Benefits of Buying Properties from Developers
There are essentially two ways of buying properties. You can book brand new units that are under construction from developers (some do sell brand new completed units) or you can buy older properties from the resale market. Here, we shall examine the advantages of buying from developers.
1. Opportunity to Buy “Cheap”
You are buying at the developer’s price. The developer’s price is usually “the floor” at which property prices seldom ever go lower. Hence in most instances, you are buying at the bottom, provided of course the developer had priced the units reasonably and the location is excellent. Hence it’s important to do your homework to ensure the developer’s sales price is comparable to those of other developers within the same vicinity. An excellent way to compare prices between projects of similar quality is to use the price on a per square foot basis.
The other advantage is that when the property is completed after 2 to 3 years, prices usually appreciate by 10% to 20% to factor in the interest and holding costs for the purchasers.
During the so called “Malaysia Boleh” or high economic growth days before 1997, the easy way to make money in properties was to book three units from any developer when the property was launched. Upon completion 2 to 3 years later, you sell off two units and the profits would be sufficient to pay for the third unit in full.
During that time, it was very common to see many people queuing for a couple of days and even nights in order to book a few units. Even queue numbers had a price on them! This was the era of the “motivated buyers” – people had a “kiasu” attitude or fear of not being able to book a sufficient number of good units before they were all taken up. Price or developer’s reputation was not a relevant issue then. The idea was to buy high and sell even higher!
This investment strategy still can still work today, but to a lesser degree. To succeed, you need to:
a) Select the Right Property Type as lifestyle is a major issue today. Buyers are very concerned about things like modern designs, facilities such as swimming pools, security, sufficient car parks, access in and out of the property, etc.
b) Pick the Right Developer who is reputable and has a proven track record as the “developer risks” are extremely high
c) Choose the Right Location where the demand is high and future supply low
d) Buy at the Right Time or Right Price. It’s advisable to time your purchase and avoid buying at the market peaks, just in case there is an economic downturn 2 to 3 years later when the property is completed. Ideally, you should buy during market downturns or when the economy is coming out of a recession. A few years later when the property is completed, chances are high that the economic outlook would have improved.
2. Discounts for Selected People
Many developers do give discounts of 5% to 10% to civil servants, bumiputras, their company staff, business associates, etc. If you are fortunate enough to qualify for certain discounts, you should consider taking full advantage of it. The opportunity may not be there forever. Another way to qualify for discounts is to team up with your friends, relatives or co-workers who are also interested in buying from the same developer. Instead of each one of you buying a single unit, you can team up and negotiate for a bulk-buying discount from the developer.
3. Pick of Choice Units
If you are early in the queue, you get to choose the unit of your liking, be it facing a park, the morning sun, a corner unit, high floors, etc.
4. Brand New Units
You get to own a brand new property with the latest modern designs, attractive layouts as opposed to buying a 20 year old unit which needs major repairs from time to time or a fresh coat of paint. If you are purchasing for your own use, staying in a brand new unit can make a major “lifestyle” difference.
5. Guarantee against Defects
Developers of residential properties have to guarantee under the Housing Development Act (HDA) against any defects for at least 18 months from the hand over date. This entitles the new owners to get the developer to rectify any defects such as bathroom leakages, cracks in the wall, loose tiles, etc. The developer’s solicitors are required by law to retain back 5% of the purchase price for this purpose.
Do note that developers of commercial properties, service apartments and shop apartments are not subjected to any similar government regulations or are bound by any HDA rules. They need not provide a similar guarantee against defects or they can alter the terms in any guarantee provided to their liking.
On the other hand, buyers of resale residential properties enjoy no such benefit as they are buying on an “as-is-where-is” basis. Further, the condition of the property at the point of paying the Earnest Deposit and Signing of SPA may be different when the keys are received or the completion date a few months later. It’s common for old properties to have termite problems, leaking roofs, electrical wiring and water piping that need to be changed and so forth.
6. Attractive and Innovative Marketing Schemes
Savvy developers are known to come up with all sorts of ingenious marketing schemes to attract buyers. Some of the common methods used are:
a) 100% Financing. The developer makes arrangements with a bank to give buyers 90% loan based on the SPA price and their financial standing. Once the loan is approved, the developer gives a rebate of 10% off the sales price. All the buyers have to do is to put up a small initial deposit which is later refunded once the loan is approved.
b) Free Legal Fees. All legal fees are absorbed by the developer. The bank would do likewise on their legal documentation.
c) Free Stamp Duty and Disbursement Fees.
d) Service and Maintenance Charges for the first few years are absorbed by the developer.
e) Rental Guarantee by the developer for the first few years at the discounted SPA price if buyers opt for the developer’s leasing package.
f) Freebies thrown in. Some developers may give away freebies such as free air-conditioners, bedroom wardrobes, kitchen cabinets, renovated toilets, etc.
7. Initial Cash Outlay is Minimal
You only need to pay a total of 10% on signing of the SPA. If you have taken a 90% loan, the bank will release progressive payments to the developer as the construction progresses. During the period of construction, you only need to service the interest payments on the portion of loan that has been released. Depending on the type of loan, you can also opt to service the principal amount as well. Once the full loan sum is released by the bank, you are then required to start paying both the interest and principal.
If you are presently cash tight and expect your income to increase in the future, this may be an ideal financing arrangement for you.
8. Useful for People Planning to Get Married
You can time your marriage date to coincide with the completion date of your dream home. If you are expecting property prices to increase within the next few years, buying from developers allows you to “lock-in” at the current prices. Compare this with waiting a few years to buy an old house from the resale market at higher prices.
If you are purchasing in the resale market, you will have to spend a few months to hunt around to pick a good unit, negotiate hard with the seller, pay the earnest deposits, choose your lawyers to handle the transaction and bankers to finance your purchase. On the other hand, buying a property off the plan from developers is easy and straight forward. To succeed, it’s extremely important to select the right location, the right property type, the right time and most importantly, the right developer. All you can do after signing the SPA is to hope and pray for the best!
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