What To Look Out for When Buying a Property Under Construction

This post was originally posted on Planner Bee.

Buying a property under construction can be both exciting and challenging. While the prospect of capital appreciation and new facilities is appealing, it’s important to consider several factors to ensure a smooth purchase. Doing proper research, planning your finances, and understanding the legal details can help you make a well-informed decision.

Here are some key aspects to look out for:

1. Developer’s reputation and track record

Before making a commitment, check the developer’s background. Look at their past projects to see if they were completed on time and met the expected standards. Customer reviews and testimonials can provide insights into their reliability and quality of work. It’s also a good idea to visit completed projects and speak to homeowners for first-hand feedback. If the developer has faced legal disputes or delays in the past, it could be a red flag. A strong track record usually means fewer risks.

Pro tip: If you have no experience evaluating developers, start by checking government websites, real estate forums, and property review platforms for ratings and feedback. You can also visit showflats and ask agents about the developer’s reputation. Speaking to homeowners in completed developments can give you first-hand insights.

2. Sale and Purchase Agreement (SPA)

The Sale and Purchase Agreement (SPA) is a crucial legal document that outlines the terms of your purchase. It outlines both your rights and obligations, as well as those of the developer. Read it carefully to check project details, timelines, warranties, and penalties for delays. Make sure it includes provisions for compensation if the project is delayed or does not meet the agreed specifications. To avoid potential issues, consider consulting a legal expert before signing.

Taking the time to review these factors can help you avoid complications and make a more secure investment.

3. Completion date and potential delays

Check the estimated completion date of the property and be aware that delays can happen. Developers usually provide a projected timeline, but external factors like economic conditions, material shortages, labour issues, or regulatory approvals can cause setbacks. Look into the developer’s track record—if they have a history of delays, there could be risks. Some contracts include compensation clauses if the project is significantly delayed, so reviewing these terms can provide added security.

4. Assess the developer’s financial stability

A developer’s financial health plays a key role in ensuring the project is completed on time. Check their financial standing, ongoing projects, and history of insolvency, if any. If a developer struggles with funding, construction may slow down or even stop entirely. Reviewing financial reports, credit ratings, and recent news about the company can help you gauge their stability. Choosing a developer with a solid financial track record reduces the risk of project failure.

5. Understand the payment structure

Most property purchases follow a progressive payment schedule, meaning payments are made in stages as construction progresses. Common plans include milestone-based payments and deferred payment schemes, which offer more flexibility. Make sure you know when payments are due and how they fit into your budget. Also, check for any penalties for late payments and whether grace periods are available.

Pro tip: Review the payment schedule carefully and align it with your cash flow to avoid financial strain. Set calendar reminders for each milestone and ensure you have sufficient funds ready before the due dates. If you anticipate any delays in payment, check if the developer offers grace periods or alternative payment schemes. Also, clarify any penalties for late payments to prevent unexpected costs. If needed, consult your bank or financial advisor to plan your payments effectively.

6. Plan your financing

Sorting out your financing early can save you stress later. Compare home loan options, interest rates, loan tenure, and repayment terms across different banks. A well-chosen loan can reduce interest costs over time. Beyond the purchase price, factor in additional costs like stamp duties, legal fees, valuation fees, and maintenance charges. A clear budget and contingency plan will help you manage your finances smoothly.

Before you start your property search, it helps to know what you can afford. Use this calculator to estimate your expected monthly mortgage repayment.

7. Changes in design and layout

Developers may adjust the design and layout during construction. While minor changes are common, make sure significant modifications don’t affect your expectations or lower the property’s value. Check the Sales and Purchase Agreement (SPA) for clauses on design changes and how much flexibility the developer has. If possible, include a detailed floor plan and design specifications in the agreement to avoid unexpected alterations. If major changes impact your living space, discuss a fair resolution with the developer.

8. Common defects and how to fix them

Newly built properties often have defects such as uneven flooring, plumbing issues, electrical wiring problems, or poor finishing. Understand the defect liability period and the process for reporting and fixing problems. Most developers provide a 12-month defect liability period, covering repairs at no extra cost. Inspect the property carefully when you receive it and document any issues immediately. If needed, hire a professional inspector to assess the unit. Addressing defects early ensures they are fixed before you move in.

9. Location and surrounding infrastructure

Beyond the property itself, the location and surrounding infrastructure are equally crucial. A well-connected area with essential amenities enhances both your quality of life and the property’s long-term value.

• Transport and connectivity: Check for access to train stations, bus routes, expressways, and major roads. Good connectivity makes commuting easier and increases the property’s attractiveness for future buyers or tenants.
• Amenities and facilities: Look for nearby schools, hawker centres, shopping malls, supermarkets, hospitals, and parks. These provide daily convenience and improve overall liveability. Proximity to business districts like the CBD can also impact property demand.
• Future developments: Research upcoming transport projects, as well as planned developments in the area. These can significantly boost property value over time.
• Neighbourhood environment: Visit the area at different times of the day to assess noise levels, traffic conditions, and safety. Consider factors like cleanliness, greenery, and community amenities such as playgrounds and sports facilities.
• Potential risks: Be aware of issues like frequent flooding in certain areas, ongoing or future construction that may cause noise pollution, and zoning changes that could affect your living environment.

A well-located property in a developing area is more likely to appreciate in value and offer better long-term returns.

10. Future investment potential and market trends

When buying a property, consider its long-term investment potential. Look at past price trends in the area and assess whether property values are likely to grow. If you plan to sell or rent it out, check market demand for similar properties and rental yields.

Government policies, such as property cooling measures and Additional Buyer’s Stamp Duty (ABSD), can impact your ability to sell or lease the property in the future. Keep an eye on economic trends and urban development plans that may affect property prices.

A well-informed purchase can maximise returns and ensure your property remains a valuable asset over time.

Should you buy a property under construction?

Buying a property under construction requires careful consideration. By researching thoroughly, understanding legal and financial risks, and preparing for possible changes, you can make a more informed decision. Work with a trusted developer and legal professionals to safeguard your investment. Consider potential delays, defects, and financial risks before committing. With the right preparation, a property under construction can be a worthwhile investment with long-term benefits.

Read more: The Hidden Costs of Owning a Home in Singapore