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Purchasing Perils
22/06/2002 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

The House Buyers' Association offers some pointers on buying properties off-the-plan

You may have received the well-intentioned advice that buying a property is all about location, location, location.

This however, is only true for completed properties with all the amenities and infrastructure in place. Buying off-the-plan involves lots of homework. The situation is trickier with limited documents and no structure to inspect. But here are some pointers to guide you in your purchase.

The progress payment concept
The practice of paying for the construction of the building as it progresses (developers call it the ‘sell-then-build’ concept) has been around for the past two decades.

The general perception is that buyers will be getting a good bargain in view of the anticipated capital appreciation as construction progresses.

For some, buying property this way, is the only way to secure a unit in some of the more popular developments. And many have this fear that if they wait till a project has been completed, they will only find the least attractive or the more expensive units available.

The flip side of this are the risks involved. In the first place, buyers commit a large sum of money on the basis of marketing materials, a concept and a promise to deliver a home some 24 or 36 months later. If a project fails, buyers are still bound by the sale and loan agreements.

If this concept is not for you, look into ready-built-with-CF projects. Though higher-priced, the property and surroundings are there for you to inspect.

Developer goes belly up
In the grand scheme of things, financiers as secured creditors that have granted loans to the developers are the first to get their money back. House buyers on the other hand are usually the unsecured creditors. What you have paid so far is secured by nothing more than the sale and purchase agreement (SPA).

Read the small print
Know whom you are signing your SPA with. It is not uncommon to find well-known companies advertising developments but buyers sign their agreements with separate private limited companies that are either subsidiaries or associates of the parent company.

Businesses of all types typically set up private limited companies to shield their owners from liability. Developers increasingly have been creating separate ones for every development rather than exposing the parent company’s entire assets to legal entanglements over a single venture. The developer is certainly aware of not putting all their eggs into one basket.

What most buyers do not realise until it is too late is that the agreement they signed is with a separate legal entity although it may be owned by, or affiliated to the brand name parent company. If things go wrong, buyers will find it hard to recover any claims from the company because it has no money and they cannot collect from the parent company because it was not a party to the contract.

Another warning is to read the fine print. A typical endorsement on an advertising leaflet will have this printed - The information contained is subject to change and cannot form part of an offer or contract. All measurements are approximate…developer cannot be held responsible for inaccuracies.

Your next question is: who is responsible for the inaccuracies then? It seems that no one is. Your best protection here is to seek a copy of the contract to see what is included or not.

For buyers of homes or plots of land with the promise that the owners will be able to enjoy recreational facilities and such other amenities, be extra careful. Check how these amenities are included in the agreement. We have received numerous complaints of amenities not built even after the owners have moved in for years. It is difficult to compel the developers to finish building these amenities if they have moved on to another project or if they are in financial trouble.

Phased developments
Be warned that developers are not required by law to complete all proposed phases in mixed developments. Here are some matters that buyers need to seek clarification to protect their rights:

  • If all phases are completed, how many units will eventually be added to the housing project and what impact will they have on the use of the common facilities?

  • If the recreational facilities are planned for one of the first few phases, what will your maintenance charges be if later phases are not built?

  • In what phases are the recreational facilities to be built if the recreational facilities are to come at a later stage?


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