The UK property market continues to remain lucrative for different investment methods. While traditional and popular properties like buy-to-lets, HMOs, and build-to-rents stay profitable, you may want to look into less popular alternatives like off-plan property investment.
Property investors pay attention to capital growth and high returns when considering the kind of property to buy. Buying property off-plan makes it easy to achieve these characteristics, making it an increasingly popular investment method.
As of 2021, 75% of investors opted to invest in off-plan properties. This statistic reveals that a larger number of investors are confident about the market growth and high returns of off-plan property investment.
However, that is not the only reason behind the popularity of off-plan property investment in the UK. There are many other benefits, such as competitive prices and discounts.
But first, what does off-plan property mean and what are the benefits of buying an off-plan property? In this guide, you’ll find out all that, the risks, how it works, and other information to help you decide if this is an investment you should look into.
What is Off-Plan Property Investment?
Off-plan property investment is a type of investment which involves buying a property that is still under construction. While most apartments are planned from scratch or completed before they’re invested in, an off-plan property investor sees the investment in the planning or construction stage.
Certain peculiarities accompany an off-plan investment property. For instance, the investor usually has to commit a reasonably long time to construct the property, which translates into more risk for investors.
When investing in off-plan property, the investor has to pay a deposit and reservation fee. Benefits of off-plan property investment include the opportunity to acquire properties below the current market valuation and being able to select preferable units.
As a property investment company with over 100 years of experience and a team that combines local knowledge with global insight, Global Residential knows how to source high-performing assets in a secure market. We’ve off-plan properties in economically thriving locations such as Burton.
Normally, you would have to pay a £5000 reservation fee. But don’t hesitate to contact our team as they will help you understand the requirements needed to secure a property in Burton and other thriving areas.
What Are The Benefits Of Buying Off-Plan?
Investing in off-plan property is an excellent way to generate substantial income, thanks to its many benefits. Here, we’ll explain the main benefits of buying off-plan property for investors.
Properties are Available at a Reduced Cost
Off-plan investments are pretty popular for their discounts, which is the most notable benefit for investors. Usually available with 15 – 20% discounts from the asking price, off-plan investment properties allow home buyers to buy properties at reduced costs.
Buying property off-plan before its construction or design gives you the leeway to negotiate with the developer for reduced costs. It is common for developers to offer only the first units at reduced prices for those who sign up early.
This is because developers want to sell out their apartments quickly. Signing up early for the investments is beneficial for the developer since it generates money to continue the project and encourages other investors to key into their project. Hence, they attract investors with these discounts.
The discounts and reduced prices are offered to compensate for the risks investors take and to offset being unable to rent out apartments until the property is completed.
You Get Access to the Best Apartment Units
Investors aim to encourage rental demand and get more income from properties, and off-plan investment property can help them achieve this. That’s because it gives the advantage of connecting with developers early for the best units.
As part of the process, developers will reveal the building layout and floor plans through property consultants. This makes it easy to choose the best units likely to generate higher rental incomes for the investor. You can also select apartment units with the best features and amenities, factors which contribute to higher rental fees.
Such developments include Plough Maltings, Burton-Upon-Trent – off-plan developments like this allow you to get in early and maximise returns.
For instance, more people prefer units on the top floor or those in the corners for better ventilation. Corner houses also have access to more space. Buying property off-plan early makes it easy to increase prices for these preferred apartments. The demand for them also means they get rented out faster than others.
Off-Plan Investments Gain From Capital Growth
The value of real estate properties generally increases with time. So, whether you get discounts or buy at today’s market rate, chances are high that the deal will have increased by the time the property sees completion.
The difference in valuation can be quite broad, especially for those who bought into the investment early and for properties that take a while before completion.
For instance, if the off-plan investment property is situated in a place with 6% growth per annum, and you bought an off-plan property worth £400,000, you will be looking at an additional £48,000 in value in just two years. That’s a property worth £496,000 in four years at a constant growth rate.
