Buying an off-plan property is an appealing prospect for investors looking to secure the best possible return on their investment. From lower initial costs to the potential for strong capital appreciation, there are many benefits associated with off-plan investment properties. It’s also one of the main reasons why investors seek out the support of an experienced property investment adviser.
The end-to-end process isn’t as complex as you might think, either – especially when you’ve got someone on your side who has been there many times before. With that in mind, we’re here to guide you through everything you need to know before investing in an off-plan property.
Understanding Off-Plan Property
What is an off-plan property?
Off-plan investment refers to the purchase of a property that is currently under, or scheduled for, construction. The buyer is committing to buy the property based on the architectural plans and specifications provided by the developer, usually before construction work has begun or during the early stages of development. This could be anywhere from a few months to a few years from the expected completion date.
Essentially, investors are buying a promise of future property, rather than a finished product that’s already owned by another landlord or homeowner.
What are the benefits of investing in off-plan properties?
There are many benefits to be gained through off-plan property investments, including:
Discounted purchase price
Developers tend to incentivise investors to purchase during the construction period by offering a reduced rate compared to the forecasted market value once the property is completed. By purchasing a property directly from the developer at the base pricing, investors may be able to secure a better deal compared with buying from another investor on the secondary market with a markup on pricing.
One of the biggest advantages of off-plan investment is the potential for capital appreciation. As off-plan properties are typically bought at today’s prices but delivered in the future, investors may benefit from an increase in property values by the time construction is completed. This can lead to significant gains in the property’s value, and a higher overall return on investment by the time the development is complete.
Choice of units
Off-plan properties are usually bought and sold as part of a larger development project, such as an apartment block or new residential housing. This means investors may have a selection of units to choose from, which will likely vary in terms of size, layout, location and pricing.
By definition, most off-plan properties are new builds that feature modern specifications, fixtures and fittings, all of which reflect current design trends and building standards. This prospect of investing in a brand-new property that has zero miles on the clock can be appealing to both investors and their future tenants.
Factors to Consider Before Investing
The location of a property has a huge impact on its market value, rental demand and potential for price appreciation. Naturally, properties in desirable and well-connected areas generate more interest from the rental market and substantial long-term gains in terms of value. Before committing to an off-plan purchase, it’s well worth doing your research on the surrounding areas to see whether they offer a strong job market, good transport links, close proximity to schools and the quality of local amenities.
There is no set formula for this, and your criteria will depend on your investment goals and the type of tenant demographic you wish to attract. For instance, if you plan on renting primarily to students then it’s a good idea to find a development with easy access to a nearby university or educational institution. Or, if you’re targeting young families then an area with schools, local shops and restaurants is likely going to appeal more to that demographic.
Developer reputation and track record
Buying off-plan property involves a certain level of trust between the investor and the developer. Of course, you want to find a developer you can rely on to deliver an excellent finished property to a high standard, and on time. Again, there’s no substitute for doing your homework when it comes to deciding on the right option, and experienced developers should be able to point you towards their previous completed projects in order to instil confidence in their ability.
Established developers are established for a reason. They maintain higher standards and use reputable contractors and suppliers to execute their plans for development. They are also more likely to have sound financial and legal compliance processes in place, making it easier to navigate any unexpected challenges or difficulties during the construction process.
Even so, it’s not always easy to secure deals with established developers because they tend to have a pool of preferred investors gained from their previous developments. This is where a property investment adviser can prove invaluable by connecting new investors with fully vetted off-plan opportunities.
Is buying property off-plan the right choice for you?
At Track Capital, we regularly speak to new and experienced property investors who haven’t bought an off-plan property before. It’s our role to advise and educate investors as best we can so that our clients can make informed, objective decisions.
Many investors want a property they can buy, get a tenant in and start earning a rental income as soon as possible. This is absolutely fine of course, though one downside is that such properties are usually found on the secondary market, which means they are more expensive than purchasing a brand-new property during construction. By contrast, buying off-plan represents a fantastic opportunity to land a deal whereby the long-term benefits could significantly outweigh the short-term nuisance of waiting for completion.
It’s also true that off-plan property investment represents a risk. Unforeseen events can affect construction, which may delay the completion date or, in extremely rare circumstances, end construction altogether. This is why it’s so important to complete due diligence before any purchase – and there are usually schemes in place to protect investors from construction issues – but if you are quite risk-averse then off-plan property may not be for you.
Please note, keep in mind that in the UK, if a developer is NHBC approved (UK National House-Building Council) then both the development and your deposit are guaranteed, which you can fall back on should there be any issues with completion.
How To Buy Off-Plan Property – Step By Step
1. Speak to an adviser
Before diving into off-plan property, it’s always a good idea to discuss your current situation and financial goals with an expert adviser who specialises in this type of investment. They can provide valuable insights that help you better understand the market and the intricacies of making an off-plan property purchase so you can get a clearer idea of the best route forward for you.
2. Set goals and timeframe
Defining your investment goals from the outset will help align your expectations with development specifications and make sure you’re only pursuing opportunities that meet your set criteria. This will also ensure you establish how long you’re willing to wait for the construction to complete.
3. Find suitable properties
Ideally, you’re looking to build a shortlist of investment opportunities that meet your criteria. Research is essential when it comes to off-plan purchases, especially factors such as location, local property prices, capital appreciation and rental demand as we’ve already touched on. If you’re a first-time buyer or simply struggling to source suitable developments, a good investment adviser should be able to connect you with contacts within their network to speed along the process and give you access to a bigger pool of opportunities.
4. Offer and negotiation
Once you’ve identified a suitable off-plan property, it’s time to make an offer and start negotiating with the developer or their representative. Ensure that you fully understand the terms, conditions and liabilities of the investment before submitting a formal offer. This is also where it’s important to establish clear milestones and completion dates with the developer, so you can plan and manage your investment timeline.
5. Reservation and deposit
Having struck an initial agreement with the developer, a reservation fee or reservation deposit is normally required to secure your interest in the off-plan property. This helps the developer gauge serious interest and fund the ongoing construction.
6. Financing options
Unless you intend on purchasing in cash, you’ll likely need to explore financing options through buy-to-let mortgage lenders, brokers or banks. Bear in mind that mortgage offers generally expire after a certain amount of time, so make sure to clarify this beforehand to avoid any risk that your mortgage offer is no longer available upon completion.
7. Legal compliance
You’ll need a lawyer to review and finalise all contracts and agreements before signing on the dotted line. This ensures all warranties, guarantees and buyer responsibilities are clearly defined and that your interests as an investor are protected.
8. Staying patient
Off-plan property investment is a waiting game, though if you’ve followed each step carefully and done your research regarding the developer then the wait will certainly be worth it in the end.
Thinking About Purchasing an Off-Plan Investment Property?
If you’re looking for lower entry prices and potential for strong capital appreciation then buying a property off-plan might be the best option for you. However, we know from experience that it’s not always easy to find the perfect property, secure the ideal financing arrangement or manage the legal complexities alone.
At Track Capital, our mission is to connect seasoned investors and first-time buyers with exceptional buy-to-let opportunities in an ethical manner, at no extra cost. Our global client base of 20,000 buyers is a testament to our approach – and we can do the same for you.
Get in touch with our friendly team today at [email protected] or +44(0)203 627 3987 to discuss your options and start planning your ideal investment.