Off-plan property
The term ‘off-plan property’ refers to property which is available for purchase before it has been constructed. This is where the phrase ‘buying off-plan’ comes from; typically (but not always) relating to apartments.
Off-plan property is sometimes marketed to property speculators who purchase it with the aim of making capital gains by taking advantage of any discounts and selling into a rising market. In a rapidly-rising market, a buyer may even be able to sell the contract on, meaning they have the potential to earn a profit on the property before it is completed.
Off-plan property may also be desirable where an area is in high demand, and purchasers want to secure a future property.
Typically, a deposit of just 10-20% of the property’s value is required to secure an off-plan property. If purchasers then go on to occupy the property, they may be able to choose their preferred fixtures and fittings, etc.
However, there are some risks involved with buying off-plan property, mostly related to the inherent uncertainty of buying something that isn’t actually built at the time of purchase. For instance, the property might not increase in value to the extent that is expected, or at all. This could be to do with a change in market conditions, or due to the location being in an area with low or falling levels of investor demand. Political and policy conditions may have an impact, such as if a planned infrastructure development that would increase connectivity to an area, or a regeneration project, falls through.
There is also no certainty about the completion date for the property. Banks and building societies are increasingly willing to offer mortgage lending on off-plan properties but can stipulate that the property must be completed within a certain time-frame and may withdraw the offer if it is not.
Another risk is that the developer becomes insolvent after the deposit has been put down but before the property has been completed.
There is also the risk that the completed property may not be in accordance with the expectations of the buyer and/or may not be to the desired quality.
For more information, see Reducing the risks of investing in off-plan property.
Off-plan property had come under criticism as a result of a number of developments that have been marketed and sold abroad before they are completed, and without being offered to the local market. This has left a number of developments in London that are sold, but have very low levels of occupancy, having been bought as a 'safe haven' investment, rather than to provide accommodation.
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