Off-plan property market in recent years experienced significant rise and there’s a good reason to it. Lower purchase cost and more control makes it a perfect choice among savvy investors and residential buyers alike.
Investments associated with off-plan properties are ideal for those having significant knowledge of real estate and industry as a whole that allow them to take an informed and smart decision. Still, the process isn’t easy and up-front as expected.
The many lucrative benefits and attractive features often obscure the potential pitfalls when investing blindly in all such properties. While seen as an easier option for some, any glitch or flaw in the process can compromise your valuable investment against the final outcome if due diligence hasn’t been performed correctly.
Purpose to sell off-plan
Over the decades, real estate developers have been pondering on many different ways to invest smartly in the developments. As traditional lenders and financial institution tighten their grip, they charge high interest rates thus developers tend to sell off-plan. During the course, prominent advantages for developers include;
- Gain advantage on initial financing
The quick ability to evidence project’s demand and growing interest to the lender thus helps securing future finances.
- Early commencement of the project
After managing a fraction of off-plan property sales, developers then scale-up the project quickly towards completion. This particular type of investment is far cheaper than bank financing and the two factors sums up to make bigger profits for the developer.
Investors liking for off-plan
There’re several reasons for growing popularity of buying off-plan properties among the investors. First and most important is the fact that developers sell at a discount to valuation so the early you buy, the bigger the discount you’ll get. The discount rate is based on the actual time of purchase agreement and not with complete development of the property.
Be clear with possible risks
Much like other investment types, certain risks are also associated with off-plan buying. Here’re a few to know;
- There’s a possibility of the developer going broke even before the development has been completed and you mightn’t even get the deposit back.
- There’s always the risk of property market to fall between the time of purchase and the actual completion date. If this drop is large enough, investor’s likely to experience significant notional loss.
- Yet another risk is of mortgage lender to withdraw from his offer. Though rare, there’s always a possibility especially when completion has been delayed or property market experiences drop.
- On completion, the market supply is in excess thus rental value return isn’t as expected which is unfavourable for investor.
Minimising the risks
The potential benefit from off-plan development is comparably higher with combined strategic approach of both investor and developer to achieve the ultimate win-win situation. Here’re a few factors to success;
You’d definitely wish ensuring that development would bear results as promised. Analyse the local market and make sure the real estate fundamentals are met and well-executed even before beginning with financing. You might as well look for;
- Commercial shops
- Educational institutions
- Transportation links and infrastructure
- Major employers and investments
Carefully watch for urban regeneration and make sure the market wouldn’t be inundated with new properties. Hold a discussion with local estate agents and let them delve into the type of properties in demand against the proposed investment.
Get to know the developers as reputation and proven track record is important before you blindly invest. Make sure the development would be completed on time and request testimonials from previous buyers for a clear idea on quality as well as reliability.
Circle of professionals
Nascent investors are reluctant to take professional advice when buying off-plan which is perhaps the biggest mistake. Always consult with experienced real estate developers and marketers to proceed confidently with investment. The three property relationship you’ll find extremely valuable is of a solicitor, a mortgage broker and an off-plan investment specialist.
Carry on with off plan investment by understanding the details above!