Reducing the risks of investing in off-plan property
Contents |
[edit] Introduction
The property market has become a very competitive place recently, with more and more investors trying their hand at a variety of different property types, as they look to develop their portfolio. With investors pushing the demand for property and with the UK currently experiencing a continuing short supply, some investors have been looking to buy off-plan.
[edit] Definition
Buying off-plan involves purchasing a property that has not yet been built, typically a year before the completion date. Not only do developers reduce their own risk by agreeing to sell the property early-on in the process, but investors can often get the property at a lower price than may be anticipated – creating a deal that suits both parties. The investor will typically pay a 10% deposit for the property to secure the purchase, followed by instalments to pay-off the remaining balance.
[edit] The risks
When investing in off-plan property, there are a number of risks:
[edit] The developer goes bankrupt
Almost certainly the biggest risk associated with off-plan property purchasing is the potential for the developer to go bankrupt before completion. The investor then loses any money paid up to that point, unless there was insurance in place.
A good way to mitigate this risk is to work with trusted, reputable and experienced developers who are an established business.
[edit] Getting a mortgage
An investor can receive a mortgage in principle for their property, with the information passed from the investor to the mortgage broker so as to receive the mortgage upon the completion date of the property. Such mortgages in principle are typically not withdrawn, and there should be very minimal risk.
[edit] Property value decreases
Property prices can fluctuate - something that is accepted within the property market - but if it becomes a more long-term issue then it may be a result of poor research on the part of the investor.
Look for a development that is within a location known for strong investment, with a good economy, good transport links and ongoing regeneration.
[edit] Selling property before the completion date
This process is known as 'flipping' a property, as purchasers aim for a quick profit. However, purchasers may benefit much more from the rental income of the property, as well as any capital gains when the property is sold in the future.
--HopwoodHouse 15:54, 27 Mar 2018 (BST)
[edit] Related articles on Designing Buildings Wiki
- A guide to investing in off-plan property in the UK.
- Buyer-funded development.
- Developer.
- Hope value.
- Investment property.
- Landbanking.
- Off-plan property.
- Project-based funding.
- Property development finance.
- Real estate investment trust.
- Residual valuation of land.
- Shared ownership.
- Speculative construction.
- What is a mortgage?
--
Featured articles and news
From Chaucer to Fawlty Towers.
Electrotechnical excellence, now open for entries.
Net zero electricity grids BSRIA guide NZG 5/2024
Outlining the changes needed to transition to net zero.
CIOB Global Student Challenge 2024
Universitas Indonesia wins for second year running.
New project and cultural district described in detail.
The nature of EPCs, crticism and inaccuracies.
History, issues and redesign.
From waste recycling to energy performance the hierchy.
An introduction to WERCS and WEEE responsibilities
Dealing with 2 million tonnes of waste equipment a year.
Global BACS Market: analytics and optimisation
A BSRIA glance at building automation and control systems.
What it is and how to use it.
Types of insulating plaster by binder and insulant.
Investors in People: CIOB achieves gold
Reflecting a commitment to employees and members.
Scratching beneath the surface; a guide to selection.
ECA 2024 Apprentice of the Year Award
Entries open for submission until May 31.
UK gov apprenticeship funding from April 2024
Brief summary the policy paper updated in March.