Buying off-plan essentially means that you are investing in a property in advance. This is because off-plan property developments are still under construction and it may take a year to complete. Over the years, buying off-plan property investments has given developers and investors an innovative solution to the rising and volatile house prices in the UK.
When you buy off-plan you are still investing in a property but you are eliminating the high prices because the property has not yet been completed. As a result, you will be getting a good deal on a property investment whilst the developers will be getting the funds to complete the property.
In theory, once the property is built and the keys are in your hands, it will be worth a lot more because the construction time would have allowed for property market prices to increase. This is a perk for most investors choosing to invest off-plan because they hope that the property market will change and the value of their property will increase. This is good for flipping properties for a quick profit or keeping it for the high rental yield.
Risks Of Buying An Off-Plan Property Investment
There are many benefits to buying off-plan, which is why it is such a popular property investment strategy. However, just like any investment there are risks and you as an investor need to weigh up your options to assess the risk-reward ratio. Here are some risks involved with off-plan investing.
Property prices fall – If the property market continues to decline or doesn’t have the increase that you wanted, it will mess up your investment plans. If you are buying off-plan to flip the property (sell it on straight away to make an immediate profit) then a drop in property prices will mean you won’t get your return on investment. Property market conditions are often due to factors you can’t control, so it is a risk you have to be willing to take.
Delays in development – An off-plan property may come with some delays in construction. If there are issues, the construction may take longer. Or if there haven’t been enough units sold to investors, the building process may be put on hold. Either way, nothing is set in stone so make room for possible delays.
Limited mortgage options – With off-plan it is ideal that you buy the property in cash rather than financing. However, there are some mortgage options available out there. Banks and lenders will be happy to lend on off-plan properties but they usually need the development to be finished within 6 months. If it isn’t they may withdraw the mortgage offer or take other assets if you are unable to pay it back.