Here's an article about an off plan purchase in JB that went awry. Two years ago, I bought a hotel strata titled room in London for what I thought was a very cheap price. I bought it in a property investment club. The completion was supposed to be Dec 2012 but the developer went bankrupt. Thankfully, my deposit was insured. A new developer has taken over but the delay continues. The agent has not updated me regularly on the status. I had to Google for information about the hotel. All this while, my money is stuck, earning no interest.
In Britain, deposits for off plan properties are insured by a third party. Further, all new builds have a 10-year warranty for defects. This gives buyers a peace of mind. Yet in periods of doldrums, off plan in UK actually trades at a slight discount to newly completed properties. This is because of the opportunity cost of not getting rental income, and the risk of the house not built up to expectations.
In Singapore, developers do not provide deposit insurance. The money is in escrow account, secured by the bank. But all you need is the architect's signature to certify that a stage of construction is completed for money to be released. I know that for a fact because I used to be a corporate banker. Also, the new builds have only 1 year of warranty. Yet in Singapore, off plan properties sell at 5 - 20% premium to resale.
In Malaysia, the risk is even greater. In the article below, amenities can be changed. TOP can be stretched. My family bought a condo in Desaru many decades ago and got badly burnt when the developer went bankrupt before the condo was completed. Today, the skeleton is still there.
Everybody is talking about how much prices in Iskandar has skyrocketed. But what has skyrocketed is the developers' sale price. There is no talk of the resale market skyrocketing. But you should be very concerned because YOUR EXIT PRICE DEPENDS ON THE RESALE MARKET, not the developer price. My relative bought a KL condo in 1994 for RM200k. Today, nearby off plan condos are selling for RM1.2m. But he only has offers for between RM300k - 400k for the same size!! That's a huge 60 - 70% discount to the off plan price.
This is extremely illogical and I believe only Asians have this strange behaviour. They want everything to be "NEW". But this NEWNESS has a huge price tag. Just because nobody stepped into the new house doesn't mean it will bring you luck for goodness sake. Completed properties have lower risk. You can actually see the size of the unit, the workmanship, the amenities within the condo (is the swimming pool working, is the gym in good condition, is the block well maintained). With off plan, what you have is a drawing, some brochures of a nice block with unencumbered views. Be careful that when your house is completed, the view is not blocked by a taller building just 10m away!
I guess in the west, buyers are far more savvy and logical than in the east. Off plan properties traditionally have a small discount to newly completed properties. It is only recently that off plan properties in London start to sell above completed properties and this phenomena is driven by Asian buyers! The level of transparency is far higher than Singapore's. They give you photos of the view you are expected to have from your unit (I guess they take photos from a crane). They give you cashflow projections, all expenses calculated in excel form.
JB condo delay irks S'porean buyers
Property Guru – 11 hours ago
A group of Singaporeans who bought condo units at the 602-unit KSL D'Esplanade Residence in Johor Bahru, have complained about plan changes, repeated construction delays and confusing information on when the project will be completed.
According to media reports, the buyers said they inquired about the completion date five times and at each instance they have been told that it has been put back. One Singaporean revealed that when he purchased his RM750,000 (S$298,800) unit two years ago, the developer told him that the condominium was already 80 percent complete.
However, buyers were told in April 2013 that the project was still only 80 percent complete and will likely be ready by July.
Responding, a spokeswoman for the developer explained that the completion rate mentioned in 2011 only referred to the lower levels, and "every floor has a different completion date." She also added that the unit completion/delivery period is three years, but this only commences when the sales & purchase agreement is inked.
Moreover, some of the buyers also claimed they were being short-changed because the condominium does not reflect amenities advertised during the time of purchase. According to brochures, the hotel will feature an 18-hole mini-golf course, but buyers found out last October that it was replaced by a water theme park.
Commenting on the issue, the spokeswoman noted: "That area is not part of the residential area; it belongs to the hotel, and the hotel management has the right to change anything."
