London and UK Property Investment Blog

By Ryan Rahnavard | [fa icon="calendar"] September 7, 2016

Off-Plan Property - When is the best time to buy off-plan property?

off-plan-propertyOff-Plan Property - Benefitting from off-plan property launches

When you make an off-plan property investment, you will buy at today’s price and complete in a year or so. The hope is that market values will have risen during this time. If they do, when you complete you will have an automatic profit. You’ll also have a highly desirable property that will produce good rental income. It is why an off-plan property is such a good investment.

If the market rises by 10% or 20% during the building phase, your off-plan property investment will have produced that gain from as small an initial deposit as 10%.

In this post, I will explain the best time to buy off-plan property. You’ll also discover how to reduce your investment risk.

Why developers have an off-plan property launch

When they build a new apartment block or housing estate, developers take several risks. These include a lack of demand or a market downturn crushing values. To get a development off the ground, the developer will use its money as well as borrow funds from a bank or specialist lender. Interest rates can be high.

By selling properties before they have been built, the developer raises funds more cheaply than by borrowing from a lender. Selling before to completion also proves that there is demand for the off-plan development. It gives lenders confidence in the project, and the interest rate they charge for further lending will be reduced.

What is an off-plan property launch?

The developer will have a public off-plan property launch. It will probably be well publicised, with advertisements in the local and national press. Estate agents will have the details of this launch. It is when home buyers and private investors like you usually get their first opportunity to buy off-plan property.

To kick off the development with a bang, and to make it more attractive to buyers, an off-plan property is often sold at a discount to its valuation at the date of sale. The earlier you buy, the bigger the discount. It can also be the best point to negotiate the best discount on your property investment

Before the official launch, investment companies will be offered pre-launch deals. The developer gets to sell several off-plan properties simultaneously. Because they are dealing with investment companies and not individuals, the developer is certain of being paid at completion. For this advantage, it will give a larger discount.

In a nutshell, the earlier you invest, the bigger the discount you could get. The pre-launch is when the best off-plan property investment is made. To access this, you’ll need to have access to an investment company that has partnered with the developer.

The risks of off-plan property investment and how to reduce them

When you buy off-plan property at a discount to market value, the rewards can be big. But there are also risks, too. Some of these risks are unavoidable. For example, if the economy goes into recession there is little you can do about it. But other risks can be reduced by simplifying your investment property. Most remaining risks relate to the developer.

Here are some things you can do to make sure your developer risks are as low as possible:

  • Check that the developer has all the approvals it needs, such as building permissions.
  • Only deal with a developer with a track history of successfully completed developments.
  • Research the site and ensure that it doesn’t have a history of pollution or industrial waste. If it does, ensure that it has been passed as fit to build on.
  • Review all the documents associated with the off-plan development before committing. Use a solicitor to do this.

It is a lot of work for an individual investor. But without this due diligence, you’re more likely to make a bad investment. If you are investing through an investment company at the pre-launch stage, then much of this pre-checking will have been done.

Contact the team here at Gladfish to find out about our due diligence process. We only partner with developers with a long and credible track record. And we only invest in developments that benefit from strong property fundamentals.

We love hearing from from you – give us a call on +44 (0)207 923 6100.

Warmest Regards,

Ryan Rahnavard

Topics: Investment Education Off Plan Property

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