Off-plan property is a popular choice for both UK and foreign investors looking to buy a lucrative buy-to-let property. The UK has seen a significant increase in off-plan property, with almost one-third of new homes being bought prior to being built. If you’re thinking about purchasing off-plan, this guide is for you.
In this guide, we will explore:
- What is off-plan property?
- Is off-plan property a good investment in 2023?
- 5 benefits of investing in off-plan property
- The risks of investing in off-plan and how to minimise them
- Step-by-step guide of buying off plan
As a property investment consultancy, BuyAssociation works to identify investment opportunities that align with your strategy and investment goals. If you’re looking for emerging property investments for sale, or would simply like some help understanding where there might be opportunities, talk to us today.
What is off-plan property investment?
Off-plan property investment is the process of purchasing a property (typically apartment blocks and units), before it reaches completion. Buying off-plan involves paying a reservation fee and deposit either before or during construction, with the intention of allowing the asset to increase in value once the build phase has finished.
In most cases, off-plan property investment involves a prolonged time commitment during the construction phase, adding an element of risk that investors must prepare for.
However, the increased value of a property, in addition to the discount offered on the purchase price by the property developer, is why off-plan can be more attractive than buying completed homes.
Is off-plan property a good investment in 2023?
The UK housing market is booming. And it’s not just the demand for new-build homes that are driving the increase in prices and sales – the demand for off-plan buy-to-let properties is skyrocketing, too.
- In 2021, 75% of investors chose to purchase off-plan as their primary investment strategy, indicating that they believe there is still a lot of growth to come in the UK property market.
- To address the ongoing housing crisis in England, 340,000 residential properties are required to be built annually up until 2031. Many of these new-build homes will present opportunities for off-plan investment.
- A 24.3% house price growth is predicted for the North West by 2026. This offers property investors a chance to secure reduced property prices, high yields and enhanced capital gains.
There are many concerns surrounding off-plan developments, primarily that they are ‘riskier’ than completed properties. Risk is inherent to any investment, but it can be minimised in the early stages of research. It is common to be concerned whether a development will actually be completed when investing pre- or mid-build.
The chances of the property not completing can, however, be significantly reduced by choosing a developer with a strong track record.
A short-term investment goal may not be best served by off-plan property. There won’t be an immediate passive income from the property since it will not be available immediately to let. Despite not having access to the property, investors have a high potential of benefitting from capital appreciation as value increases.
5 reasons why you should consider off-plan property for your portfolio
A record £1.1bn in deposits were paid on unbuilt property developments in 2021, illustrating the confidence held by homebuyers and investors in the UK housing market after the pandemic.
With property prices at a record high, new builds appealing to a wide range of tenants and the demand for housing increasing across the UK, off-plan property investment is a great way to earn income.
BuyAssociation has been involved in off-plan property investment for over ten years, helping clients profit from their investments, get on the property ladder and diversify their portfolios. We’ve witnessed first-hand the advantages of purchasing off-plan, and we’re here to share with you the reasons why this strategy can be a financial success.
1. You can often purchase units at a reduced cost
Off-plan buying has perhaps the biggest appeal when it comes to discounts, which is perhaps the most attractive selling point. In many instances, the discount is usually around 15-20% of the asking price.
Buying off-plan means you’re purchasing the rights to a property before it has been constructed or even designed. This allows you to negotiate with the developer for a discount on your purchase since they want people to sign up early and support their project as it gets underway. Early sales assist the developer in funding the rest of the project, so the best deals are often found at the planning stages of the project.
Off-plan purchases are not only a cost-effective option but also a more profitable one since the property value will increase over a period of time.
2. You have a choice of units
When you connect with a developer at the earliest stages of the project, you’re able to take your pick from the best units in a new development. You will receive floor plans from your property consultant when you buy your property, so you will know what its layout will be like and where it will be in the development, so you can choose what you think is best for you.
This allows you to get the most out of your investment by choosing the most desirable units and letting them go at higher rents.
- You may have the ability to select units with the most appealing features and attractive amenities to ensure rental demand is strong.
- Some investors are able to contribute to plans and interior design decisions such as fixtures and fittings. This is particularly advantageous if you have a target tenant type in mind, as you can opt to include relevant fittings and amenities.
- Many modern apartments offer large green spaces, gyms, cinema rooms, and social spaces, which increase their appeal to potential tenants and buyers.
3. Off-plan properties can be sold for a profit before completion
As we’ve already touched upon, the likelihood of an off-plan investment property increasing in value before completion is very high. Because of this probability, investors can opt to list their unit(s) for sale for a higher market value. This is a profitable method of earning money quickly and tends to be favoured by investors with short-term financial goals.
