Investing in Off-Plan Property

  • 1 year ago

Property developers often sell properties still under construction in order to raise cash.

These are called off-plan properties.

Early-bird deals are commonly offered by developers to attract buyers, meaning buyers can pick up high-potential properties at a more reasonable (or more rewarding) price.

Therefore, many investors look to benefit from off-plan property investments. The demand for such properties is usually high among buyers. Due to such strong off-plan deals, many residential and student developments sell out before completion. 

Here are a few of the main benefits of buying off-plan:

Purchase prices are significantly lower than average

When you buy property off-plan, you have the opportunity to secure the purchase at a lower price than the market value. There are many reasons for this, including developers’ desire to demonstrate a certain level of sales before marketing the development or sell as many units as possible before the development is completed. Additionally, some developers offer additional discounts to investors who purchase multiple properties at once.

Strong capital growth can be attained

The growth in house prices is primarily beneficial to those who purchase property off-plan. When a property is purchased in 2015, but isn’t due for completion until 2017, the property’s value will increase each year until the property is finally built. Especially if the property was purchased at a discounted price from the beginning, this can add tremendous value.

You can personalise the property so it’s ready-made for tenants

When the apartment is completed, investors can rent it out immediately after purchasing furniture packs tailored to its size and layout. 

Investors will be able to target tenants who are willing to pay a premium for convenience and luxury, driving tenant interest.

Ability to re-sell at a profit before completion

 As the value of your property is likely to increase before completion, investors can put their property on the market and sell it at a higher price. While this can be an effective strategy for investors looking to profit quickly, you would gain more capital growth if you rented the property and acquired regular rental income in addition to capital growth.

All high-quality stock tends to sell out well in advance of completion

Buying off-plan is the best way to get the best properties in a city.

The focus of investors has shifted from London and Birmingham to Manchester and Liverpool in recent years. All truly high-quality, city-centre properties in convenient locations tend to sell out well before they are built because supply cannot keep up with demand.

It is smart to buy in advance if you don’t want to be left with a limited range of options, such as from investors or owners who want to exit at the time.

Small deposits and staged payments

Some off-plan deals offer staged payments, depending on the developer and the property. In addition to spreading the cost of the purchase, these payments enable investors to purchase property without making a significant down payment. 

Is Off-Plan Property Investment Right For Me?

Do you need a property to start earning money now or can you afford to wait?

The majority of investors want a property they can buy, rent out immediately, and earn rental income from. The downside to this approach is that such properties are usually found on the secondary market (i.e. you are purchasing from the previous owner or landlord), which can be significantly more expensive than buying a brand-new home.

Off-plan offers an excellent opportunity for investors who are willing to wait for a return before investing, with long-term benefits significantly outweighing the inconvenience of waiting for completion.

How risk-averse are you?

A risk is undeniable when investing in off-plan properties.

It is possible for unforeseeable events to affect construction, which may delay the completion date or, in extremely rare circumstances, stop it completely.

It’s important to perform due diligence before making any purchase – and construction defects are usually covered by investor protection schemes – but if you’re quite risk-averse, off-plan property may not be right for you.

You should keep in mind that in the UK, if a developer is NHBC-approved (UK National House-Building Council), both the development and your deposit are guaranteed, so you can fall back on them should any problems arise.

How easily can you get a mortgage?

In most cases, you’ll need to leverage finance unless you’re buying fully with cash.

Mortgage lenders will typically only offer mortgages up to six months in advance for off-plan properties. The estimated completion date for an off-plan property is often more than six months away. 

So, an investor needs to be pretty confident they’ll be able to get a mortgage when the time comes.

There is a general rule of thumb in the industry that says if you have a lot of lenders available to you now, you’ll probably be able to get an offer in the future as well. Before making any decisions, however, we recommend speaking to a specialist mortgage advisor based on market conditions and your circumstances.

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