Stage payments vary considerably and may consist of the following: 10 per cent deposit and the remainder on completion, or 10 per cent on deposit and three stage payments during construction. Some of the final payment (e.g. 5 per cent) may be withheld for six months for maintenance and as ‘insurance’ against defects. If a property is already partly built, the builder may ask for a higher initial payment, depending on its stage of completion.
The contract contains: the timetable for the property’s completion; stage payment dates; the completion date and (possibly) penalties for non-completion; guarantees for building work; details of the builder’s insurance policy (against non-completion); and a copy of the plans and drawings. The floor plan and technical specifications are signed by both parties to ensure that sizes and standard of construction are adhered to.
The contract should also contain a clause allowing you to withhold at least 5 per cent of the purchase price for six months in case the builder fails to correct any faults in the property. The completion of each stage should be certified in writing by your own architect or lawyer before payments are made. It’s important to ensure that payments are made on time, or you could forfeit all previous payments and the property could be sold to another buyer.
It’s important that the builder or developer has an insurance policy (or ‘termination’ guarantee) to protect your investment in the event that he goes bust before completing the property and its infrastructure. If he doesn’t, you shouldn’t buy from him!