What is “Off Plan” property purchasing?
An off plan property is a property that is sold before it has been constructed and where the buyer only have the property plans provided by the architect as a guidance of how the finished property is going to be. Today off plan property refers more or less to all new developments that are sold before the termination of the construction of the property and not as it used to be only properties in the initial stage before the construction had started.
One of the biggest differences between a resale property and a property in a new development is the seller. Off plan properties or new developments are sold directly by the developer whereas traditional resale properties are normally sold by a private owner.
What are the advantages of purchasing property “Off Plan”?
Reserving a property at Off Plan stage (typically you will have just the Architects floor & site plans, elevations and specification to base your decision on) has proven popular with a variety of investors and home-buyers for many years.
Buying property Off Plan offers a number of benefits. The major benefit and attraction for potential purchasers is the capital growth which can accumulate from the Off Plan stage through to physical completion of the property.
For example, you could reserve an Off Plan property and secure a price of £200,000. If the property takes 12 months from the time of Off Plan reservation to build completion and the property market increases in value by 10% per annum, the value of this property upon completion would increase to £240,000.
Another factor to consider in this time is that no mortgage will be required until completion, so no monthly payments to make through the build process. Purchasers can benefit from substantial gains in capital growth in a buoyant market by committing only a nominal reservation fee and exchange deposit. The introduction of exchange bonds further minimizes capital outlay, where the buyer pays a bond premium which guarantees the developer a payout of the equivalent of the exchange deposit sum if the purchaser does not complete on the property.
Many property buyers will not feel comfortable to commit to buy a property which they can not physically see, inspect, etc. This provides a great benefit for astute buyers who can secure the most desired plots at Off Plan stage. For example, the plots which offer the best views (may not suffer from noise from nearby roads, trains, etc. compared to others on the same development which may). It goes without saying that the most desired plots in a development will be the ones to benefit from the greater gains in capital growth. Off Plan investors could also secure a prime plot which will maximize their rental return and minimize void periods.
Buying Off Plan can also provide investors with substantial profits on their initial capital outlay over a relatively short period. The source of profit in this instance coming from the capital growth through the build period. I refer you again to my previous example indicating the potential increase in property value in a buoyant property market.
Particularly if an investor had the opportunity to reserve a prime plot Off Plan in a development, the capital growth would be maximized in comparison to less desired properties which in turn should maximize your chance of achieving a quick sale at the market value at that time. A similar principle can be applied to completed property, but mortgage payments would have to be paid from the outset. This could potentially eat into investor profit, particularly if the property was not let or there was a shortfall in rental income in comparison to mortgage payments and associated ongoing costs.
In conclusion, buying property Off Plan can provide many benefits for the astute investor and home buyer alike. This is particularly a popular option in a property market where values are rising and buyers are confident in the rise continuing until at least completion of their chosen property.
This guest post was written by Dan Chamberlain. If you have any questions or responses to this article, please post a comment below.