You Can Sell Your Property Before or Immediately After Completion
Since off-plan properties increase in value during construction, you can flip them for a profit before completion in case you want to move to other endeavours.
If you decide to sell the property before it is finished, you don’t have to pay stamp duty tax. You can sell to other off-plan investors for profit at the new market rate. This is a quick method for making a return on investment if you favour short-term investment goals.
Investors may also sell their properties immediately after completion. The profits for this also come from the difference in market valuations from when the property is bought to the time of completion.
With little to no effort, you can get profits from the off-plan property investment, but if you fancy putting in a little more effort, you can even make more profit by renting out the apartment. This way, you can make more money over time and increase the property value in the process.
You Get Flexible Payment Plans
If you cannot afford a considerable amount of money for the off-plan property, you can benefit from the payment plans offered by developers. Most of them allow investors to divide payments into three, which are made while the construction continues.
However, you may have to deposit 10 – 20% of the total amount, which shouldn’t be too stressful for most investors. The remaining balance can then be settled as time goes on.
You Get a Say in Choosing the Fixtures and Finishings.
Suppose you intend to live in the apartment or have intending tenants with specific tastes. In that case, one of the benefits of buying off-plan property is that you get to contribute your opinions on the kind of fixtures and fittings to include in the apartment.
You can select your own interior designs, colours, tiles, etc. This may not be essential if you plan to sell the property, but it is still an opportunity to ensure you get as valuable property as possible.
If you have any questions about selecting the best fitting interior decors, just call us. We’ll be happy to help! You can also fill this form and we’ll follow up with you right away.
You Get a New Building That Gets Rented Out Faster
Apart from the 10-year warranty on new buildings from the National House Building Council (NHBC), new builds give more assurance. Hence, off-plan property investment gives you ownership of a new house with fittings and fixtures in top shape.
That means you don’t have to carry out maintenance anytime soon, leading to significant savings for a long time.
Immediately an off-plan property is ready to be rented out, and you’ll get tenants fast. That’s because newly-built houses appeal more to tenants than older houses with worn-out fittings. They will buy at reasonable purchase prices, which also means you won’t have to wait before making profits from the property.
Off-Plan Properties are Situated in Excellent Locations
There is a high demand for living apartments in the UK, representing a great opportunity for off-plan investments in big and upcoming UK cities. For investors, it is a chance to own a property in these prime regions, where they can get substantial profits and continued demand.
What Are The Disadvantages of Buying Off-Plan?
There’s hardly any investment venture without its own risks, no matter how little. Off-plan property investments also have disadvantages like any other property investment method.
Although the benefits outweigh the cons, it is still worth pointing them out to help your decision-making. These disadvantages include:
- Unavailable funds for development
- Delayed development time
- Unsteady market rates
- Issues with construction and design plan
Unavailable Funds for Development
Most times, the development of your off-plan investment property relies on the availability of finance for the developers. Therefore, the lack of funds may prevent the development from reaching completion, leading to the loss of your deposit.
To prevent this, ask questions and do your homework regarding the developers. It’s also possible for a developer to put your deposit in escrow or keep it insured to prevent you from losing your money in unfavourable circumstances.
Delayed Development Time
When reaching an agreement, you’d normally be given a time frame for the completion of the project, but it is also possible for this time frame to be exceeded for many reasons. If the developer encounters legal or financial issues, they may delay the development until the issues are taken care of.
As a result, you may not get your off-plan property in time for flipping or renting out to tenants. There is the possibility of getting all or part of your deposits in cases where a new date cannot be agreed upon.
Again, it would be best to deal with a developer with a good track record to prevent situations like this. You can, however, take little solace in the fact that a long time also means higher property value if you can afford to wait.
Unsteady Market Rates
While properties usually increase in value, situations exist where the opposite is what happens. If the property is in a region where market prices aren’t stable, an economic strategy or natural occurrences can cause a downturn in the prices of similar properties.
