If you’re looking to purchase property in the UK, buying off-plan is an option you should consider.
As opposed to other viable investment options, such as refurbishment properties, it is a significantly cheaper route as property developers often give out discounts on off-plan sales and don’t ask for a full upfront payment.
This makes it an excellent low-stake investment opportunity for everyone.
This advice guide to buying off-plan covers the following details and tips for buying:
- What is off-plan property?
- Is buying off-plan risky?
- How to ensure the property looks good after being built?
- How does buying off-plan property work?
- How does property pricing work?
- How does flipping the property work?
- How does locking price work?
- What are the benefits of buying an off-plan property?
- What are the disadvantages of investing in off-plan property?
- How to take out a mortgage on an off-plan investment?
- How to apply for an off-plan property?
What is an off-plan property?
Much like investing in a vacant plot and then putting it aside to develop later, when you buy off-plan property, this allows you to buy the house before it’s built.
It might sound risky, but given today’s property market is exponentially growing, it can be very beneficial for you in the future.
The need for homes is increasing, and that is why you might find those moving home, impatiently waiting for a show home to come on the market, specifically in entry-level city developments.
This trend is only becoming more popular, with the government introducing beneficial schemes for home buyers such as Help to Buy equity loans in newly constructed buildings.
There is also the opportunity for investors to secure a buy to let mortgage and purchase off-plan property for utilisation as student accommodation.
This can secure excellent rental yields and future capital growth as properties to rent remain popular – particularly property in London.
Is buying off-plan risky?
You may have heard horror stories about people losing money from an off-plan investment.
But you may have also heard tales of people doubling their investment through off-plan properties. So, which is correct? The answer is both.
There are some risks of buying off-plan, but at the same time, it is proven to be very profitable. The results are determined by timing and the location, as well as how well you protect yourself.
Knowing the facts is vital because the processes of buying property off-plan is a complicated one, and thorough research is needed before embarking on this journey.
Our guide to buying off-plan answers your common questions and tells you everything you need to know.
How can I be sure if the property will look good after it’s built?
You don’t have to worry about what your property will look like once it’s built. Before you buy off-plan, you will be shown the designs of the final results of the property construction.
This will help you get a good idea of what your investment will look like from the interior and the exterior, in the given time restraints.
Most property developers have a showroom devoted to giving clients virtual tours and replica models of the completed projects.
How does buying off-plan property work?
The process of buying off-plan begins with you putting down the deposit value, which is usually around 10% of the full payment.
This deposit helps you reserve the property for the purchase price, allowing you access to the deed of the property, which is for the time being under construction.
While you are legally bound to buying the property, and a failure to do so could see you lose your deposit, you can still sell the property to another buyer before your contact is closed upon completion of construction.
Most property prices start to rocket around the time construction nears to an end. Most developers wait until this period to sell the property to the highest bidder, making a hefty profit in return.
How does the pricing of the property work?
Stamp duty applies to the off-plan property much like other property deals. You can use a stamp duty calculator to work out what you will pay.
That said, sometimes to sweeten the deal a little more, developers will add the stamp duty fee within the cumulative cost and take care of the tax impositions.
Developers sometimes offer lower prices than the actual value of the property so that they can be financially stable and make their money back as soon as possible.
By the time the construction reaches an end, the inflation will have increased the property’s worth more than the value you first signed the contract for.
Be aware of inflated property prices and overcharging, especially after the recent boom.
How does “flipping” the property work?
Flipping is a very smart technique used by off-plan property buyers to increase their profits from the initial investment. It is a straightforward process; however, it does come with some risks.
Here is how it works:
- Once you have made up your mind about purchasing a property, you first need to put down a deposit or a reservation fee, which is around 10% to 20% of the total cost of the property once the construction has completed.
- Let’s suppose that you have put down a 10% deposit for a property off-plan that is worth £100,000. The 10% deposit would be £10,000. One year passes and the construction of the property is still going on. However, the market value of that property is on the rise, and now the worth of the property has gone up to £110,000 once it is finished.
- Once that happens, you may be approached by people willing to pay you £20,000 to buy the incomplete property deed once the construction comes to an end. This is very beneficial for you as it means that you have locked in the price of £110,000.
- This leaves you with a 100% profit as you have doubled your initial investment from £10,000 to £20,000!
Disclaimer: This method has worked for many people, but we don’t recommend implementing this method as your number one strategy unless you are comfortable taking the risk or are confident that the property market will rise in the future years.
