Don’t invest in off-plan property without reducing the risks
Off-plan property investment opportunities could be your road to riches. The potential rental income and capital gain from no-fuss new build could be the life-changing investment opportunities you’ve been waiting for. However, like any investment that promises so much, it is not riskless. The trick to successful investment in off-plan property in the UK is to understand the risks and reduce them without reducing the investment potential.
In this article, I’ll introduce you to the risks that exist in off-plan property investment, and to the steps to take when creating a winning strategy for the current market. An investment strategy that minimises any risks and maximises investment returns.
The risks of investing in off-plan property
· The off-plan property is never completed
Perhaps the biggest risk is that the development is never completed. It happened to some of off-plan property buyers in Southern Europe (especially Spain, Portugal and Greece) during the Global Financial Crisis. Developers that had overstretched their finances went bust and the deposits that the off-plan buyers had paid disappeared. After years of legal battles, some buyers are now being recompensed; but it’s been a long, hard, and painful journey.
Fortunately, this problem is a rare occurrence in the UK property market. To reduce the risk to its minimum, make sure you buy only from a respected developer with a good track record of completing on time.
· The off-plan property takes longer to build than anticipated
There may be factors which are out of the control of the developer, which delay completion. Inclement weather, delay in deliveries of materials, and subcontractor issues, for example.
Experienced developers are less likely to have these problems, as they are more likely to include them in their calculations and estimates and build in contingencies into their development timetable.
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Also, an investor should ensure that staged payments coincide with completion milestones. There may also be financial consequences written into contracts that effectively encourage the developer to do all it can to complete on time. Such consequences might include allowing you to withdraw your offer to buy without penalty.
· The property doesn’t rent as easily as anticipated or appreciate in price as estimated
There are several reasons why the property might not rent as easily as expected or at as high a price as appreciated. These are largely the same as those for price underperformance. They include:
- An oversupply of property in the area
- Poor location
- Weak local economy
All of these potential risks can be mitigated by ensuring that the development’s location benefits from strong property fundamentals: shops, schools, transport links, major employers, and major investment. When we do our property research, we cover 108 data points. Investors receive what is probably the most comprehensive investment property analysis available on the market today, pinpointing the best places to invest in property UK.
We’re so confident that the off-plan properties we source for investors will perform as we expect that we’re happy to include a two-year rental guarantee for investors who buy through Gladfish.
Once you’ve taken care of the risks, what are the benefits of off-plan property?
The benefits of investing in off-plan property are many, and include:
- In the right location, a new build property has more appeal to buyers and tenants. Maintenance costs are negligible, and the build will benefit from NHBC guarantees that cover major problems for ten years.
- Generally speaking, rental and sale values are higher than existing build properties.
- You get today’s price and pay tomorrow. If you could buy a London apartment today for the price it would have sold at two or three years ago, would you? If property prices rise, you’ve purchased a property at a price that is no longer available when you complete.
- The earlier you buy, the bigger the discount you are likely to achieve.
- Delayed payments allow you to budget more comfortably.
To build a strategy that takes advantage of all the benefits of investment in off-plan property with risks slashed to a minimum, contact one of our team today on +44 (0)207 923 6100. You’ll discover why investors that use our services once return time and again as they benefit from our in-depth research, relationships with some of the best developers in the UK, and a hassle-free investment that includes not one, but five guarantees.
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