Why Seasoned Investors Are Switching to Off-Plan Property
Introducing Off-Plan Property (Video)
When investing in property, there are typically two key objectives to consider – high rental returns and capital growth – both of which can be achieved when purchasing an Off-Plan property.
Buying Off-Plan property has a slightly different initial process to buying pre-tenanted or pre-built Buy-to-Let properties but comes with its own unique advantages and benefits.
Off-Plan Property Investment Explained
Investors or home buyers typically purchase Off-Plan 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. This is an attractive prospect to investors alike due to the high leverage of the deposit during the build period.
Potential for Strong Capital Growth
A key incentive for investing Off-Plan is the potential for attaining capital growth as the property grows in value over the build period. If it has been purchased at a discounted price from the beginning, this can mean exceptional growth before the property even completes. With this in mind, some investors choose to immediately put their property up for sale to make a profit. While this short-term strategy is ideal for investors looking to see returns quickly, investors will see much more capital appreciation by tenanting the property over a long-term period – gaining the benefit of regular rental income in addition to increased value.
The Off-Plan Market Status
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.
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 a 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.
Off-Plan Investment Opportunities
With over 6,000 units already delivered and more in planning there are still many opportunities to invest in Off-Plan property across key locations in the UK. Explore our locations in the links below.