Off-plan Property Investment – Understanding the risks of buying off-plan

An alternative term for property is “real estate”, which refers to the fact that unlike many investments these days, property is something tangible, we can at least touch …

United Kingdom

An alternative term for property is “real estate”, which refers to the fact that unlike many investments these days, property is something tangible, we can at least touch with our hand, if not hold in our hand. New property, however, starts out as an idea, which then becomes a computer file, which then, often, becomes an off-plan purchase opportunity. Like most purchase opportunities, off-plan property has its advantages and disadvantages, so here are four key points you need to understand before deciding to invest in off-plan property

It can be very difficult to get a mortgage for an off-plan purchase.

Mortgage lending in the UK is generally set up on the basis that you will buy a property and either move into it yourself or let it out to someone else as soon as you can. To be fair to lenders, this probably covers the vast majority of residential property purchases, but it does mean that people who are working in niche segments such as purchasing off-plan property can find it much more difficult to get backing from a mortgage lender, even with the help of an experienced and reputable mortgage broker.

Purchase deposits should be protected but there may be limits on the level of protection

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Check very carefully what level of protection is offered for your purchase deposit and how the protection is assured. Reputable developers will be perfectly happy to give you details of this. If a developer does not appear to wish to discuss this point, then it is probably a good sign that you should look elsewhere.

Completion dates can never be completely guaranteed

If you’ve ever tried putting together a garden shed, then you’ll have had a chance to discover for yourself that it can be a whole lot more complicated than it sounds. Now multiply this by a very large number and you may get close to the complexities of organizing a large-scale property development. One of the signs of a reputable developer is that, in spite of this complexity, most of the time they will make their completion dates, but even the best developers can have projects derailed by circumstances beyond their control, such as severe weather conditions at unexpected times of year (like storms in June). Therefore, contracts should specify what will happen if the project is delayed in any way.

Researching the developer is as important as researching the property

Obviously, in any major transaction, such as buying a property, you want all the important factors put in writing in a legal-binding format (i.e. a contract) but at the end of the day, you probably don’t really want to go through the hassle of having to shake a legal stick at your developer to get them to fulfill their side of an agreement. Instead, you want to work with developers who have a good track record and lots of happy customers from previous builds so you know they are motivated to take care of you because they understand the long-term value of good customer service. In short, working with the right developer is often the key to avoiding the potential disadvantages of buying off-plan and maximize the advantages such as the ability to work with the developer to maximise the appeal of your property through the selection of fixtures and fittings.

Author Bio

Hopwood House are property investment specialists, with a wide range of property investments in the buy-to-let, hotel room and student accommodation investment markets in the UK and overseas.

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