Property contract - am I bothered?

Today I heard about an off plan property investor in Egpyt who found out that they were not going to receive the free kitchen they thought they were entitled to. He realised after he had signed his purchase contract for the off plan property, that the free kitchen as per his agent’s web site, was not now included as part of the  in the apartment fixtures list in the contract.

The contract he had signed had no mention of such kitchen, and the buyer felt hoodwinked by the agent. I felt it time to get more bothered about what’s in off plan contracts.

Disclaimers

Ever seen disclaimers on web sites? You will note that most real estate agent web sites have a disclaimer page, or link. The property brochures will also have comments to indicate that images and the details are for illustration and indication only.

Pretty pictures of pyramids, golf courses, svelte sunbathers, infinity pools are all there to attract your attention. So do you think “Great, that’s all the info I need, where do I send my reservation monies for this dream Santiago island, Dubai IMPZ (delete as appropriate) luxury property?  The property web site implies its next to a pyramid / golf course”.

On the same theme, the CGI’s (Computer Generated Images) will show all sorts of unrealistic backgrounds and perspectives. Rely on them for accurate information, and you’ll be in for a surprise come viewing day.

We are all bombarded with information. Unless I see some colourful, inspiring and uplifting image, along with some snappy catch phrase, I might never look twice at the property offering. Disclaimers are there to say that this is all a guide or, rather more accurately, its all an advertisement. Let’s treat it like one then.

Contract Focus

So when buying an off plan property, anywhere in the world, the main focus is on the contract we sign. The natural reaction will be to pass this to a lawyer and, if he says OK, then it must be OK. This is where I see we need to change out way of thinking. Its basically wrong to always take your lawyer’s advice. We need to acquire the skills to manage your lawyer effectively.

The first task is to understand your lawyer’s perspective. Believe me, your lawyer does not read agent’s, or developer’s, information sheets. He, or she, is unlikely to print out brochures from your agent’s web site and check that all the fixtures, fittings and facilities that are part of the online specification are then placed in the sellers contract. Buyers must undertake a thorough check of what is included and what is no, and then advise the lawyer.

My mistake once was to assume that obvious things, like doors, like attachment of heating system and similar items, that would normally hardly be worthy of a contractual mention, would not necessarily appear in the contract. Best to accept that it probably will not be there at completion if its not specified.

I ask my lawyer to confirm that the translation from local language to, typically English, is accurate and for them to certify it is indeed correct. Important, because In case of dispute, its the local language which legally will prevail.

Kitchens

Kitchens seem to rank as the top area for dispute. So here are five tips when looking at kitchens in off plan contracts:

1/ What literally translates as a “kitchen box” is actually not a nice set of units (in Bulgarian translations) - but means an area to put your own kitchen in. Check and certify all translations.

2/ Local builders standard kitchens can be very nasty. There is often zero value to having them installed. Unless you are really sure, buy without kitchen so you can coordinate with furniture.

3/ Design your own kitchen to ensure some simple, but practical, touches. For example, add an eye level space for a microwave so it is away from work surface, design a refuse cupboard or even add a dishwasher for larger properties.

4/ Don’t think that if your overseas property is a load cheaper than a similar one in your home country, that the kitchen and furniture should be loads cheaper as well.

6/  Check your kitchen design with someone you know who has experience of such matters. If you are a stranger to cooking in your own kitchen be wary of your own design attempts. Find out what makes an attractive kitchen area.

5/  If you have no kitchen in your apartment as part of the contract, don’t fret too much if you are buying in a new emerging market. In the most part, that could even be good news. If you thought you were saving a load of money by having it included, you probably were not.

In emerging markets, such as Egypt, Bulgaria, Cape Verde, Turkey, Romania etc, its common not to have kitchens included. Why is this? Historically the only previous sales will have been to local buyers. Builders would have, in the past, built mainly for locals and locals often buy unfinished apartments. They want to get the home the way they like it. Its also the low cost option. Typically, labour is cheap in emerging markets and local buyers know that they can supervise the work and get exactly what they want.

Moving on from whats included, to other brochure talk such as “private beach access” and “free use of spa”. assume nothing will be free unless its documented in the contract. Indeed, free facilities may not be so good as, if its a pure investment property, you may prefer your tenants to carry the costs of the facilities.

When can I view the purchase contract?

Generally, buyers receive the purchase contract, (sometimes referred to as the buyers agreement or preliminary agreement) after paying the reservation fee. Buyers then start their property due diligence immediately after this, including receiving the agents contract.

I have to say that I do not like this practice, so I am negotiating with our developers to produce contracts for common availability and full disclosure of such contracts before payment of my clients’ reservation fees.

I will often be able to provide the contract before you have to make any purchasing decisions - just ask me. As more developers fall into line my hope is that more buyers in general will be able to assess upfront what they are getting.

My final point is that in some markets, like Egypt, a long contractual negotiation is unlikely. The culture can be quite different to what we are used to. It’s often a case of “take it, or leave it”.

A developer may not want to have many different purchase contracts to manage - so if you are buying in a popular project in an emerging country, with brisk sales then trying to extend the negotiation period may mean you lose your reservation.  All this needs to go in the mix of information for assessing the risk of commencing your investment.

Careful due diligence is clearly vitally important. Do please remember to register to download my free due diligence guide on home page to start equipping yourself as a savvy investor. Read this, and you will have many of the skills required to make a knowledgeable overseas property investor. Agents may well be helpful but, if you remember that they are introducing you as buyer to a seller, and its the seller’s contract you sign, then this may remind you to always put marketing material in perspective.

In my capacity as a real estate agent, I have acted in good faith by passing on the information provided by a developer in response to questions from buyers. It has happened that these answers are found not to be supported by the contract wording. This eventuality is annoying for agents and investors alike and provides more evidence, if required, that we need to be very bothered about that contract.

Finally in these money saving times, a reader asked why there were such large price differentials when comparing several properties? Remember the saying “you often get what you pay for”. Raw material costs have risen sharply, and even doubled in some cases. A full blog response on this will be posted soon.

However in some countries, where material supply is dominated by just a few companies, then this will be particularly true. What will these cost increases mean to the final property construction? Its commonly known that its the finishing of a property that costs much money, and it is here where corners may be cut the easiest. Sub standard quality, could mean facing up to a reduction in rental occupancy and speed of resale in future years.

Please comment on this blog article, and do please share your property buying experience to enhance the resources here for overseas property investors.

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