What’s The Difference Between An Under Construction And Sub-Sale Property?

Buying a property can be a daunting experience for beginners, second-timers or even real estate investors. Whether you buy for a living or for investment, buying properties requires a lot of homework and research because a single mistake can cripple your finances.

One of the first questions most buyers ask is: Should I buy a property under construction or a sub-sale? How do you decide?

Here are some considerations you should think about when buying properties under construction or under-selling.

Property under construction

The Malaysian real estate market has favored the “sell and build” concept, where the developer begins selling before the start of construction. For property buyers, they would usually cross their fingers and hope for the best when they buy a plan property from developers. If they are lucky, they will get a reasonably decent if not perfect unit and they will see a significant appreciation in value once the project is finished.

Properties under construction, or some would call properties outside the primary market, are popular among home buyers because of the discounts and gifts offered by developers. Here are some pros and cons that you need to weigh before deciding to buy a property off the plan.

BENEFITSTHE INCONVENIENTS
Information is easy to find

It is very easy to spot a new development at the location of your choice. For all development projects, you can simply enter their office or showroom or easily identify them at a fair or launch.

Locked in financially until completion

When you buy a building under construction, you will have to wait three to four years until it is finished. During this time, your credit with the bank is blocked for the full amount of the loan and it will be difficult to buy another property.

Get a blank canvas

You will be the first owner of the property. Everything from accessories to stoves will be in perfect condition. Knowing that there are no previous occupants is a psychological peace of mind for the owners.

Uncertainties on the final product

Since the project is not yet finished, you are not sure what it would look like. You will need to choose your unit and forecast market demand. This includes the possibility of developments such as motorways and public amenities such as bus stops under construction at their doorstep.

Discounts galore

There are loads of discounts for new properties, as it is in the developer’s interest to sell all of the units as quickly as possible. From the early discount, the Valentine’s discount, the National Day discount to VVIP discounts, you will certainly get some kind of discount.

You have to be patient

While it is good to have a warranty, it can take a while for developers to actually take action on faults, and repairing one may lead to another later.

The choice is yours

The earlier you decide on your purchase, the more options you have to choose the best unit. So if you’ve decided to buy a particular development, being an early riser is advised.

Take more risks

As you buy the property on the basis of plans and models, the quality is not guaranteed.

There are cases where the developers abandon the project due to a lack of funding as well. This is why it is important to choose reputable developers when purchasing the plan.

It comes with warranty

The developer’s brand new properties usually have a liability period for defects of up to 24 months. It authorizes the owner to ask the developer to correct any defect in the unit, such as leaks in the bathroom, cracks in the wall or door hinges that are not properly installed.

What You See May Not Be What You Get

Keep in mind that not all accessories, furniture, and electronics are included with your purchase. Ask the sales staff about this and they would clarify which items are included and what is not.

Sub-sale properties

Properties for under-sale are bought on the open market, from the previous owner, probably an individual.

When purchasing a property for sale, it is important to ensure that the owner is the legal owner of the property. You can get all the relevant information about the property by researching the property at the relevant land office and getting confirmation from the registered owner and finding out if the property has charges. By investing in an under-sold property, investors know what they are actually getting for the money they paid.

Here are some pros and cons that you should look for before deciding to buy a property for sale.

BENEFITSTHE INCONVENIENTS
What you see is what you get

Get a real feel for what you buy. When buying a property via a new launch, you can only imagine what the view would look like. But for a finished property, you can really look at the view. You also don’t have to guess how it will be. You can see the unit, the view, the finish and also your neighbors. In addition to this, actual figures such as rental and transaction prices will be available.

Difficult to search for potential properties

Finding a good sub-sale agreement means that you need to view a range of individual units, under various conditions. You will need to check the condition of the units, market assessments and property rentals repeatedly until you find the one that is right for you. You will also have to negotiate with different owners, agents and lawyers.

Free cash flow immediately

When you buy a sub-sale, you can rent it immediately and collect the rent to pay the mortgage. If you are lucky, you can also have an existing tenant who pays rent at market prices. Not having to spend money on agent fees to get a tenant will already save you money.

Risks related to the seller

There are sales risks that you may face while you are about to settle the deal. The seller may not want to sell the property or may increase the price. If the price is higher than the bank’s valuation, you will have to shell out your own money for the shortfall.

No risk of construction delays

The completed properties are as is and ready for you to play the role of owner. While there is always a risk that new launches will not meet their deadlines or that the developers may disappear by completely abandoning the project.

Dangers of the buyer

Cheap does not really mean good. If the seller is too eager to get rid of the property that he is willing to cut prices to get rid of it, then you should approach it with caution. You would not want to end up having to manage properties with previous crimes or murders or if the previous owner got a loan from the illegal money lenders with this address.

Quick move in

Once you’ve locked a suitable property, it usually takes about two months for the paperwork to be completed and you can move into the property.

Under construction vs under-sale: initial costs

In constructionSub-sale
Deposit: minimum 10%, but the developer may offer a discount or rebate, allowing you to shell out a lower (or zero) deposit.Deposit: minimum 10%

The developer may offer to cover all or part of your legal fees and stamp duties.Legal costs of the sale and purchase agreement (SPA)

First 50,000 RM: 1%
Next 500,000 RM: 0.8%
Next RM2,000,000: 0.7%
Next RM2,000,000: 0.6%
Next 2,500,000 RM: 0.5%

SPA stamp duty

First RM100,000: 1%
RM 101,000 – RM 500,000: 2%
RM 500,001 RM1 million: 3%
Over RM1 million: 4%

Loan agreement legal fees

First 50,000 RM: 1%
Next 500,000 RM: 0.8%
Next RM2,000,000: 0.7%
Next RM2,000,000: 0.6%
Next 2,500,000 RM: 0.5%

Loan agreement stamp duty

0.5% of the loan amount

Stamp Duty Transfer Memorandum

First RM100,000: 1%
RM 101,000 – RM 500,000: 2%
RM 500,001 RM1 million: 3%
Over RM1 million: 4%

Various

Mortgage and fire insurance, utilities deposit, repair and renovation costs, etc.

Various

Mortgage and fire insurance, utilities deposit, repair and renovation costs, etc.

Assessment fees

First RM100,000 = 0.25%
Next residue up to RM2 million = 0.2%

Real estate agent fees

About 2% to 3% of the property price

With properties under construction, you can pay less upfront costs, as the developer may offer discounts and rebates to offset your down payment, or cover some of the other up-front costs. But you should also be aware that some developers can artificially inflate property prices to offer seemingly attractive discounts.

So whether you buy a property to stay or invest there, you need to do enough research to make sure you don’t buy an overpriced property or one that you will find it hard to resell or rent.

Do you have any ideas for purchasing any of these products? Let us know in the comments!

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This article was first published in 2015 and has been updated for freshness, accuracy and completeness.

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Jothi Venkat

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