What happens if you need to sell your off-plan property investment?
Off-plan property investment comes with a catalogue of potential benefits. There is also some risks. As with any investment, you should always have an exit strategy.
Some property investors buy off-plan property with the intention of selling it before they complete. We don’t recommend this strategy to investors. It makes you 100% reliant on the market – and in our experience, markets have a nasty habit of producing strange outcomes. You’ve only got to look at the recent UK general election 2017 to see evidence of this. What had been expected to be a 100-plus Conservative majority evaporated to a hung parliament in eight weeks.
However, could you sell your off-plan property investment before completion if you wanted (or needed)?
Why might you need to sell the off-plan property before completion?
Typically, you’ll pay a 10% deposit, and benefit from a discount to market value at the time you agree on the deal. For example, you may have agreed to buy an off-plan apartment for £200,000 when it was valued at £230,000. You pay a £20,000 deposit. 24 months later, as you approach completion, you receive an updated valuation. The property is now worth £255,000. Sell it now, and you receive a profit of £55,000 on your original £20,000 investment. For some investors, the potential profit from an off-plan property investment is too good to resist.
There could be other reasons you need to sell. For example, your circumstances may have changed. You could have lost your job or got a divorce. You may have debts you need to pay for a family member. Whatever the reason, you may decide that selling your off-plan property before completion is the best course of action open to you.
Can you sell an off-plan property which you expected to complete on?
Whether you can sell your off-plan investment will depend upon the conditions in the contract. Some developers will bar you from selling before completion, or place restrictions on any sale. It is to protect them from sellers flooding the market and driving prices down as phases complete.
One of the reasons we so often get the biggest discounts on the best off-plan property for investors is that developers know we work with long-term investors and not flippers. However, we also understand that personal circumstances can change. It is a reason why it’s so imperative to make sure you benefit from using a solicitor who is experienced in off-plan property investment deals. They’ll make sure that the contract is flexible enough for you, and fully explain all the terms and conditions attached before you sign.
On the more positive side, there is often no penalty for selling an off-plan property before completion. But remember that the title to the property hasn’t passed to you until completion. So, you can’t simply sell the off-plan property contract to a third party unless the contract allows you to do so.
What you should consider before selling
Before you sell out of your off-plan property before completing, there are several considerations to make. Of course, you will have to weigh up the future potential you could be foregoing – years more capital gains and rental income, for example. Also, you’ll need to consider the immediate financial implications of selling before completion. These include:
· Tax
What is the capital gain that you will make, and how much capital gains tax will you have to pay? If you are a higher rate taxpayer and have used all your CGT allowance for the year, the taxman will demand 28% of any gross profit.
· Selling commissions
Assuming you use an agent to sell the property, there will be a commission to pay for their services.
· Legal fees
You will have paid legal fees to purchase the off-plan property contract. Should you wish to sell it, there will be solicitor’s fees charged to draw up a resale contract. The buyer will require the details of the original contract. It includes property specifications, building timetable, defects warranties, and so on.
Once you’ve taken the above costs into account, you’ll have a better idea of whether it makes sense financially to sell before completion.
Can you plan for an emergency exit strategy when investing in off-plan property?
For most off-plan property investors, selling before completion is the resort. However, it always pays to be prepared for the worst-case scenario. As we discussed earlier in this article, there could be unforeseen and unavoidable circumstances that make an early sale the best course of action. Plan for the worst, and hope for the best. To plan for an early sale exit strategy:
- Check with the developer about their conditions of off-plan property sales. Do they ban flipping, for example? Make sure your solicitor examines the off-plan contract, and put any concerns to them. Tell them that while you don’t expect to sell before completion, it would give you peace of mind to know that it would be possible. It may be that the developer allows the early sale, but with certain conditions attached. Ask what they are, and understand any implications.
- Buy as early as possible in the development cycle. You should benefit from the lowest prices and could obtain the biggest discounts. More time before completion also gives the greatest chance of riding the wave of a rising market.
- Always buy in the best places to invest in property UK. It will maximise the appeal of your investment, and help to maintain price performance.
And, finally…
When you invest in off-plan property, be like an aeroplane passenger – always have your emergency exit strategy planned before you invest. You may never need it or use it. But you know where the exit is, and how to get off the plane if needed. So, have a plan B prepared.
If you do find you need to bail before completing, whether to take that tempting capital gain or because of changed personal circumstances, consider all your options and ask the advice of experts before making a sale. Selling may be regretted and could be avoided.
For more tips and advice about investing in off-plan property, or if you need to discuss your current portfolio, contact one of the Gladfish team on +44 (0)207 923 6100. We’ve helped hundreds of investors maximise the benefits and profit potential of investing in off-plan property.
Live with passion,
Brett Alegre-Wood