How does locking your price work?
This is a strategy that we can get behind as it is much more reliable and sustainable than the flipping methods mentioned above.
This method works because you hold on to a property for the long-term and look at the discount you are given as a bonus.
The main factor which affects how much profit you will make is the discount percentage you are offered by your developer.
For instance, if you get a 15% discount, and by the time the construction has been completed, the property is devalued by 10%, you will still be ahead by a 5% profit margin.
This is the worst-case scenario as everyone who’s done their homework wants to buy off-plan property in a market on the rise.
Should that happen, you can sit back and wait for the jackpot to hit!
This is a very efficient way of locking in the cost of a property you wish to purchase while putting down only a small percentage of the total worth.
What are the benefits of buying an off-plan property?
1. Potential to make considerable changes to the final product
First and foremost, if you make an early-bird investment into an off-plan property while it is at its initial stages, then you have the chance to add your input into the internal design and exterior finishes of your property.
2. A good investment opportunity
Additionally, the off-plan property has a lot of potential to increase in value from the cost that you bought it for.
This is because you are offered the current rate to reserve the property, and if there is one thing about property, it increases in value after development begins. For this purpose, investments in off-plan have low stakes and a high chance of value return.
With the help of Moovshack, and with good property management, you can increase your profits two-fold.
3. A very affordable payment plan
With off-plan properties, you do not have to make large payments upfront.
The developers only require you to make stage payments throughout the construction process, allowing you flexibility and ease in making each payment.
4. Potential for doubling your profit
If calculated correctly and with due diligence, there are many hidden benefits when you buy properties off-plan.
To make the most of these off-plan property investments, sometimes investors pay all the stage payments and then put the property on the market as the date for the final payment nears.
Final payments are the largest, and the investors take advantage of the increased worth of the property to sell the rights to the land at a much higher cost than the initial payments they made.
This can sometimes result in increasing their profit two-fold.
What are the disadvantages of investing in off-plan property?
1. Uncertainty of the quality of the final product
Even though you are shown many digital designs and virtual tours of the property beforehand, you can never be sure about the quality of the end product unless you know the developer’s track record who plans to build the property.
This is one of the most significant drawbacks of investing in the off-plan industry.
2. High-risk for investment and costly
Moving on, you may be uncertain as to whether your investment will be fruitful or turn into a loss. This lack of security attached to off-plan investments is a big turn-off for some property investors.
The required steps to be taken to ensure your protection include hiring a solicitor to draw up an airtight contract and having the best legal representation to help you all the way through to exchange of contracts.
With the help of Moovshack, you can find suitable local professionals that are competent enough to get you through.
3. Unpredictability in the investment’s market value
Additionally, it is always riskier to invest in a developing area. If many developments are happening around the property you have invested in, do not assume that other properties will all come together perfectly just like yours.
You might end up with a decent result after the construction of your investment comes to an end, but there is a possibility that it might not be the same for other developments being constructed around yours.
This can have an effect on the property market and could cause your property to devalue.
4. It’s a very lengthy process
Remember that you cannot move into an off-plan property right away, and there is no accurate time frame that can ensure when you will be able to do so.
Sometimes construction is delayed or comes to a halt because of the external environment. This is another risk factor while investing in off-plan for residential property or commercial property purposes.
How to take out a mortgage on an off-plan investment?
You are required to put down a deposit for a property at least one or two years in advance before you are allowed to move into the place.
The mortgage offer, however, expires within six months. This means that there is a risk you might have paid the deposit, but are then without a mortgage.
Thanks to the mortgage advisors who are now offering more flexible time slots on their deals, this can help you pay off your off-plan payments easily. Many banks have started to offer 12 months on a newbuild homes mortgage application, and there are even some that will allow your mortgage adviser to request a 6-month extension while you’re making the initial payments.
How to apply for an off-plan property?
- Find a good property developer.
- Contact your mortgage advisor about your current financial abilities.
- Make the deposit to reserve the property purchase.
- Hire independent legal representation to ensure your protection in the deal.
- Go through the paperwork and contract.
- Pay the deposit.
You will then be provided with two dates by your property developer – the shortstop (the expected time required by the developer to complete the project) and the long stop ( the date the developer must complete the project by).
Once the construction is completed, you can request a snagging list of your new build to check for any defects in the fixtures and fittings before moving into your new home, welcoming tenants, or selling for a profit!
To find out more about property off-plan investments, you must speak to an expert before proceeding, particularly if you are a first-time buyer.
