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UK property investment news and trends

UK’s property market has remained a hotspot for off plan property investment.

An International Monetary Fund chief has signalled that it will upgrade its growth forecasts for the UK in 2017 to reflect stronger-than-expected economic activity. Read more…

Despite Brexit uncertainty, an improved economic outlook, rising property prices and strong returns from key asset classes helped the UK emerge as a prime location for off plan property investment.

These contributing factors have helped cement the country’s position as a ‘safe haven’ for property investors.

Off plan property now considered mainstream

Buying a property off plan has become a mainstream option due to UK’s current housing shortage and calls for new-build properties in key locations. Read more about the housing shortage here…

This high demand has meant that property developers have opted to sell their property to potential residents and investors before they are built.

In this feature length article, Experience Invest takes a look at whether you should consider off plan property investment in the UK.

off plan property for sale

Things to consider when buying an off plan property investment

If you have a well-established developer, a good location, a strong local market and a contingency plan, off plan property investment may be a good way to secure returns from the UK’s property market.

Buying off plan may allow you to select the best units within the development. Whether it’s a commercial unit, a student room or a residential house or apartment, you will have a greater choice of units if you enter the investment early.

Investors shouldn’t feel disheartened if they enter at a later stage. Some schemes hold back ‘premium’ units to tempt investors at a later stage of the build. There may even be a second or third phase of the development in the pipeline.

Do your research…

If you decide to buy off plan property, make sure you do your research on the developer and ensure that there is a contingency plan in place if there are any delays in the build phase.

Use a solicitor who is experienced in off plan property investments and enquire where you funds will be held throughout the build stage. For peace of mind, ensure that your money is only released upon Architect Certification.

Make sure it will get built…

Investors you should only buy into a project where planning permission has already been granted for the full development.

off plan property for sale

The development company could go into liquidation

This is one of the main risks when investing in off plan properties, as many unforeseen things could happen which could stall or hold up the build. However, choosing a well-established developer with a proven track record, that is heavily invested in the project, is one way to reduce the risk.

Furthermore, reputable developers will have specific processes in place to protect investors funds throughout the build stages. For example, investors’ funds should be held in solicitor’s bank account.

The money is only released to the developer at certain stages of the build and upon architect certification that the build stage has been completed to a satisfactory level.

This way the risk of the developer going into liquidation is minimal, as the build has been essentially paid for, and a new team could take over and complete the project.

Off plan calculator

Calculating the correct build costs

This can be a problem but by working with experienced contractors and a project management and monitoring company this risk can be greatly reduced as build cost and budgets and closely monitored and adhered to. Also the solicitors will only release the funds once the project monitor also sign off that the work has been complete similar to the architect certificate mentioned above.

The independent project monitoring service will sit separately from the usual professionals (architects, surveyors, project managers and contractors), whose primary task is cost management and invoice payment monitoring.

Another way to reduce this risk is for the developer to enter into a fixed price contracts for the various parts of the build which means that mistakes in calculations will be the responsibility of the contractors and not the development team.

Buying off plan

The project could take longer to build than expected

Various external factors can result in delays to the build like bad weather, delayed materials and unexpected problems onsite.

These risks can be reduced by asking question of the experience and track record of the developer. An experienced developer should have contingencies in place for any overruns in completing the build on time.

The contactors should provide regular reports and check off the various stages of the build. This enables the developer to foresee any potential delays and enable them to avert them by allocating extra resources or manpower.

Good developers will keep off plan investors up-to-date throughout the build with regular progress reports.

Most off plan developments will have a longstop date where there will be contractual conditions and consequences for the developer if construction has not completed on time.

In most cases the investors can withdraw the offer to buy the property without any penalties.

Off plan property investments

Location, location, location

Property developers should have carefully researched the location and potential demand for the properties they are building.

However, it is always worth doing your own homework and research.

Look at what businesses are in the area, schools, universities, hospitals, shopping centres, commercial and industrial centres.

Flourishing areas are a good sign that the location is popular, meaning there will be plenty of tenants looking for accommodation.

Should you buy off plan property?

What if property prices fall?

Although it is impossible to predict future property prices, we can see from past history and demand in the specific areas if property prices have been steadily rising. Looking at the market as a whole will give you a general idea.

When investing, it is a good idea to look at similar property values and rental income in the immediate and surrounding areas to make sure the developer asking price is realistic.

