Buying Off Plan: the ultimate guide

Feb. 16, 2017, 12:51 p.m.

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As the Cambodian property market soars, new property buyers are spoiled for choice. Now, almost any type of property is available on the local market - however, for many of these new homes on offer - condos, villas, borey homes - you have the chance of buying off plan and owning a brand new home for you and your family.

Although it can be worrying putting your money into a home you can't yet see or touch, ultimately buying off plan can make dream homes a possibility on a budget that wouldn't normally go so far on completed properties. With that in mind, Realestate.com.kh has put together the ultimate guide to buying off plan - so that buyers who are thinking about buying off plan, can be well informed, know what to watch out for in the market - and choose the right property off plan! Be informed and invest wisely...

Why buy off plan? 

Getting in at the plan stage of development gives buyers the chance to get the choicest plots of land or the best units in a building. Getting in later is guaranteed to limit the selection. Choosy buyers who know what they like and want may actually prefer to invest at this stage.  Plus, buying off plan can allow for a higher level of customization, including changing the floor plan, merging two adjoining condo units into one larger unit, and having more say in details like type of appliances. Fussy buyers who desire to have a great deal of control over every detail are often most satisfied with a purchase made at this stage. It allows them to get exactly what they want.

Off-plan buyers also may get discounts on the price or see substantially more capital growth than average. Investors and speculators find these two facts compelling, especially when they are combined. In Phnom Penh, buying during the pre-sale period can result in appreciation of up to 30 percent. This can be up to 6 times as much appreciation as the typical 5 to 10 percent experienced when buying after construction has begun. Additionally, buying off plan allows the buyer to spread out payments.

When buying a villa, payments may be spread out over a period of 10 to 18 months. With a condominium, it be spread out as much as 24 months. Foreign nationals have an extra incentive to buy as early as possible. The Law of Foreign Ownership (2010) allows foreign nationals to purchase a limited number of condominium units. Cambodian Land Titles explained! Up to 70 percent of the units may be purchased by foreign nationals, granting them a freehold title. In Phnom Penh, there is high demand for foreign freehold units in the Central Business District. Due to the high demand, waiting until the building is finished may mean that no more units are available to foreign national buyers in that particular property.

What does it mean to "buy off plan"?

This is an expression for buying real estate at a point where all there is to see is a plot of land and a house plan. You sign a contract indicating a purchase price for the land and a house to be built from a specific set of architectural plans. buyingoffplan2

What does the process look like?

This stage of development where buying off plan deals get offered is called pre-launch. The developer is still in the process of confirming plans, obtaining permits, and performing an Environmental Impact Assessment. However, even at this early stage, they need money in order to move the project forward. Because buying at this point involves a long wait for the property to be completed and more risk than at a later stage, they typically offer incentives to early buyers. In addition to price breaks, they may offer guaranteed rental returns, financing options, opportunities to customize the early units and other perks.

When the contract is signed, the buyer must make a deposit. The amount of the deposit may be as much as 50 percent of the agreed upon price, or it may be a great deal less. Beyond that, the exact process differs from one country to another and even from one developer to another. This process involves a lot of flux. The plans may end up being changed, sometimes without the buyer's knowledge.

The costs may end up going up for reasons that seem mysterious, especially if you are buying as a foreign national. Sometimes, the developer has at least one unit already completed as a showcase of their work. In such cases, they typically allow a walk through so buyers can get a good feel for what to generally expect. It is wise to not expect your completed unit to be exactly like the showroom. It almost certainly will not be.

How long before I can move in?

You do need to be willing and able to wait a bit, but there is no hard and fast rule as to how long. Some developments get completed in as little as a year. Others can take up to four years. Yous sales contract should spell out the expected date of completion, as well as details about what happens if that target date is missed. In some places, laws are in place that automatically require the builder to pay penalties even if the contract does not provide for them.

Why you should get a lawyer.

Off-plan properties are more complicated than post construction real estate deals. They involve more risk and more variables. Especially if you are a foreign national, there can be a great many laws and details that impact the sale and that you are unaware of. For starters, many countries have a cooling-off period. This means you have the legal right to change your mind after signing the contract and back out of the deal. The length of time you have to decide this can differ from place to place and how much it will cost you can also differ.The development may not actually be completed. Doing your own due diligence to see if the developer has a good track record and working with a lawyer are the best way to protect yourself from this worst case scenario.

The finished unit may differ from the plans. Sometimes the difference is for a good reason, such as resolving a defect in the plan that the developer was unaware of at the time of signing. Sometimes it is due to human error or oversight. The contract may allow the developer to make limited, reasonable changes without your permission, but substantial changes without your permission are often prohibited.

Talking to a lawyer about what is typical and customary in this jurisdiction can help you understand the scope of what to expect. Another tricky thing that should be discussed with your lawyer if offered to you is Guaranteed Rental Returns (GRR). They are relatively new in Cambodia, thus not well understood. In cases where the underwriting guarantee is merely a paper promise, they can be unreliable. A good lawyer can read through it and get an idea whether this detail is something of real value or not. The best advice on GRR, from Realestate.com.kh!

A few additional practical details:

  • If you are not very familiar with the real estate industry or are uncomfortable for any reason, it can help to look for a development with a pre-built show unit. This can give you a much better idea of the quality of their work.
  • In real estate, valuation is determined by "comps" -- in other words, comparable properties that are as similar as possible to the one in question. However, when you buy off plan, there are no comps to see. This can lead to inflated estimates of what people think the price will be, especially in areas with a reputation as a hot spot. In order to be as realistic as possible, check out the surrounding area with a critical eye. Find out as much as you can about the area and about other properties for sale. This is the only way to get a realistic idea of what you may be able to expect.
  • In some cases, the real estate market depreciates between the time the contract is signed and the time the unit is finished. This can leave the buyer owing more than the unit is worth. This can be a problem if bank financing is needed. The unit may no longer qualify for a large enough mortgage to cover what is owed.
  • It is critical to understand what your options are. A lawyer familiar with the laws, culture and customs of the location in question will make a big difference in how smoothly your buying experience goes. Therefore, it is usually best to find a local national specializing in real estate deals before you sign any contracts.
  • If the goal is to invest in real estate with an expectation of generating rental income, it is important to keep in mind that buying off-plan can involve a substantial wait. If you cannot afford to wait two or more years, it is best to look elsewhere and invest in a completed property or a property close to completion.

When this excitement occurs in a competitive atmosphere, such as what you see in Phnom Penh during high season, it is easy to get carried away. So, it is important to remember that these opportunities are accompanied by greater risk than usual. Thus, it is critical for you to do your due diligence and to have independent legal counsel. At Realestate.com.kh we cannot stress strongly enough that you need to do your research when considering buying off-plan. 

Check out the latest off plan properties today at Realestate.com.kh!

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