Developers make use of two main ways to finance a new development: speculation and “plot-and-plan”.

When developers speculate, they use their own money to fund a project and then sell each unit on completion. This way the developer takes full risk. When a developer sells “plot-and-plan”, the risk lies with the buyer.

The developer makes periodic withdrawals from the buyer’s building loan with a bank, which takes place in stages after the bank’s valuator has confirmed completion of the stage. The buyer then authorises the payment to the developer. In this way the buyer, at least, has control of what he is paying for.

Off-plan buyers need two contracts. You should sign two sale agreements when buying a freehold home “off-plan” or in a “plot-and-plan” development. One contract to purchase the land and the other to build the home itself.

The second agreement (with the builder) should cover everything that is discussed and agreed upon with the person or company who is actually building the home – from the building price, the floor plan, the electrical wiring, the plumbing, the paint specifications, the fixtures and fittings, and so on.

Off-plan buyers are often not aware of the need for this second agreement, and the law only stipulates that the transfer of land cannot take place without a written contract. So, you may find yourself in a situation where you have a piece of land, but with no agreement for anyone to build a home on it.

Reputable estate agents working for developers or builders will thus always ensure that the sale agreements between buyers and builders are concluded in writing and in detail.

Buying off plan is attractive if you want to own a new property and be the first to live in it. Most developments include all the costs involved so the price you see is the price you pay which is ideal as there are no surprises. All your legal costs may also be included in the package.

To purchase off plan you normally requires a 10% deposit to secure the purchase and you may start paying your bond off only after 18 to 24 months after the completion of your property.

This is very convenient, as the property prices normally would have gone up by then which means your asset is probably worth more, that what it is bonded for. Another advantage to buying off plan is that it requires minimal maintenance as everything is new and has not aged. In certain circumstances, you even get to choose your own finishes.

It is important to take care to read through the fine print on the contract as well as the possibility of building delays.