Real estate remains to be the most attractive investment among any other forms of investment. By purchasing a house, land, or condominium units, it guarantees a profit as the value of these properties is expected to increase in the long run.
If you are about to buy a property, the first question in your mind must be “which type to purchase?” There are actually two types of unit that you can choose from, the pre-selling units and ready-for-occupancy or rfo units.
In this article, you will know about the nitty gritty of buying properties while they are still in its pre-selling stage.
What is Pre-selling Stage?
In real estate, the pre-selling stage is when a property is offered in the market before they are even built completely. During this stage, developers sell during the construction period, or as early as owning the land where the property will rise. This means that the actual property does not exist physically yet, because it is either in the process of planning or is still under construction.
Essentially, you are buying not the physical property but the project or the plans for the unit in that complex that is going to be built in three to five years. Interested buyers are then presented with brochures, a blueprint of the layout plans, a virtual tour, or a showroom of model units, which is why pre-selling is also called as “off-the-plan” properties. These properties are usually in the form of townhouses, condominium units, and houses and lots.
Pre-selling Property VS Ready-for-Occupancy Property
In deciding on which property to buy, there’s little or no room for mistakes because once you bought the property, there’s no turning back. As a buyer or investor, it is important to understand your options based on your desired purpose.
While pre-selling properties are those currently under construction and not readily available, ready-for-occupancy properties are those that are already built and ready to be occupied right away. To know which property fits you the best, other differences between pre-selling and RFO properties are listed below.
Reasons why developers do pre-selling
There are many reasons why developers do pre-selling. One is to help developers finance the actual construction, while the other is to ensure that all units or the entire property becomes sold out once it is completed. This practice is legal and acceptable but has certain underlying terms and conditions.
It’s kind of similar to a business proposal where a businessman says, “this is what I am planning, it will result in something kind of like this, if you want to achieve this give me a budget and I’ll execute it.”
Payment Scheme of buying properties in pre-selling stage
When a buyer decides to move forward to buying a pre-constructed property, it comes with a payment scheme that typically follows this method:
- Less than five percent, for instance two percent, of a certain (x) amount of price is usually paid upon the offer to buy the property.
- The remaining balance left to complete the five percent is due to be paid within 30 days. In this example, the remaining balance is three percent. (Total = 5%)
- Another five percent is due in 90 days which is a total of three months and a total of ten percent paid. (Total = 10%)
- Then, another five percent should be paid in six months or 180 days. Once paid, the buyer by this time is at a total of fifteen percent. (Total = 15%)
- The last five percent is due at occupancy or after the property is completely built. This is when the buyer finally gets the keys and is at twenty percent which is roughly the down payment. (Total = 20%)
This process is applied so that the developer of the project can use the initial payment collected to finance the entire project such as construction and carrying costs while the units are being built.
Note that occupancy is different from possession of property. Occupancy refers to a stage where an individual can finally move into the unit, either for the purpose of renting or owning it. Possession, on the other hand, is the stage where one legally owns the property. This means that they’re now in title for the property and when they can start paying the mortgage, and this begins after paying the complete down payment of the pre-sold property.
Pre-selling properties in Cambodia
Pre-selling properties are gaining popularity in Cambodia and this is attributed to the several construction projects being approved every year. A report stated that the Ministry of Land Management, Urban Planning and Construction or MLMUPC approved 4,446 construction projects in August 2019. These projects are mostly high-rise, mid-range to luxury condominiums built in Phnom Penh and Sihanoukville.
Launching development of boreys or gated communities is also becoming a new trend—aimed at local buyers—it is a cheaper alternative to expensive high-rise units. Boreys are highly-anticipated by the wealthy Cambodians in Siem Reap and Phnom Penh, as indicated in Knight Frank’s 2018 half-year report.
As a result of high demand for premium residences and the increasing land values, construction activities in Cambodia have been continuous and do not appear to be slowing down. In previous reports, it was stated that 43 condominium projects with a total of 16,939 units were completed in 2019. It was a great jump from the 20 completed projects with 5,000 units in 2018.
There are numerous commercial and residential projects in Cambodia that are under construction or near completion. Despite the Covid-19 outbreak, there are still major construction projects proceeding, however the government projects were postponed.
Some buyers and investors, especially the first-timers, may be quite dubious about the idea of buying an expensive property that is totally not existing. There may be some risks, but so are the benefits from buying a pre-constructed property. So before jumping into the venture, it’s best to delve further on the advantages and disadvantages of investing in pre-selling properties, so as to arrive at a wise decision.