What to look out for when investing in off-plan?
BY Karolina / Jul 19, 2018
Off-plan properties have always been popular with investors who want to buy into major developments and maximise their profit from the start. Many off-plan sites are located in desirable locations where demand outweighs supply, which pretty much guarantees capital growth and high returns. Having said that there are risks involved with investing in this type of property as quite a few things could go wrong.
The worst thing that could happen is a developer going bust before completing the project. In this scenario, unfortunately, investors would usually lose their deposits (and that could be anything between 10 to 50% of the property value). Some developers offer schemes that protect deposits, however they don’t usually cover more than 10%. So larger than usual upfront payments should be treated with considerable caution. The main thing is to do your research and only invest in property sold by an established developer with a proven track record, that way you are more likely to secure a sound investment.
It’s also a good idea to find out how the project is going to be funded, as deposits from buyers alone for sure wouldn’t be enough to cover the construction work and see it through to completion. You need to know how the developer is making up the shortfall. If the developer has secured a bank loan that’s usually a sign that their finances are in good shape.
Yes it’s true that you could make profit even before the property is built but it’s also possible to lose some money in due course. Property prices will always fluctuate, however if it’s a long term issue and is only affecting the area you have invested in, you haven’t done your due diligence with your investment. Find out more about the location that the site is on before you put money on the table. Consider things like: local economy, infrastructure, transport links and regeneration levels. Regardless on what’s going on in the market, if you are investing in a good location you will continue to achieve good yields, as people will always want to live there.
It may be the case that a property is delayed in terms of its completion date, however if you are buying from a trusted developer who has a history of finishing projects on time, this should be unlikely. Have a solicitor go over contract details to make sure there are penalties if a developer violates the contract with any unnecessary delays.
It’s common knowledge that new builds come at a premium, therefore make sure you get what you pay for. If there are any faults or issues, the developer should be the one putting them right. Again, check contract details to find out what your guarantee covers to avoid any additional expenses.
To minimise the risk when when making off-plan investment you need to do your homework on the developer and do it extremely well. It’s absolutely crucial to understand what you are taking on before signing any documents. Buying off-plan can produce great profits and as long as you know what to look out for, you could be onto a very lucrative investment.