On the contrary, capital growth can be achieved and a higher profit can be earnt by tenanting the property. Not only will this become a solid source of regular rental income, it also allows the property price to appreciate further as time goes on.
4. There is high potential for capital growth
When you invest in off-plan property, your property will have increased significantly in value by the time the property is built.
This means that during the construction period, you will be able to make a return on your investment by selling some of your shares to other investors or family members.
You can also use this time to negotiate with the developer for better terms, such as a lower price per square foot or additional incentives like free furnishings and appliances or a reduction in closing costs.
5. Off-plan properties tend to be situated in prime locations
Recent reports suggest that the demand for apartment living in UK’s regional cities is rising. The phenomenon is not just restricted to London and other large metropolitan areas but is also becoming popular in regions such as Leeds, Glasgow, Liverpool, and Birmingham.
The rise in demand for urban apartment living has resulted in a boom in off-plan property sales. Off-plan properties tend to be situated in city centre locations, meeting the ongoing demand for urban apartment living.
The risks of investing in off-plan and how to minimise them
As with any investment, there are risks associated with investing in off-plan. It’s important to keep these risks in mind when deciding whether or not this type of investment is right for you.
One of the key benefits of investing in off-plan is that you can secure your property before it’s completed and ready to be tenanted. This helps to ensure that you get exactly what you want from your property, without having to compromise on anything. However, this also means that as an investor, you have taken on a financial risk.
Completion time: The most obvious risk of investing in off-plan is that the project may not be completed as planned. This can happen for a variety of reasons, including financial problems within the developer or builder, legal issues, or changes to the location of the development. If a project is cancelled, it’s common for investors to lose all or part of their investment.
If you’d like some reassurance on this front, make sure to research the developer’s track record before committing yourself to any one project. If they’ve completed other developments successfully in the past, this will give you confidence that they’ll be able to do so again.
Market fluctuations: Market fluctuations are another issue, which can make your investment less valuable than it was when you bought it. If there’s a drop in the price of similar properties in the area (or just a general economic downturn), that could affect your return of investment.
One way to minimise this risk is by selecting an area where demand is higher and market predictions suggest growth. This ensures that the chosen area has less chance of taking an economic downturn.
Construction issues: Sometimes, the contractors can go bankrupt, resulting in a pushback in construction. This delay can be costly and frustrating for both you and your investors, who may have already put down their deposits on this property and need their money back quickly so they can reinvest it elsewhere.
In this case, you need to make sure your contract includes a clause that specifies you will be reimbursed in full if the development does not go forward. It is also advisable to research the builder and look for off-the-plan developments designed by reputable companies.
How to invest in off-plan property: Step by step
If you’ve identified off-plan property as a key contributor to your portfolio’s growth, now is the time to locate a development project.
We’ll take you through the process.
Here’s how it works:
- Identify a development and location
The first step in investing in off-plan is to identify a development and location that you’re interested in. You’ll want to research the area and check out the developer’s track record, as well as how much they’ve already sold. If you find a development that looks promising, you can start looking at individual units within that development and trying to gauge how much they’re likely to sell for once they’re completed.
- Arrange the financing for the property and reservation fee
It’s important to make sure that you have arranged your financing before you start making any payments. In fact, many developers will not allow you to pay anything until you have secured financing from a bank or other lender. The amount of the reservation fee will vary according to the developer, but it will be deducted from your deposit.
- Exchange contracts and pay the deposit
Then you will exchange contracts with your developer and pay the deposit (usually between 5-10%). At this stage, it’s vital to read the terms and conditions of the contract, this ensures you understand the predicted completion date and any other terms you need to know as an investor. It is important to consult your solicitor about the legal implications of your purchase, prepare your buyer requirements, and present any escape clauses in the event that the work on your property is delayed.
- Make staged payments
You may be required to pay the developer a small amount of money at each stage of the development, and when it’s complete, you get your full investment back plus any profit you made on the property. The developer often uses these payments to fund the construction process, benefitting both you (with affordable instalments) and the developer (with consistent funding).
- Plan for completion
Once the building has been constructed, you can get plans for each unit so that you can choose which one(s) you want to buy. Once this process has been completed, it will be time to purchase stamp duty, ensure all necessary buy to let legislations are understood and in place and surveys are carried out.
Ready to Invest in Off-Plan Property?
At BuyAssociation, we work with established developers across the UK. We can help you secure a multi-unit property portfolio that’s tailored to your needs and interests.
We know how important it is for investors to explore opportunities like this with an experienced partner. That’s why we’re here – to help you get started on the path to buying off-plan properties.
We receive exclusive discounts for our clients, secured at the earliest stages of development. Invest with confidence by working with the property investment consultants at BuyAssociation today.