Investing off plan (Why it works)
For many investors, off-plan can be the best way to secure the most desirable properties and do so at below market value. But what exactly does it entail, and how can you make sure it works for you?
What Investing in Off-Plan Means
Off-plan property investment means investing in a property either before or during the construction process. It became particularly popular following the credit crunch when many banks withdrew their funding into property development, opening up the market to a different type of investor.
There are many potential benefits and providing you choose wisely, you are likely to reap the rewards. Off-plan is a way of securing investment into luxury property in a prime location before it hits competitive market prices. Furthermore, with many developments being entirely sold out before completion, it is often the only way for investors to access the most desirable properties.
The Benefits of Investing Off-Plan
Properties that are not yet complete are generally priced far below market value, often by as much as 20%. During the construction process, investors benefit from capital growth and even interest on their deposit, in some cases. Many off-plan property investments are also extremely flexible when it comes to the deposit. Instead of intense pressure to put up a large upfront sum, payments can often be split incrementally over weeks or months.
On completion of the build, investors will likely benefit from strong capital appreciation as the property and rental prices must fall into line with the current market values. As many off-plan property investments are springing up across up-and-coming areas, this only serves to increase the possibility of such a prospect.
How to Make the Right Choice with Your Investment
As with all property investments, location is crucial when it comes to off-plan. Homes are rising in value in many towns and cities across the UK – the Northern Powerhouse in particular, which makes these some of the most prime areas for investment.
With this type of investment, it’s essential to look with a long eye and consider any factors that may impact on the property value in the future. This might include other property developments or general investment into local infrastructure that means improved transport links, easier and quicker commutes, and better local facilities, all of which will push up property prices.
You also need to consider the build itself and which amenities, fittings and value-added features are likely to be included as this is likely to generate higher and more consistent returns on completion.
Historic house prices and future trends are also a good indication of the popularity of your chosen area and whether rental prices are consistent or increasing. This will also give you a good idea of what the property is likely to generate on completion and whether strong capital growth is likely to continue.
Due Diligence Process
Due diligence is essential when investing off-plan as the quality of your investment is only as strong as the quality of your build. The best way to minimise risk is to choose a reputable, reliable developer with a strong track record and, ideally, speciality in the area.
It may sometimes be a case of choosing a mid-market as opposed to a high-end developer to find an investment that suits your financial needs. As long as they can be proven reliable in completing projects to standard, on time and to budget, then that should suffice.
Some developments may hold investors’ deposits in an escrow account or be covered by a warranty, but many investors choose to take solicitors’ advice for best practice and stronger peace of mind. Due diligence checks also mean confirming that the property has full planning permission; otherwise, you risk construction being cancelled. Be wary of developments that ask for very high upfront deposits, which could mean they are poorly funded and present a higher construction risk.
Typically, developers will have a brochure that includes essential details. In cases where the construction is already underway, you may wish to view a property before making any decisions about investing off-plan. As an alternative and for those new builds that have not yet begun, we advise asking the developers to provide detailed floor plans and any supporting documentation such as graphics and video content. If the developer has completed another build already, you can ask to visit the site and take a view on the finished product including utilities, interior design and floorplan.
Buying off-plan offers investors prices up to 20% below market value and the earlier you invest, the cheaper it will be. But it’s important to do your research, invest in the right area and select a trustworthy developer to harness the potential of this investment strategy. There is a massive opportunity for prospective investors, but it’s important to understand the complexities of the market before making any decisions.
Take the advice of property investment experts who know the market inside out and can recommend tailored investments to suit your financial needs and ambitions. Contact our team at Ivy today for more details.