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Why Seasoned Investors Are Switching to Off-Plan Property

Whilst the buy-to-let sector works to navigate its way around the latest tax changes and tighter lending rules, a growing number of landlords who want to continue to invest are recognising the opportunity to be had by switching to off-plan property.

To counteract the extra costs landlords are now faced with, it’s more important than ever that they seek to find the most high-yield investments for the future. This is where off-plan investments in emerging markets offer great potential.

Landlord Challenges

Landlords have experienced a number of challenges in recent months, with the main issue being the changes to tax relief. As part of Section 24 of the Finance Act, by April 2020, landlords will no longer be able to claim a reduction on their tax payments by offsetting their mortgage interest costs, meaning tax bills will generally increase.

Minimum EPC ratings of E will also be required on all rental properties, which could mean added investment. Additionally, many landlords renting out houses in multiple occupation (HMOs) will also need to apply for licenses to ensure they comply with the new mandatory conditions which will be enforced in October 2018.

These challenges have seen the number of buy-to-let mortgages being taken fall to 12.5% of total lending. The fall in lending can be explained by the growing popularity of crowdfunding and the number of cash buyers increasing, as they cash in on mature investments in London and re-position in emerging markets to the North such as Birmingham. Despite the dip, the private rented sector is continuing to grow as tenant demand increases.

Is Off-Plan Property a good investment?

Buying off-plan property in up-and-coming areas outside of London enables landlords to secure luxury, well-located property before they hit their most competitive prices. Off-plan developments can offer maximum potential profits as opposed to buying second-hand or after completion.

Many off-plan properties are designed to be ‘build-to-rent’, a sector which is quickly rising and has grown five-fold since 2013 according to the British Property Federation and Savills. With net yields often assured for the investor, it can offer a clear opportunity.

In terms of the upcoming challenges landlords are experiencing when owning a rental property, the minimum EPC rating is a big one. By investing in a new development, you’re essentially investing in an energy-efficient property which will be a huge draw for tenants.

Why buy Off-Plan Property?

Buying off-plan is often an appealing option for investors thanks to the discounted purchase price compared to the value of the completed state. It also allows the purchaser to place a deposit to secure the property while construction takes place. During that period of construction, the value of the investment, particularly in sought after and upcoming areas, can grow substantially.

You can view the benefits of buying off-plan property in our Off-Plan Property Investment Guide. 

 

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