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What is off-plan property?
The benefits of buying off-plan
The risks of buying off-plan/ things you’ll need to consider
What is off-market?
Steps to buying off-plan
Top tips for off-plan property investment
Can you sell your off-plan property before completion?
How to avoid scams in off-plan property?
Benefits of buying off-plan with Captec
Off Plan Property Investment Guide
What is off-plan?
Buying off-plan property means purchasing a property before construction has been completed, often before construction has started. If you want to buy property off-plan, you will need to pay a deposit first, usually between 10% and 35% of the full price, with the rest due on completion.
Developers are willing to give a good discount to investors that are willing to buy at the early stages, off-plan.
The benefits in buying off-plan
- The property is brand new: One of the main advantages of buying off-plan property is the fact that the property is brand new and unused, therefore the risk of maintenance and repairs is very minimal. As a matter of fact, new build properties should come with an NHBC build warranty which provides a 10 year construction warranty. This covers snags discovered within the first two years after completion, and structural problems for the first 10 years.
- You can get discounted prices (especially when you buy off-market):
Most developers don’t want to hold completed properties once they have built them, their model is usually to sell apartments off plan during the construction of the development. This means the developer gets paid on all the properties they have built as soon as they complete. They will then move on to building their next development. As this allows them to continue building without any downtime, it adds massive efficiency to their business model and also reduces their risk which is why some developers are willing to give a good discount to investors that are willing to buy at the early stages, off-plan. - Possibility to make a profit in the short term: This may not always be the case, however some developers give their investors the option of assigning, i.e. “flipping” their contracts. This means you can sell your contract on to the next investor before completion. If you’ve done all your research and due diligence correctly, it’s more than likely that your property will go up in value closer to completion. This is can be a good strategy if you’re looking to make a profit quickly, however you need to make sure that you can complete on the property in the unfortunate case of not finding a buyer, otherwise your deposit is at risk.
The risks of buying off-plan
- What if developer goes bust before completion? This is one of the most common concerns investors have when looking at off-plan property. If the developer does go bust, you would lose your initial deposit however, some developers offer insurance measures. It is very important to buy off-plan property from trusted developers with proven track record.
- What if the property value decreases? Property prices can go down as well as up, which is why is very important to do your due diligence. To minimise your risk, a good strategy can be to invest in a location with Government backed regeneration plans and good infrastructure and transport links. This way, if the property prices decrease in the short term, you are much more likely to still make a profit in the long term.
- What happens if the developer doesn’t complete on time? There may be circumstances which can cause the delays on the initial estimated completion date (practical completion), however contracts normally include a long stop date. This date, usually 12 months after practical completion, is in place to ensure the developer has slight leeway if anything was to go slightly over plan, however to also give investors a definitive date that they are able to begin legal proceedings against the developer to withdraw the exchange deposit or seek compensation.
- What happens if I can’t get a mortgage? An advisor can give you a guide on what the market conditions and your situation is like today, however they cannot give you any definitive answer as market conditions, legislations and your financial situation might change during the build period. It is important to ensure that the contract is assignable – You can start looking at mortgages 3 to 6 months before completion and should you not be eligible for a mortgage, with an assignment contract you will be able sell your contract on to another buyer who is more likely to get a mortgage or on to a cash buyer.
What is off-market?
Developers are conscious of low prices, potentially de-valuing their brand, which is why they prefer to use off-market specific agents, with a good network of investors that they can sell to directly, without ever showing the discounted prices on the internet. However, regardless of buying off-market, or off Rightmove or your local estate agent, always research the market and look at comparable properties in the same areas to ensure you are getting a good deal!
Steps to buying off plan
- Do your research: Before buying any type of property you should always do your own research. A lot of things can affect the value of a property so there are a few things you need to consider:
- Find the right area: One of the most important things to consider when buying a property, especially an investment property, is the area where the property is located. Always try and chose an area where property prices are expected to increase naturally, usually due to regeneration schemes, number of Universities, improvement in transportation links etc etc
- Now that you found the right area, you need to choose the right developer. Easier said than done, right? You can start by researching the developer’s past projects. Have they completed on any developments before? Do the properties match up the picture in the brochure? You can always check their customer satisfaction levels for honest feedback.
