Last edited 08 Aug 2018

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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 as best they can. With investors pushing the demand for property and with the United Kingdom currently experiencing an under-supply in the property market, investors have been looking towards the prospect of buying off-plan.

[edit] Definition

Buying off-plan property 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 pay a deposit for the property to secure their purchase, usually set at 10%, and then there will typically be instalments for 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 the 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 ensure that when buying off-plan, you only ever work with trusted, reputable developers that have a lot of experience and 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 to receive their 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 Such mortgages in principle are typically not withdrawn, and there should be very minimal risk.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 always fluctuate, that is 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 investor’s side.

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

[edit] Selling property before the completion date

This process is known as 'flipping' a property for a short term, 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 a number of years time.

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

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