Last edited 20 Jan 2020

Reducing the risks of investing in off-plan property

Contents

[edit] Introduction

The property market has become a very competitive place recently, with more and more investors trying their hand at a variety of different property types, as they look to develop their portfolio. With investors pushing the demand for property and with the UK currently experiencing a continuing short supply, some investors have been looking to buy off-plan.

[edit] Definition

Buying off-plan involves purchasing a property that has not yet been built, typically a year before the completion date. Not only do developers reduce their own risk by agreeing to sell the property early-on in the process, but investors can often get the property at a lower price than may be anticipated – creating a deal that suits both parties. The investor will typically pay a 10% deposit for the property to secure the purchase, followed by instalments to pay-off the remaining balance.

[edit] The risks

When investing in off-plan property, there are a number of risks:

[edit] The developer goes bankrupt

Almost certainly the biggest risk associated with off-plan property purchasing is the potential for the developer to go bankrupt before completion. The investor then loses any money paid up to that point, unless there was insurance in place.

A good way to mitigate this risk is to work with trusted, reputable and experienced developers who are an established business.

[edit] Getting a mortgage

An investor can receive a mortgage in principle for their property, with the information passed from the investor to the mortgage broker so as to receive the mortgage upon the completion date of the property. Such mortgages in principle are typically not withdrawn, and there should be very minimal risk.

[edit] Property value decreases

Property prices can fluctuate - something that is accepted within the property market - but if it becomes a more long-term issue then it may be a result of poor research on the part of the investor.

Look for a development that is within a location known for strong investment, with a good economy, good transport links and ongoing regeneration.

[edit] Selling property before the completion date

This process is known as 'flipping' a property, as purchasers aim for a quick profit. However, purchasers may benefit much more from the rental income of the property, as well as any capital gains when the property is sold in the future.

--HopwoodHouse 15:54, 27 Mar 2018 (BST)

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