Did a property developer offer you a great property investment opportunity – great location, exciting development potential, attractive returns?
Sounds exciting but it can be difficult to know what you should be asking your new property developer, especially if there isn’t actually a property there for you to look at!
No worries! We have compiled the 10 critical questions you should be asking your new property developer to help you make the right decision.
1. What is your track record like?
When you are looking at any new development, find out what other developments your new property developer has delivered in the past. You will be given a picture on the quality of work, their style of build and development layout, and what you can expect from your new build home.
Begin by asking questions such as;
- How many projects have you developed?
- Were those projects similar to the current offering?
- Ask to see details on completed past projects such as return on investor capital, overall project timeframes, cost management, planning timeframes, and the exit process’s efficiency.
- Soon after the project’s completion, how close were these metrics vs initial projections?
2. What’s special about your process?
By asking them this question, you will identify what makes the developer effective. Are they focusing only on one speciality such as blocks of apartments or a row of townhouses? Or are they more opportunistic in considering numerous strategies in various locations?
While both approaches work in the world of property – as long as the developer possesses a competitive advantage, success is in their corner.
What are the components of the developers’ edge?
- Are they able to find great off-market opportunities?
- Do they have in-depth knowledge of the planning system?
- Are they an expert in a particular niche, for example, focusing on serviced flats?
- Ask to see the specific deal history and if this confirms their favoured strategy for now?
3. How is the reputation of the overall team?
An effective developer needs to assemble a quality team who can ensure the success of the project.
As for the main developer, check their reputation on social media to help get an overall impression. Try to Google them and see if they have been associated with any adverse news events historically.
Also, an overall quality team will need;
- a planning consultant or architect to succeed in the planning process
- a good QS for accurate costing
- a good team of lawyers to efficiently structure the transaction and execute with minimal risks
- a great construction team and a project manager.
Make sure you check the credentials of each one.
4. Can you show me the shareholder agreement?
You must always read through the terms of engagement and the shareholder agreement – containing critical terms which determine how the developer and investors will work together.
Do not be afraid to ask a question such as;
- Does the Special-Purpose Entity (SPV), assuming it is, have an accountant and solicitor independent of the developer?
- How are profit shares determined?
- Which costs borne by the developer are reasonably permitted to be expensed to the SPV?
- Under what circumstances can the investor relieve the developer of its duties?
- What is the wind-up procedure of the SPV?
- At which point does the developer get paid their profit share?
- How would disagreements be resolved?
- Is the developer a director of the SPV?
6. How long will the building take?
Depending on how far along the development is, it is always good to ask how much longer the work is likely to take.
By doing so, you can plan your financial budget for other matters such as car maintenance, education fees for your children (if you have any), living expenses and maybe indulge once in a while.
7. What do I get with my new property?
If you are looking to buy off-plan, it can be hard to envisage exactly what your new build home will look like. It’s a good idea to ask the developer to give you a list of everything the property includes.
- Will the garden be landscaped?
- Are white goods included?
- Are there recreation areas provided such as a gym or a swimming pool?
- What is the nearest highway located to this property?
Having this list upfront will help you when it comes to the exciting part of shopping for your new home and avoid any misunderstandings later on down the line.
8. What is included with the new home warranty?
The new home warranty is designed to give you peace of mind that should there be any problems with your home, and they will be put right.
Under the Housing Development Act (HDA) of 1966, a new home’s warranty period is also known as a defect liability period. During this time, the developer is obliged to repair faulty artistry discovered at no cost to the buyer.
Under HDA Malaysia, the defect liability period spans 2 years, starting from the keys’ receipt.
It is a good idea to ask your new build developer exactly what is and isn’t covered, and how long it is covered for.
9. What help is available when purchasing our new home?
Buying your first home is a wonderful moment, and everyone benefits from a little help.
From low deposits to help to buy there are schemes in place to make your dream home a reality and the property developer’s staff are really well placed to point you in the right direction based on your budget and tastes.
Their advice and expertise are also really well placed to refer you to an independent mortgage advisor, meaning you’re getting some impartial advice on where and which mortgage to take out.
10. Freehold or Leasehold?
Leasehold or freehold? As we ventured into the adult world, we are told countless times from family, co-workers and strangers that buying a house is a lifetime commitment.
If you are purchasing a new build condominium, the property is more than likely to be leasehold – meaning you will have a lease from the freeholder to use the property for a certain amount of time.
If you are looking to purchase a new build house, there is a chance the property could be freehold, so it is worth asking.
Remember, don’t be swayed by the cover!
Social media provides an opportunity for anyone to raise their profile. Don’t be sucked in by a picture-perfect image that’s been designed to sell deals to investors. Serious investors should cut through its marketing planning and social media excitement to focus on proper property developer analysis.
All of this might be time-consuming but vitally important to assess how a developer will execute with your capital.