Why off-plan property prices increase the longer you wait to buy

Five ways to maximise your off-plan investment profits

Off-plan property investment can be a very profitable investment strategy in the UK property market. By locating the best places to invest in property UK, investors could buy off-plan property, and:

  • Get the biggest discount on the best off-plan property, and maximise the return on investment
  • Achieve above-average rental income driven by high demand
  • Sell their contract before completion, banking a handsome capital gain, and avoiding the costs of ownership

In this article, you’ll learn why off-plan property tends to increase in value through the lifetime of development. We also explain a few of the benefits of partnering with Gladfish to invest in off-plan property.

Why off-plan property is cheaper than completed new build

To reduce financial risk, developers sell off-plan property on their developments. In most cases, this route helps the developer with cheaper financing than borrowing from a bank. When the developer later seeks traditional financing, the number of off-plan sales provides evidence of investor demand. It increases a bank’s confidence to lend, and positively affects the interest rate the developer is requested to pay.

However, the developer understands that the investor is taking a risk. There is no property yet built, and the investor is buying based on their research, due diligence, and reputation of the developer. To mitigate this risk, the developer sells the off-plan property at a discount to market value.

When you invest in off-plan property, you pay a deposit – 10% to 20% of purchase price – and the balance is payable on completion unless the contract requires staged payments. Most investors buy with the aid of a buy-to-let mortgage. By doing so, you take advantage of the benefits of leveraging in property investment as well as the discounted purchase price.

Why does off-plan property increase in value during the development lifetime?

The earlier you invest in off-plan property, the bigger the discount to market value is likely to be. The developer wants investors on board and therefore offers the best discounts to early-stage buyers. Off-market, pre-public offering prices are the cheapest. They are also the most difficult deals to find because often the big institutions snap up these bargains.

When you buy early, you also get a better choice of property on the development. The best-located units will offer the best potential for capital growth and rental income because they are the most sought after.

As the development matures, prices tend to rise. If the property market is strong, these increases could be substantial. Here’s an example of potential profitability, when you purchase an off-plan apartment at a very early stage of development:

  • The apartment is valued at £200,000, and you buy at a discount of, say, 10%.
  • You pay a deposit of 20% (£36,000) on your purchase price of £180,000.
  • If property values increase by 5% per year, and the developer takes two years to complete on your investment property, upon completion it would be valued at approximately £220,500.
  • Your capital gain is £40,500 on your original investment capital of £36,000. To put it another way, you just made a profit of 112.5% in two years.

Prices rise for several reasons. Primarily if the general property market is strong, but also because the developer is selling more units. Discounts offered are reduced, and demand for property on a development tends to increase as show homes become available for viewing and the development matures.

Why do investors choose Gladfish as their investment partner?

The returns you could make from off-plan property depends upon several factors. What you can’t control is the general economy, and how that affects property values (though you can slash market risk when you buy off-plan property).

However, there is much that you can control, and this is where we help investors to minimise the risks and maximise the gains. Here are five ways in which we help you when you invest in off-plan property:

1.      We only seek property opportunities in the best places to invest in property UK

The first consideration when investing in property should be where to invest. Our Hotspots Algorithm considers 108 data points across 324 UK areas. We then rank these for investment potential. It may be the most comprehensive property research strategy in the UK today. We produce investment guides, which detail our research and are free to download. (See why we think commuter towns are the hotspots for off-plan property investors.)

Once you have decided on a location for investment, it’s time to consider the development for your off-plan property purchase.

2.      We vet the developer to reduce developer risk

We only source property for investors from reputable developers. We want to see evidence of a lengthy track record. We’ve had a long and rewarding relationship with many of the developers with whom we work. These developers have proved to us that they deliver their properties on time, on spec, and without fuss.

3.      We source early-stage, off-market deals

As you’ve learned, the earlier the deal, the more potential profit there is in it. We source deals as early in the development cycle as possible (or as early at each stage as possible). By doing so, we access the kind of deals often reserved for large institutional buyers. We get in before the offer is made public, and work under the radar to preserve the integrity of the development and the offer to investors. You benefit from some of the best discounts available, as well as the choice of the best units on the best developments, built by the best developer in the best locations.

4.      We make the process easy

Investing in off-plan property is more complex than buying a pre-existing home. You’ll need to liaise with solicitors, accountants, mortgage brokers, and the developer. It can be time-consuming, and if a deadline is missed, it could have dire consequences.

When you partner with Gladfish, you benefit from access to a dedicated property consultant and sales progression team. This progression team keeps property investing simple. They ensure that the developer is on track for completion. The progress of the sale is monitored closely at every stage, and with our network of experienced professionals, you won’t miss any deadlines.

You relax, while your sales progression team does the donkey work. We’ll chase solicitors, cajole developers, and won’t take no for an answer. We know how and when things should happen, and we’ll make certain they do.

5.      We help you define the best strategy

Before investing in off-plan property, you’ll need to decide which strategy will work best to achieve your goals. It should be the start of your investment journey. Contact one of our team today on +44 (0)207 923 6100, and we’ll help you to create the most suitable property investment strategy, whether your objective is to make a market-beating capital gain, receive great rental income, or both. We’ll help you decide on a location for your investment, and explain how you can invest without the hassle by using a Set and Forget investment plan, allowing you to maximise profits and your free time.

Live with passion

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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