- All that’s left now is picking an unit. Some apartments will always be more desirable than others, look at the floor plans and choose whichever unit you believe has most potential. If you don’t know what to base that on, you can always ask for advice! Well trained Property Consultants should be able to spot the most desirable units in every development. They consider layout, views, research the market every day and they can give you an insight on what people are looking for in the surrounding areas.
- Check you are protected: This will usually come in the form of an NHBC build warranty which, as well as covering structural damages for 10 years, also covers part of your deposit if the builder goes bust. This is something that your solicitor will be able to speak to you about.
- Reserve your property: Now you found the right property, you checked everything is in order and you are as protected as you can be, so what’s next? It’s time for reservation now! This will usually be a small amount, anywhere from £1,000 to £5,000 that you will need to pay the developer in order to take the property off the market whilst solicitors are being instructed.
- Exchange of contracts: If you paid the reservation fee and instructed your solicitor to represent you on the purchase there is not much to worry about now. Your solicitor will guide you at every step until you are ready to sign and exchange contracts, usually within 28 days. Now is the time to pay your deposit, minus the reservation fee and relax! There is nothing more for you do now, not until the property is completed!
- Completion date: Once your completion date is confirmed, the developer will contact you to arrange a demonstration and handover. In preparation for completion, your solicitor will request the outstanding balance and the original documents signed.
- Get the keys: As soon as you get confirmation of completion from your solicitor, the developer will hand over the keys! That’s it, your property is ready now!
- Instruct Lettings Management Company
Captec is able to negotiate and get discounted prices on most projects we introduce you to.
Top tips for off-plan property investment
- Research. From researching the location, the developer, the development to each individual apartment! Research is very important when making an investment, especially when investing in off-plan. There are a lot of factors you need to consider to ensure your investment has high potential for growth.
- Get help. Investing, especially property investing can be very daunting. It is not easy to know where is best to invest and who are the people you can trust. You can always let experienced property experts guide you. They have already researched all the markets, they know which developers are trustworthy and they can help you chose the right property suitable for your needs. They can also introduce you to the best mortgage brokers, accountants who understand property and solicitors with off plan contracts experience. This will help make the entire process a lot smoother and less time consuming!
Can you sell off plan (exchange contract) before completion?
This depends. If the contract allows you to then, yes you can. The process that you would go through is called re-assignment. This means the developer will formally move the contract from you to a third-party new buyer. New legal paper work will be issued in the new buyers’ name and your contract with the developer will be ceased.
How to avoid scams in off-plan property?
- Choose the right developer. Always check the developers background to ensure you only buy from a respected developer with good reputation. Previous completed developments, performance record and court actions and insurance claims should always be included when doing your research.
- Check if your deposit is secure. This may not always be the case, however the developer should keep the deposits in an escrow account or have an insurance policy in place. This way, your money is protected should any unfortunate situation, such as the developer going bust, happen.
- Make sure your property comes with warranty. Most new builds come with 10 year insurance and construction warranty. Once the property is built, the warranty is usually slip into 2 periods: the defects insurance period, which covers the first two years, and the structural insurance period which covers years three to ten. This gives you a third party solution service should anything go wrong with the Developer.
Benefits of buying off-plan with Captec
- We do all the work – From researching the markets, through to finding you tenants, Captec provides a full 360 service in the property investment world making the entire process hands free for our investors.
- Our team of experts will be able to guide you every step along the way until you are ready to make a decision based on your own personal needs. Our team of investment consultants research the markets everyday to find out the latest hotspots for property investing. After a free consultation with a member of our team, your own property investment consultant will provide you with a personalised investment plan and hold your hand every step along the way until you are comfortable to make your own investment decisions
- We represent you, the investor, which means we will aim to always get the best possible price for you – Due to the volume of deals, reputation and respect we’ve earned by working with developers all over the UK, Captec is able to negotiate and get discounted prices on most projects we introduce you to.
- You can build a geographically diverse portfolio without having to deal with all the stress and hassle that can come with it. From finding you the right properties, through to managing them, Captec understands the burden that can come with owning multiple properties in different geographical locations and has been set up to provide one point of contact for all your property related enquiries, regardless if you have a portfolio of 1,10 or 100 properties!