Fluctuations can affect your property negatively, such that the prices go down below what you invested. To prevent this, investing in regions with little fluctuations and good growth history is advisable.
Issues With Construction Plans and Designs
Even if you agree with the developers on a specific property design, one mistake can make all the difference. That’s why it’s important to deal with experienced professionals. Professionals hardly encounter errors they can’t correct, and they’ll communicate the changes with you when it happens.
If the construction encounters serious issues, it can lead to loss, delay, or even both. Preventing any serious effects on your capital requires including in the agreements that you’d get your money back in such situations. This, again, is another reason you should deal with reputable developers.
At Global Residential, we prioritise the needs and interests of our investors. And that’s why we vett and work with trustworthy developers who not only build high-quality houses according to agreed designs, but also meet scheduled completion dates.
How Does Off-Plan Property Work?
If the idea of buying a property while it’s still in the construction phase sounds too much, don’t worry. Here’s a breakdown of all the processes involved.
Select a Location and Development Type
Start by researching the best locations to invest in. While there are locations that are generally preferred to others due to their better yields, it is also crucial to factor in other things, such as your availability, preference, and proximity to the place, if you’ll be overseeing things yourself.
You should also research the developer, check how many properties they’ve dealt with, and their experience in the region you’re interested in. When you identify the developer to work with, start assessing their development and individual units and the likely price they could go for once available.
Although the building may be far from completion, you can still get a good idea of what to expect when it’s built. The investors will show you computer-generated drawings and images of what the apartments will look like.
Select an Off-Plan Phase to Invest in
Based on the level of property development, there are three different off-plan property investment phases — pre-construction, during construction, and close to completion phases.
The first one is when an investor buys into the development when it’s still in planning before construction begins.
There is the opportunity to choose some of the best units since you’re one of the first investors and you’re usually not required to pay above 15% of the total amount as a deposit.
The second phase has a reduced risk profile because construction has started, signifying the acquisition of bank finance. It is easier to get completion dates with this phase, but it also has a reduced chance of getting your units of choice.
As for the third phase, the construction is almost complete. This phase has minimal risk, but it isn’t always available since many developers will prefer to keep the remaining units to be sold at full price.
Sort Out Your Finances
If you find a desirable unit or block that appeals to you, you’ll make your intent to buy it known and pay a reservation fee depending on the agreements with the developer. Having this deducted from your deposit for the property is also common.
Before committing to the finances of a property, it is essential that you calculate all the money you have to pay, identify where you generate it, and sort out how to make the payments.
Some developers will require you to provide evidence of bank financing before agreeing with you. This is to make sure you do not defect when the time comes to make payments.
Confirm Contracts and Make the First Payment
Then, you can pass the papers over to your solicitor to go through them. Going through the contract terms is vital as it will determine the bulk of how the investment goes. It will contain the necessary dates and what happens if they’re not met.
Your solicitor will help you understand the terms and include any clauses that help you get your money back if the terms are not met. However, if the terms are satisfactory, it is time to exchange contracts and pay your deposit.
Make Further Payments
Depending on the agreed-upon terms, you may have to make further payments at intervals before the development is complete. The developers utilise these payments to fund the project as agreed.
Continue Monitoring the Project Until the Completion
You should observe the development from time to time to ensure it is as agreed. When the properties have been built, the developers will notify you and give you a little while to complete your payment before handing the property to you.
What To Look For When Buying A House Off The Plan?
Sometimes, investing in off-plan properties may seem tricky, but you should be fine if you do your homework. Or better still, work with a reputable company that has the experience, contacts, and range of options just like Global Residential has.
In any case, here are the list of things you should look for to avoid the above-mentioned disadvantages.
Developer Track Record
We’ve touched on this a couple of times already in this guide. That’s because of its importance in making sure everything goes to plan. It’s not necessarily because there are too many fraudulent developers; instead, their experience and financial capability will be crucial.
