Buying off plan not only offers a convenient way to maximize investments whilst properties are still being built, but it is also possibly the best way to get the location and specifications you want. And as the processes of property design and construction increasingly make use of cutting edge imaging technology, those buying off plan can now see and plan their properties in three dimensions even before the foundations are laid. If buying off screen doesn’t get you excited, the possible returns might clinch the deal.
A leading financial centre and tourist destination, boasting the world’s largest city airport system, the largest concentration of higher education in Europe, and the first city to host the Summer Olympics three times, London has a well-deserved international reputation. But the tag “Major World Capital” rarely comes without its price. In general terms, if you live in the UK, the closer you live to London, the higher the cost of living. While Britain may be in the early stages of recovering from the global economic crisis, house prices are on the rise once again, nowhere more so than in London. Whilst buying a property in the capital is still out of reach for many, for those looking to invest, it continues to be an attractive prospect; with a market in growth, off plan properties can offer outstanding returns. In addition, many investors enjoy the chance to take part in the often-rewarding creative process of designing their dream house, whether buying for themselves, re-sale or to let, investing in off plan property can meet a variety of demands.
Like all investment, buying “off plan” comes with its risk and pitfalls, some specifically linked to the incomplete nature of the property when sale is agreed. There are many advantages though, not least when it comes to financing a deposit. Typically, you can buy off plan with as little as a 10% deposit due before completion, and so on longer-term construction schedules, this can offer you up to four years to raise the capital. It is also common for developers to offer financial incentives to early adopters in the form of a discount, in some cases up to 10% off the asked price. Additionally, investors can benefit from property price growth during construction, after the price has been agreed and before the final sum, or any mortgage payments are due. In a rapidly rising housing market, property investors may achieve substantial capital gain. The figures are persuasive: 10% property price growth on a property reserved for 10% of its price returns 100% on invested capital. To maximize returns, off plan properties should be sourced in the highest growth area you can afford, preferably on construction projects at least one year until completion.
The reasons why people choose to investing in off plan property vary, with many buying as a medium to long-term investment, owing to the fact that completion may take a few years. Off plan properties can also be re-sold before completion of construction, if this becomes necessary or advantageous. One advantage to selling early is the avoidance of up to 4% stamp duty, which is due only for fully constructed properties. For those investors who decide to keep the property, however, the balance may be paid with a mortgage or their own funds and, quite often, is then rented out.
From a quality and aesthetic perspective, those looking for a home benefit also from having their say at every stage of construction. Indeed, investors are able to choose how they wish their finished property to look and feel: from the best views to their preferred fixtures and finish. Post-completion, those who have bought off plan usually benefit from a structural guarantee issued by the National House-Building Council or another similar organisation. New build homes are also easier to maintain, manage, rent out or sell. No wonder then, that latest research shows that as many as two in five of London ́s new-build homes are now bought off plan.
Better be Safe than Sorry: As you would expect, everything may not go plan or run to schedule, so when buying off plan it is advisable to get a specialised conveyancer to review the contract, investigate the potential impact of a value fall after exchange or what would happen if the developer goes bust. Keep routine visits to the site and make sure you have to hand a tearing survey before moving in.