With the UK housing sector witnessing accelerated market activity, buyers looking to purchase or invest in residential property have two options, purchase property completed, or off-plan.
What is off-plan property?
Off-plan property is when a developer provides an investor with the opportunity to purchase a property before it is built, or as it is under construction. Investors will pay a deposit and a reservation fee to secure the property, or apartment.
Purchasing off-plan property usually guarantees the buyer a discount that lowers the purchase price to below market-value at the time of sale. These discounts allow for better growth of the property’s value, as purchasing a year before completion allows for the surrounding area and housing market to grow whilst construction completes.
As there is demand for housing, it is usual that the investor will benefit from the housing market upon completion of the build.
“New housing supply is currently lower than the Government’s ambition of 300,000 new homes per year. 216,000 new homes were supplied in 2020/21.”, House of Commons Library, UK Parliament 2022
Some advantages are, but not limited to:
· Purchasing off-plan sometimes allows the investor to customise the property whilst under construction, this can be from choosing fittings to asking for features that may not initially be included.
· Being an early investor allows you to invest in the best location within a site, which potentially ensures that renters choose your location over others in a similar location.
· Over the period of construction, you are likely to have achieved strong capital appreciation, which can be taken advantage of by re-selling the property in the future.
· Purchasing a new-build usually lowers the chances of dealing with maintenance costs associated with older, pre-built residential properties such as broken boilers, light switch faults etc.
The disadvantages investors may face purchasing off-plan can be minimised by choosing reliable, well rated developers, but may include:
· Due to development timelines, there will be a period of construction between purchasing the property and completion. It is essential you are happy with the projected timeline before proceeding.
· The development time may sometimes get delayed due to adverse conditions, economic or supply issues. As stated, this can be somewhat mitigated through choosing a developer with a strong track record.
· Initial CGI renders of the property may differ slightly from the end-product due to budget, time or design constraints. However, choosing a developer with a history of delivering upon the original design can lead to an assurance of quality.
Off-plan property has the potential to provide a strong yield with great capital appreciation. It is recommended that investors complete due diligence and research into their chosen developer as it may affect their investment.