In many of my posts, I repeatedly explained why you should never buy off plan properties, or building under construction. Asians have a penchant for buying new things but you can buy something that is old, renovate it nicely and add value to your property just as easily.
Here are the reasons again why you should avoid off plan properties:
1. You cannot rely on a glossy brochure to decide whether to buy. Developers / builders will put the nicest pictures and play on your emotions about that area. If you've never been there, chances are you'll never know about the rubbish dump next to your block, the noisy traffic from the nearby highway, the closeness of the next condo project, or an ugly council block nearby. When you buy in a developing country like Malaysia, where laws to govern mis-advertising is much weaker than the UK, you should be even more careful and avoid buying off plan or uncompleted properties!
2. If you buy a 5th floor unit, how do you know what you will be looking at? For all you know, you could be looking at the opposite block's washing. That seaview that your developer promise you may be blocked by the next phase of condos to be launched 3 years later!
3. Some developers DO GO BANKRUPT before they complete. In the UK, your deposit is guaranteed so when that happens, you get back your deposit without interest after the completion date expires. In Singapore, there is a project account but even that is not guaranteed! In Malaysia and other developing country, you're pretty much on your own! My parents bought a condo in Desaru in the seventies that never got completed!
4. You do not know the finishing of the home! The glossy brochures show you luxurious fittings, gold taps etc., but when it's completed, you get cheap, China-made taps, things that fall apart.
5. The actual space is much smaller than the space shown in the showflat! The showflat in Singapore does not show you the actual thickness of the wall. Nor does it accurately show the thickness of bay windows and planter boxes. When completed, your bedroom may actually be much smaller than you think.
6. Do you know how big your communal area is? facilities like gym, swimming pools, recreation rooms etc., do you know if they will be 30m pools or just a little Jacuzzi?
7. The biggest problem I have with new projects is that when I place a deposit and wait 3 years for completion, I do not gain any interest! If I invest properly, every project will have immediate rental income which automatically offsets my mortgage payments. But for uncompleted projects, there are huge opportunity costs!
8. In the UK, new condos are given a 10 year NHBC warranty (some housing association warranty). In Singapore, it's just one year! In Malaysia, there's no warranty to speak of and try suing the developer for poor building quality! When buying in emerging countries, if you must buy new, developer track record is very very important.
9. Despite all these drawbacks, I cannot understand why uncompleted properties often sell at a 10 - 15% premium to older properties, even when the lease of the older property is almost as long!
10. New condos are often very intensively used. There are many apartments crammed into a limited land to maximise developer profits. Once completed, if you are buying to let, you have 100 - 200 competitors all out to compete for the same tenants. You will probably be disappointed with the rent you get!
11. If you have an intention to flip, imagine how many other investors think alike. There will be a flurry of investors putting their apartments for sale!
I'd rather buy something from a mature market, something old, so that there are not many competitors around.
When You Should Buy Uncompleted Properties:
1. When you can buy below market value by negotiating a bulk discount. This is increasingly rare as developers have less leverage and more holding power.
2. When you buy as the market recovers. At the bottom of the cycle, like in 2Q 2009, there were not many resale units in the market as sellers don't want to incur losses. Developer projects were the only ones readily available!
3. When you buy at the first few phases, preferably at a bulk discount and at the bottom of the cycle!! I think the only time you should buy uncompleted properties is in 2016 for Singapore!!
Be smart! You can email me at Geoffrey.chaucer77@gmail.com for advice!
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