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Insight & Opinion

Off-plan property investment: What are the benefits and most common pitfalls to avoid?

Author: Staff





he UK is renowned globally as a location for property purchases. From first-time buyers and growing families through to buy-to-let landlords and international investors, bricks and mortar across Britain is in demand.

Take the residential sector on its own; last year, the total value of UK housing stock increased by £190.3 billion to reach a record high of £7.29 trillion.

It means that there is a plethora of options available to those who are keen to enter the property market or expand their portfolio. One of which is through off-plan property investment.

It is an approach that can make some buyers nervous – the prospect of putting money down for a house or flat that is yet to be built can be daunting. However, it also presents a number of significant benefits.

So, what are the advantages of investing off-plan, and what are the common pitfalls that you must avoid if pursuing this option?

The benefits of buying off-plan

The most obvious benefit of buying off-plan is that you will typically purchase the property at a discounted rate. Even if it is not yet complete – or perhaps construction has not begun – the asset will still have a projected market value based on its location, specifications and finish; but developers or their sales agents will often provide a discount of between 5% and 20% to those buying off-plan.

Further to this, the buyer also stands to gain from the capital growth of the asset during the time of construction. That is to say, if the local market sees a 6% year-on-year growth in property prices, then the off-plan purchase will also appreciate in line with this, meaning that by the time the development is complete, not only will the buyer have benefitted from an initial discount, but he or she will also now own a property that has risen in value from the price they bought at.

Other advantages stem from the fact that you are buying a new-build; this means there will be no issues from previous owners, it ought to be energy efficient and repair costs should be minimal because everything is brand new.

When investing with Experience Invest, there is another key benefit. We offer assured returns on your investment throughout the development period – so when you invest off-plan you receive up to 8% NET back on your investment each year until the project is completed and the property is ready for the buyer to live in, rent out or sell on.

So, that’s the case for off-plan property investment, but what are the common pitfalls to watch out for?

Choosing the right location

Location, location, location – everyone knows that is hugely important in any property purchase. But for off-plan property investment, when you cannot see the finished product that you are purchasing, factors such as location become even more important.

Those buying off-plan as an investment must consider the current strength and future forecasts for a particular area, both in terms of price growth and rental demand. Take popular university towns and cities like Liverpool or Newcastle as an example – these places are characterised by high demand from students and young professionals for rental properties. And so, for investors aiming to rent the property once it’s complete, these are ideal locations, ensuring you will find tenants and achieve strong rental yields.

More generally, a buyer wants to ensure the capital growth of the asset, so monitoring house price growth in a specific region is advisable. A good starting point is to use property portals (like Zoopla and Rightmove) to track market trends.

Getting guarantees on the quality of the build

If you are buying off-plan on the assumption that the property is going to be of a very high standard – which will, of course, be reflected in the price you pay – then it is vital the finished product meets those standards.

Importantly, there are forms of protection against this problem. For example, some developments are covered by a warranty, such as the NHBC Buildmark, which can give buyers some peace of mind.

The NHBC Buildmark is a 10-year warranty scheme that offers protection for newly-built or converted homes, starting from the initial exchange of contracts. Importantly, if problems arise as a result of the builder failing to meet certain standards, the cost of any remedial work will be covered.

Working with reputable developers

The other way investors can ensure the quality of the build meets their initial expectations is to work with reputable developers.

Off-plan buyers should carry out thorough due diligence on the company developing the property – this involves seeing previous projects, including both the plans and the final product, to make sure the business has a proven track record of bringing their designs to fruition. Indeed, looking through the developer’s past portfolio will offer a strong indication of the quality of their builds and offer assurance that the upfront investment will result in a great property.

Ultimately, there are many significant benefits and opportunities on offer from buying off-plan. And with a nationwide emphasis on building more residential real estate in the years ahead, there will be plenty of new developments to buy into.

As with any investment, there are risks. That’s why research is to be done before any money is handed over. However, for those who know what to look out for and choose the right people to invest with, off-plan can be an effective and profitable approach of buying into the UK’s globally renowned property market.

If you’re thinking of entering the UK’s property market via this route, consider these 10 important questions to ask when buying off-plan investment properties.

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