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Learn more 18 Oct 2022
The Pros & Cons of Investing Off-Plan
Category: Off-Plan Property
Purchasing a property off-plan is a wise investment choice, but we understand it can be challenging if you have not done due diligence. Off-plan properties give buyers added flexibility to choose apartments within the development and are chain-free, resulting in smoother sales transactions. However, processes may not always run according to plan during construction, this may impact the entire sales process.
The Pros of Investing Off-Plan:
1 | Attractive Prices, Below Market Value
An attractive price point enables developers to sell a high volume of apartments before construction. However, for investors, off-plan properties are set below market value because developers understand the inconvenience of not being able to move into the property immediately. Another benefit of purchasing off-plan is that you do not need a large deposit. Investors only need a small sum of money to pay for the exchange payment initially, and the completion payment is due at a much later date.
2 | Gain Instant Equity
Property prices strengthen over time which is why the property market is the safest and most secure investment option. Plus, with off-plan purchases, investors are more likely to see the price of their property grow much faster. Investors can maximise profits by purchasing a property during the early stages of construction.
Economic growth in an area influences the capital appreciation of a property. For instance, a property close to a regeneration zone will appreciate more than a property in a derelict location. As the value of a property increases over time, the investor can re-sell the apartment for a higher value, gaining instant equity.
Useful links:
How Social Infrastructure Affects Capital Growth
3 | First Pick of Apartments
When purchasing a property off-plan, investors have the flexibility to pick the units they desire. Therefore, investors can choose apartments with certain features, such as balconies or opt for an apartment on a higher floor. Fortunately, some developers also allow buyers to select elements of the build, such as the colour palette or choice of flooring, making each space truly unique.
4 | Energy Efficient
Off-plan properties are newly built, therefore, must adhere to strict sustainable specifications. Developing greener properties benefits all parties. The developer takes a step towards a greener future, and the occupant benefits from living in an energy-efficient property.
A greener specification often leads to a higher EPC rating, therefore bills are often cheaper – this is a huge selling point for investors and a factor which will drive tenant demand. Due to the inflating demand and energy-efficient specifications, investors can charge higher rents. So, in the short term, investors could secure higher yields.
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5 | New Build Warranty
New-build properties generally come with a 10-year build warranty, giving investors peace of mind. A brand-new home is a blank canvas, allowing buyers to dress the space however they wish. There is often less maintenance in the early stages with a new build, as opposed to an older property, because everything is newly installed (appliances and furniture), so the need for repairs is less likely. Therefore, a new build property reduces additional expenses for the investors, allowing them to bag more of the profit.
The Cons of Investing Off-Plan:
1 | Not Looking Familiar?
Sometimes the final build may not represent the initial illustration of the development. Regardless of the images rendered, you can never be sure what a property will look like until constructed. Therefore, if you base your entire investment (which is unlikely) on an artistic impression of the development, then there may be an element of risk.
Therefore it is crucial to work with a reputable investment agency. At CityRise, we guide our clients through the process of purchasing off-plan and provide all the information required. Rest assured, you are in safe hands; we conduct our due diligence on developers, so you do not have to. The computer-generated graphics we provide clients, closely resemble the development – so investors know what they are purchasing.
2 | The Dreaded Delay
Delays on new-build projects are not unheard of, this could be the case with the build process. Unfortunately, delays may be caused by a lack of funds for the project or shipping delays when handling materials.
It is crucial to consider the past performance of the developer you wish to purchase a property. At CityRise, we produce a comprehensive due-diligence report on all the developers we partner with. We work with the best developers in the market, known for delivering projects on time and to an excellent standard. We also ensure transparency throughout the build process, providing regular construction updates to clients.
As previously mentioned, delays can cause knock-on effects. If you are purchasing the property with a mortgage and there are unexpected delays, there is a possibility the mortgage offer may expire. Often, mortgage offers are valid for six months, so if there are delays, you may have to re-apply for a mortgage or request an extension.
3 | The Disappearance of the Developer
To clarify, this has NEVER happened at CityRise, nor do we expect it to happen in the future. Primarily because the developers we work with are well-known reputable developers with an excellent track record.
However, if you work with an inexperienced agency or deal directly with a new developer, there may be a slight possibility that the developer could run out of money. If this happens, you could lose your deposit if it is not protected.
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