If the developer is selling off plan properties fast, you can see that there is an appetite for the housing and that other buyers are happy with the level of pricing.

You can also ask for an up-to-date RICs valuation to see what the professional surveyors anticipate the properties will be worth upon completion.

Off plan tips

UK property prices

Although it is impossible to predict future property prices, we can see from past history and demand in the specific areas if property prices have been steadily rising. Looking at the market as a whole will give you a general idea.

When investing, it is a good idea to look at similar property values and rental income in the immediate and surrounding areas to make sure the developer asking price is realistic.

If the developer is selling off plan properties fast, you can see that there is an appetite for the housing and that other buyers are happy with the level of pricing.

You can also ask for an up-to-date RICs valuation to see what the professional surveyors anticipate the properties will be worth upon completion.

Unless the overall market crashes for some unforeseen reason, you should be able to confidently anticipate the value of the property on completion.

rewards of off plan property investment

Prime location

Most developers build properties in areas with a high demand for housing, or in an area with a specific shortage of a certain type of purpose-built accommodation (student, care homes, residential apartments).

They will also select central town and city locations with economic growth and thriving property markets. This way they know the demand will be high, so they will be able to sell and rent the properties with relative ease.
Therefore, buying an off plan property for investment should mean it’s in a high demand area.

Of course if you are entering an off plan property investment with the idea to live in it, you will have your own personal preferences.

New build warranty

Unlike other property purchases, new-build off plan property often comes with a 10-year warranty period. Buyers have the peace-of-mind that their property is covered, should it require repairs in the warranty period.

off plan prperties

Pick of units

When you purchase property off plan you can select the type and style of property you like the most. Investors get the widest choice of units when they purchase at the start of the investment. This means you can choose your favourite unit from the floor plans.

With high-end, luxury properties you can even get the floor plan tailored to your exact requirement and specific specifications.

Pick fixtures and fittings

Just as you can pick your preferred unit, you can also pick the fixtures and fittings and again in the top-end luxury developments the sky can be the limit.

That said, it if is high rental returns you are looking for, or if you are on a lower budget, then you can select the more basic fixtures and fittings to reduce cost and maximise returns.

Off plan property investment tips

Build-to-Rent sector

The Build-to-Rent sector has grown substantially over the last few years. Read more…

The properties are designed and constructed with the rental market in mind and tailored for that rental demographic.

One of the most popular sectors is the purpose-built student accommodation market, but developers also build houses in suburbs specifically for the family market and centralised apartment blocks for the younger rental market.

Depending on the type of end-user, the building with have different features and facilities.
The Build-to-Rent model helps to ensure the properties will be desirable for the intended market and therefore easier to find tenants and rent out.

Modern facilities

New build, purpose-built properties tend to have extra facilities included. Depending on the type of property and the end user, some developments include extras like gyms, cinema rooms, restaurants, swimming pools, spas and ground floor retail outlets.

Assured returns

Some off plan property developers offer investors an assured rental income for a number of years.

Off plan buy-to-let opportunities may even yield higher rental returns than older properties on the market. According to HSBC research, landlords are able to secure rental yields 1% higher on new, modern properties.

This is a great benefit as investors have the assurance that they will receive regular income. They will have the confidence that the property they have purchased will be able to produce a certain level of income.

Following on from the incentive section of this article, investors need to make sure the developer hasn’t just factored the rental income into the selling price, and that the rental income is realistic.

It is a good idea to contact local estate agents to check out other similar and comparable properties in the areas to see how much they rent for. Also look at how quick properties in the area are on the market for before they are tenanted – this will give you an idea of the actual demand and fair market rates.

Tips off plan

Fully managed

Many developers will either appoint an experienced management company to look after, maintain and tenant the property on the behalf of the investor. In some cases, the developer will have a subsidiary or separate company to do the management themselves.

This is important for developers who offer assured rental income because they need to make sure the properties are well looked after and tenanted.

There are many rewards to investing in a property off plan. If you are careful and do your research, most of the risks can be greatly reduced to give your off plan investment the upmost chance of success.

Should you buy off plan to get the most out of your money?

Whether it is for an investment or somewhere to live, off plan property investment may provide a low entry level way to get onto the UK’s property ladder.

Off plan property investments in the UK can offer investors some great rewards. If you would like to discuss opportunities in this sector, contact Experience Invest today.