering internal paintwork to suit the buyer’s needs at a reasonable additional cost, of course to be met by the buyer”.

As with all investments, there is an inherent element of risk, and this kind of purchase is not different. Some of the risks are delays in the completion of the property, which means that it might not fit into your plans, especially if you wanted to offload it back on the market.

“As is always the case, you can avoid the major pitfalls by thoroughly reviewing the property and conducting research,” advises Ms Wagenga. “You can also periodically visit the property to do a physical check on the progress and the workmanship.”

Most developers say that buying off-plan is not for the faint-hearted. It needs a buyer who understands what they want and how the system works. Property is a long-term investment and provided one is buying with the intention of holding it for a long time, buying off-plan works well for most investors since it guarantees returns when the construction is done.