Guide To Off-Plan Property

Buying off plan is typically a great way for investors to buy real estate at a discounted price during the construction process. Watch our guide to off plan property video to understand the full process of buying off plan property and what to watch our for if your looking to invest off the plan.

What is off plan property?

Buying off plan property typically means purchasing a property during the construction part of the building process. It’s usually purchased at a discounted price to the actual value of the completed state making it attractive to property investors.

Generally, the investor will need to pay a reservation fee and a deposit. The deposit can be anything from 10-20% and upwards of 30% depending on the developer and development.

Why buy off plan property?

There are many advantages to buying off-plan property, all of which contributes to the overall aim of capital growth and a secure investment. With a rapidly growing housing market, many investors are taking advantage of purchasing the property at a lower price before completion.

Another attraction to off plan property is the freedom of selecting your preferred unit. If you’re happy with the location and developer, you usually have the choice of specific location, features, rooms and much more. Furniture packages are also available for those looking to quickly kit out their home hassle free.

Of course, off plan properties are new or refurbished builds. This guarantees a contemporary build which benefits from modern features such as energy efficiency, environmentally-friendly specifications and other requirements that new builds have to apply to. This generally leads to cheaper bills for tenants and potentially higher rental prices.

When to buy and sell your off plan properties?

When to buy and sell your off plan properties is all down to personal choice. Many people choose to sell the property once it’s completed, reaping the rewards of capital growth during the build process which may take a few years. SevenCapital Off-Plan Past Performance demonstrates as high as 30% growth over the build process.

Others choose to rent out the property achieving higher yields and creating sustainable capital growth over many years. Rental yields vary depending upon location but we are currently achieving 7% on many of our developments.

Can you sell off plan property before completion?

When it comes to off plan property investment, as with any investment, there are many different benefits but you should always have an exit strategy.

Many investors run with a strategy of selling off plan before it completes but this can come with several risks. That said, if your circumstances change, you may find yourself in a position where selling is necessary.

Selling off plan before completion is dependent on your contract. Some developers bar investors selling to avoid ‘flipping’ off plan property. If your contract allows selling before completion, just remember that more often than not, you can’t simply sell the off plan property to a third party unless the contract allows you to.

If you decide to sell before completion, don’t forget to consider any capital gains tax, selling commissions and legal fees that come with the transaction.

What else you should know to make a good off plan investment

  • Location is absolutely key when looking to stimulate growth within your purchase. Almost the entire UK property market is growing but some areas faster than others. As an example, Birmingham, Manchester and Edinburgh were the fastest growing cities in the UK for 2018 with highs of 7.2% growth!*
  • Watch out for regional growth plans such as Birmingham’s ‘Big City Plan’ which aims to make transformational changes to create a world-class city centre.
  • Transport links and access is also highly desirable for people looking for growth. The two largest transport developments happening in the UK right now is HS2 and CrossRail. Both of these rail developments aim to bring faster and more efficient services.
  • Rental yields – Discover whether there is demand from tenants if your planning on making a buy to let off plan purchase. Ensuring your property isn’t vacant for periods of times will stop your cash flow being affected.

What are the risks of buying property off plan? 

As with any investment, there are elements of risk and that’s why it’s very important to go with a property developer that is trusted. Firstly, it’s important to know the developer working on the project. Research the developer and ask the questions; How many developments have they completed in the past? What are their building standards for these completed projects? Are they financially stable? Finding out these answers can set your mind at ease and help avoid the worst case scenario of losing deposits if the developer goes bump.

There are also external factors to be aware of before making an off plan property investment such as property values falling. This could affect lending on the property meaning your deposit will need to be higher.

Ensuring you also have guarantees on your property such as SevenCapital’s 10-year structural guarantee is vital and you should always check to see if it’s included within the contract with your developer. This could protect you against defects that may occur when you complete on your property.

Help to Buy off plan properties

Help with buying off plan property can now be found through government schemes such as ‘Help to Buy’.  This is a Government Equity Loan that lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.

You can find more information on the Government Help to Buy website.

Off Plan Developments

Giving diligence its dues

Whatever the size and scope of your property investment activity, undertaking proper due diligence from the outset of any purchase is an absolute must.

Thankfully in today’s fast-moving digital world there’s a wealth of intelligence available at prospective buyers’ fingertips to help guide their decision-making early on in the process and prevent costly and potentially deal-breaking concerns from cropping up further down the line.

Typically, on an initial purchase, first time investors will look to the more obvious indicators such as past prices of properties sold in the locality and the potential for future growth to guide their decision-making, but there are a wealth of further considerations that still merit attention.

An obvious first step is to rule out whether there are any land use constraints on your chosen location. While unlikely to be applicable to a new build city centre apartment offered by a reputable developer for example, if your property is deemed to be in an area of natural importance, such as a conservation area or Area of Outstanding National Beauty, this could seriously curtail any further adaptions or changes you may plan to make in future.

Similarly, if the property is one of the 5 million in the UK thought to be at risk of flooding from river, sea, ground or surface water you certainly need to know in advance. While such issues aren’t insurmountable, making precautionary provisions can prove costly and certainly need factoring into the decision-making process. The Environment Agency is a good place to start your research but flood risk consultants can also play a more involved role where concerns are stronger.

The growth in building on brownfield sites has also brought into sharper focus the issue of contaminated land. Again, if buying off-plan from a reputable developer such issues will of course have been addressed in advance but for smaller, more bespoke developments it still pays to check with the local council regarding historic land use.

What’s more, future building and construction plans for the local area should always be given keen attention as any future development that affects the property’s appeal or views could have a significant impact on your bottom line. If in doubt, investors can check with their local council register.

Finally, for urban and city centre developments, having a detailed understanding of the impact of local traffic and noise is essential to the viability of your investment over the longer term, particularly when deciding who your target future tenants or buyer might be. While young professionals for example may highly value the availability of late night services and entertainment, it is likely to be far less appealing to families.

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