Pros and Cons of buying off-plan

Pros and Cons of buying off-plan

 

Introduction

 

The definition of an off-plan property investment is buying a property before the building has been completed. Investing off-plan can be a very attractive proposition if you know what you’re looking for. They won’t need decorating, repairing or refurbishing; they’re going to be more energy efficient; and they will be significantly more economical to run than older properties. Not only that, you will also get structural and contractor guarantees which is a real bonus.

 

Let’s take a quick look at some of the pros and cons of this type of investment:

 

Pros

 

- You stand a great chance of getting a good reduction off the market price

- There is no interest to pay whilst the building is being constructed

- Deposits tend to be well below 15% on off-plan developments so less of your cash is tied up

- If market values continue to go up, then you may already have made a profit by the time the property is built

- If you get in quick then you will probably be able to select fittings such as flooring, tiles, appliances etc and add value to the investment

 

 

Cons

 

- If market values crash then you still have to pay the originally agreed value

- You don’t have control over what might get built around the property so this might adversely affect values or increase rental competition

- There may be significant delays on the development or the developer may go out of business and the property never gets built. This is obviously worse-case scenario and pretty rare.

 

Investing off-plan can be considered a risky investment strategy but there is significant profit to be made if you’re happy to take the plunge. Off-plan investment is about taking a long-term view of your investment strategy with the understanding that the benefits you are likely to yield will ultimately outweigh the risks.

 

Due Diligence

 

At Barrows & Forrester we carry out detailed due-diligence of all our off-plan property investment opportunities. Before we present an opportunity to our clients we will carry out comprehensive checks on:

 

-       The financial stability of the developer

-       Past history, experience and success of the developer and management company

-       The land registry and leasehold/freehold ownership of the development site

-       Any relevant planning documentation

-       Building warranty documents

-       Projected price list, service charge, management company costs

 

A few years ago the idea of investing off-plan would put a lot of first time investors off but the landscape of the UK property market has changed so significantly in recent years that investing off-plan has become commonplace.

 

The wide range of new builds and purpose built student accommodation that are shooting up purely for rental purposes has created a surge in the investment market and, faced with virtually guaranteed returns, investors are happy to get involved in off-plan investments because of the fantastic returns that can be gained.

 

Of course there is always a degree of risk in any off-plan investment but there’s no doubt that the positives significantly outweigh the negatives and that’s why so many investors are taking advantage.

 

Early Discounts

 

If you get in early then there are often good discounts to be had. Developers need to ensure that their project is successful and they will be keen to cover some of their up-front costs. By getting in quick you can take advantage of significant discounts. Another benefit of getting in early on off-plan investments is that you will have the pick of the development in terms of its location. This can add value to the property in the long-term.

 

With many off-plan developments you can benefit from stamp duty concessions, making further savings on your investment. And with house prices on the rise, you stand an excellent chance of making a profit straight away. As soon as the property is finally built it has already likely to have gained in value, which is a great start to any investment.

15 September 2016
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