Off-plan property has a slightly different purchase process when compared with pre-built developments and research is key. Looking at the facts, a total of 118,760 new homes were completed during 2014, an 8% increase from the previous year. In 2015, the number of homes currently under construction has jumped a further 10%. While the current housing shortage in the UK is no doubt pushing up demand for construction, off-plan property continues to appeal to new and existing investors and landlords.
Is it more beneficial to be investing in off-plan as opposed to a pre-built property? Let’s take a look at the positives and negatives –
The Pros
• Good deals: One of the reasons off-plan is so popular with investors is due to the discounts that can be achieved. Staged payments and premium rates are typical with off-plan purchases but if investors are quick, they can often obtain discounts during the early stages and seek to get a further discount if multiple properties are purchased at once.
• Long term gain: Negotiating on price before a property has been built allows room for capital growth. As house prices increase over time, the property is likely to be worth considerably more at ‘completion’ stage than it was when the price was initially agreed. It’s even possible for investors to re-sell their property upon completion for a much higher price than they initially paid.
• A handpicked property: Many investors like the idea of off-plan as it allows them to secure a more desirable unit from beginning, which could potentially see them achieve better returns further down the line.
• Strong returns can be made: By focusing on new and emerging location hotspots, investors can look to gain the same, if not better, returns than they would with any other traditional form of property investment. Agents like Sequre can advise on these types of factors, and help establish average yields and property prices for specific areas.
• Brand new home: New build properties are desirable to a wide market. Owning a property that no one else has lived in will be easier to rent out, even more so when fixtures and furnishings are included.
The Cons
• No immediate income: Off-plan property does have a void period whilst undergoing construction which results in delayed rental income. The ability for capital growth may remain strong, but it could be months before initially seeing any returns, so plan well financially to avoid any cash flow issues.
• Risk of delays: As with any form of investment, there is an element of uncertainty involved. Unexpected issues can occur that may be beyond your control which could all result in construction being delayed. Find out a completion date before you purchase and ensure all your contracts are watertight to minimise the risk.
• Reliance on CGIs: When purchasing off-plan, you are reliant on CGIs (computer generated images). This is common practice but may seem unusual for those purchasing off-plan property for the first time. Housebuilders have always operated this way however, it’s something to be mindful of when investing in off-plan property. You can always visit a previous development by the same housebuilder to take a look at the quality and finish.
One final piece of advice: do your research as thoroughly as possible. Purchasing off-plan can be a great way to build up your buy to let portfolio by investing in new developments that are likely to experience capital growth and great returns. As long as due diligence is done correctly, off-plan property is a great future investment and one that could see a return before it’s completed.
