New smart construction initiative could see new-builds go up 50% faster off-plan property investment

The complete guide to off-plan property investment

Off-plan property investment is a well-established strategy used by both investors and homebuyers to maximise their purchase. Our guide can help you decide if it’s the right option for you.

Off-plan property investment is the process of buying a property (including houses or flats) before it has been constructed. 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.

6 advantages of off-plan property investment

1. Reduced cost

Off-plan buying has perhaps the biggest appeal when it comes to discounts, which can be the most attractive selling point. You have more room for negotiation with the developer, as they generally want to get buyers signed up early on projects.

2. Wider 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, allowing you to choose the best unit if you get in early enough.

3. Off-plan properties can be sold for a profit before completion

The likelihood of an off-plan property investment increasing in value before completion is very high. Because of this, investors can opt to list their unit(s) for sale for a higher price than they originally paid. This is a profitable method of earning money quickly and tends to be favoured by investors with short-term financial goals.

4. High potential for capital growth

Strong returns can also be achieved by tenanting the property once it is completed, and holding onto it for a longer period of time. 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.

 5. Off-plan properties tend to be situated in prime locations

The rise in demand for urban apartment living has resulted in a boom in off-plan property investment enquiries. These properties tend to be situated in city or town centre locations and areas with rising housing demand, ensuring strong prospects whether you plan to keep the property and gain from house price rises or sell the property on.

6. The appeal of a new-build

New-builds themselves come with a range of advantages, such as improved energy efficiency standards, a 10-year builder’s warranty and brand-new fixtures and fittings. These factors are extremely appealing to buyers and tenants alike, and brand-new properties can attract much stronger rents than older homes.

Things to consider before investing in off-plan property

1. Completion time

The most obvious potential risk of investing in off-plan property is that the project may not be completed on time. This can happen for a variety of reasons, including planning setbacks, weather-related delays, subcontractor schedules, or temporary shortages in labour or materials. If delays happen, this can have a financial impact on you and your investment depending on your circumstances.

Before you commit to an investment, it is advisable to do your own research on the developer, ensuring they have a proven track record of completing similar projects on time.

2. Market fluctuations

Market fluctuations are something that all property investors and homebuyers must take into account, whether investing in an off-plan or a completed property, as any price falls are likely to impact your bottom line.

Investing in a location and property type where demand is high and market predictions suggest growth – particularly in areas with strong regeneration plans in the pipeline – this can reduce the risk of your investment losing value, and is more likely to lead to long-term capital appreciation.

3. Getting a mortgage

While many specialist lenders offer competitive products for off-plan investments, they represent more risk to the lender due to the fact they do not physically exist yet, so you will likely be subject to stricter lending criteria and potentially higher rates than a standard mortgage. A higher deposit can improve the rates and products on offer.

Linked to construction delays mentioned, you may need to request that your provider extends your mortgage offer beyond the standard six months – and most lenders that provide off-plan loans do factor this into their mortgage offers.

4. A failed project

This is unlikely to happen if you have invested through a well-researched and reputable developer in a strong project, but it is a risk investors must be aware of. If the developer goes bankrupt before the project completes, or has to cancel the project for another reason, you may lose your deposit. Again, ensuring you are happy with your developer’s financial background is a key step to take before investing.

How to invest in off-plan property: step-by-step

Learn more about the usual process involved with off-plan property investment.

  • 1. Identify a development and location 

    The first step 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. Next, 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. Remember to look at promising cities for growth, as these areas tend to produce the best yields.

  • 2. Arrange financing

    Make sure you have arranged your financing before you start making any payments. Many developers will not allow you to pay anything until you have secured financing from a bank or lender. The reservation fee will vary according to the developer and project, but it will be deducted from your deposit.

  • 3. Exchange contracts and pay the deposit 

    Then you will exchange contracts with your developer and pay the deposit to secure your unit (usually between 5-10%). It’s vital to read the terms and conditions of the contract, and 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 off-plan property investment is delayed.

  • 4. Plan for completion

    Start making plans for once your off-plan property investment is completed. If you are going to let your property out, you may want to organise a furniture pack which you can normally do through your buying agent or the developer. You may also want to contact a lettings management company.

  • 5. Completion

    Your developer or buying agent will let you know when the build is complete, and will give you a time frame on how long you have to complete on your purchase with your lender and solicitor. On the day of completion, you can collect your keys.

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Ready to invest?

At BuyAssociation, we work with established developers across the UK, connecting our investor community with some of the most exciting new projects before they’ve been constructed, ahead of the market.

If you’re ready to invest in off-plan property, or want to know more about our opportunities, get in touch with us today. Our experienced property specialists can answer all your questions and help you on your investment journey.

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