What are the benefits of off-plan property investment?
“Investing in property before it’s been built, known as off-plan, has become an increasingly popular way for both individual and institutional investors to achieve greater returns, but some are put off by the idea of something they haven’t seen” (Buy Association). What are the benefits of buying an off-plan property?
As the housing shortage in the UK worsens, government actions to get more new-builds onto the market has seen the dramatic increase of people looking into off-plan developments as an opportunity for personal housing, buy-to-let and “flipping” investment opportunities. There has been an increase in investments for major property moguls, all the way down to first-time buyers (Buy Association). But, what are the actual pros and cons of buying into a development that you may not even be able to see in the flesh for a year or two? Are there any things investors should be concerned about before going down this route?
One of the major advantages to buying property off-plan is the additional space this type of investment gives you – not physical space, but time. When buying one or many units in the traditional way (completed) you are bound by a strict time limit to find the necessary funds, and if you’re planning to rent the property, finding suitable tenants. However, by buying off-plan this will give you more time to consider how your investment will best work for you; you will have more time to market your property to potential buyers or tenants and find the perfect ones for you.
As well as “breathing space” with the time you have to consider your investment, there is also the benefit of staged payments on off-plan investments, meaning you will only have to pay a small reservation fee, then make payments (often 25% a time) throughout the build period until completion. With this option of staged payments available on almost all off-plan investment opportunities, it will allow you to “better budget your investment and ensure money is in your bank for as long as possible giving you piece of mind and security” (Property Circles Network).
Off-plan investments also have the advantage of being valued much lower than completed housing, meaning that by securing the accommodation in its preliminary planning or building stages you can often end up paying a much lower price than the price at completion, due to the changing market and time it takes to build. This will not only increase the rental yield you could gain from the accommodation if you are buying to let, but if you are planning on selling in the future, can also dramatically increase your capital appreciation compared to traditional buying (Buy Association).
On top of this lower price you could pay for the property, there is also a number of developers who offer additional discounts for early investors – discounts that could reach as high as 5% in some areas (Buy Association). Not only can you take advantage of great discounts, you can also have the opportunity to be more selective of the unit(s) you choose, getting the best option for your investments. This selective advantage in choosing the perfect property, units or block for you can allow you to take advantage of the higher rental fee you may be able to secure due to the units’ location in the building, and therefore give you higher yields.
Not planning on investing in buy-to-let? A number of developments that are able to be bought off-plan to be sold on at a later date can also give you the opportunity for large equity growth from the time of purchase to the time of selling, compared to buying a completed property. “For examples, currently in Manchester, terraced properties may increase by around 5% annually… With buying off-plan apartments or townhouses, the equity growth from the day you reserve to the day of completion (which is usually around 1 – 2 years later) is somewhere in the region of 20% which is a huge difference by comparison” (Property Circles Network).
One of the biggest debates when it comes to whether buying off-plan is a better investment opportunity is how easy it will be to get a mortgage. It is possible to secure a mortgage when buying off-plan, however it’s important to consider that different lenders may have different criteria for this kind of purchase. It’s also important to take into consideration the longevity of your mortgage offer – many mortgage offers run out after six months, so if the development isn’t going to be ready in this time you may have to re-apply for your mortgage, which may have changed due to the lenders criteria and the price of the unit down the line.