Building properties is a serious task, and it takes a lot of hands on deck to keep everything in order. If you give your money to an individual or company to construct a property, you deserve to have your mind at rest throughout the process.
Additionally, unforeseen circumstances come up from time to time. In the event of any such situation, an experienced developer will be equipped with how best to proceed without disturbing delivery dates and terms. Of course, with more years in the business comes the experience of navigating difficult situations when they arise.
Hence, opt for an experienced developer with an excellent track record. Look at their financial position and consult your lawyer to confirm there are no cases against them. You may also ask around or check their website and Google for reviews.
Valuations
Double-check the figures when you get valuations from developers to ensure they aren’t overpriced or contain hidden fees. You can do this yourself or by consulting with an independent expert. It’s also possible to get valuations from multiple companies so you can compare them.
Contracts and Agreements
When coming up with contracts and agreements, you must check everything thoroughly and have your solicitor do the same. Projects like this have a bit of freedom as far as the arrangements are concerned, and each party has to abide by it after it is signed.
Therefore, all the details within the contracts are important, no matter how little. For instance, some developers may include terms that prevent you from selling your units before completion since that would compete with theirs. Paying close attention to all the contract details will help you prevent such.
Legal Issues Surrounding Land and Amenities
To avoid getting into trouble some years later, ensure there are no legal issues on the land housing the property. Ensure it’s not land on a long-term lease, as that could mean incurring costs you didn’t know existed.
Should I Invest In Off-Plan Property?
The housing market in the UK is generally a rising market witnessing continuous growth. In October 2022, house prices noted a 12.6% growth from the 9.9% it had risen in September.
Moreover, old and new developments like off-plan property investment are seeing a rise in sales amidst growing demands, and property prices are on the up.
Statistics show that 37% of new homes sold in England and Wales were sold off-plan in 2021, up from 35% in 2020. The figures also reveal that 24% of detached homes were sold off-plan (up from 21%), 33% of semi-detached homes (up from 31%), and 45% of terraced homes (up from 41%).
What that means is that investors are demonstrating confidence in the off-plan investment industry. Not only are the demand and prices at an all-time high, the possibility of joining different phases of this development means it is a good opportunity for new and experienced investors.
There are other reasons you should invest in off-plan property, and flexible payment plans, discounts, properties in prime locations, and quick renting out are some of the most notable. Surely, there are certain downsides and risks of buying, but most can easily be prevented or fixed.
Ultimately, investing in off-plan property is a decision you’d have to take yourself, depending on your interests and investment goals. If unsure, you can opt for low-risk off-plan property investment and see what happens.
Conclusion
If you’ve decided to try your hands on off-plan property investment UK, it may be the best time to invest. At Global Residential, we’ve helped numerous investors get their dream homes with the right guidance.
We source off-plan properties for investors and help you get experienced developers you can work with comfortably. Our services are available all over the UK, and you can get in touch today to get started.
FAQs About Off-Plan Property Investment
Are Off-Plan Houses Cheaper?
Yes. Off-plan houses are often cheaper than completed houses due to the risks involved in purchasing them and because the properties aren’t usually completed until after you’ve bought them.
Do Off-Plan Properties Increase in Value?
Yes. Off-plan properties tend to be competitively priced and locked in at the market price at the time of signing a contract. However, like most property investments, they increase in value with time.
Can I Sell an Off-Plan Property?
Yes. As far as the terms you’ve signed allow, you can sell your off-plan property during construction, at completion, or after some time. The longer you wait, the more monetary returns you can get (but always take stamp duty into account).
Why Would I Buy an Off-Plan Property?
Why would you buy an off-plan property? Some of the key reasons are:
- Properties are available at a lower price.
- You can get first pick on the best apartment units.
- Property value generally increases with time, so you will see greater gains.
- You can choose to sell the property at any stage of the project.
- Payment plans can be flexible.
- You can influence the design choices for the completion of the property.
- The building and its contents will be completely new, reducing your maintenance costs.
