Did you know that off-plan property purchases account for over a third (37%) of all home sales in England and Wales? With this figure expected to keep rising in the years to come, more and more savvy investors are waking up to the significant profits that can be made from purchasing off-plan developments.
So, should you join them? We have the intel. Allow us to take you through the advantages and disadvantages of this form of investment, as well as how Alesco can help you purchase an off-plan property.
Off plan property investment guide
What are off-plan developments?
Off-plan developments are real estate projects — typically either residential or commercial properties — offered for sale before they are completed or even before construction has started.
Buyers purchase units or properties based on the developer’s plans, designs, and specifications. The term “off-plan” reflects the fact that the property is sold at a stage when it exists only on paper, and construction or development has yet to commence. Buyers therefore commit to purchasing a property that may not yet exist physically.
Investors can then profit from their purchase by either putting the off-plan property up for sale, or by renting it out to tenants.
What we like about off-plan property investment
- Lower initial cost: Off-plan properties are often sold for up to 5% less than completed properties, something that enables investors to get more bang for their buck.
- Potential for capital appreciation: The value of the property may increase between the time of purchase and completion, boosting potential profits for investors.
- Choice of units and customisation: Buyers typically have the opportunity to choose the unit they want from the available options, and sometimes even customise certain aspects of the property, such as the finishes or layout.
- Flexible payment plans: Developers tend to often offer flexible payment plans for off-plan properties. This can make it easier for investors to manage their finances considering payments are spread out over the construction period.
- First dibs on prime locations: Investors may have the opportunity to secure properties in prime locations before they become widely available. This can be advantageous in areas where demand is high and property values are expected to appreciate.
- Newer and modern features: Off-plan properties are usually built using the latest construction standards and design trends, which can make them more appealing to renters and potential buyers.
- Spread of risk: Since the investment is made over the construction period, investors have time to monitor market conditions and make adjustments to their investment strategy if needed. This potentially reduces the impact of market fluctuations.
Areas of consideration with off plan property investment
- Construction delays: One of the biggest risks of off-plan property investment is the potential for construction delays. These will naturally impact the expected timeline for completion, causing inconvenience for investors and affecting their ability to generate rental income or sell the property at the expected time.
- Changes in market conditions: Economic and market conditions can change between the time of purchase and completion. Factors such as a downturn in the real estate market or changes in interest rates can reduce property values and rental yields.
- Quality and design variability: The final product may not always match the initial expectations in terms of quality and design. Developers might make changes during the construction process, and investors may not have full control over these alterations.
- Developer risk: The reputation and financial stability of the developer are crucial. If it encounters financial difficulties or goes bankrupt during the construction period, the project may be delayed or even abandoned altogether in the worst case scenario.
- Lack of immediate income: Investors in off-plan properties typically need to wait until the completion of a property to start generating rental income or realise returns through a sale. This lack of immediate income can be a disadvantage for those seeking regular cash flow.
- Financing challenges: Securing financing for off-plan properties can be more challenging than for completed properties owing to the perceived risks involved and the lack of immediate collateral (a finished property).
The verdict: are off-plan properties worth the investment?
So, is it worthwhile to invest in an off-plan property or not? This depends on various factors, including your risk tolerance and financial situation. However, for many investors, this can undoubtedly be an attractive investment route given the advantages like a more affordable outlay and the high potential for capital appreciation. That said, we advise taking the following things into account prior to making a purchase:
- Gauge your risk tolerance: Off-plan property investment comes with unique risks. It’s worth considering your comfort level with these before making any firm decisions.
- Perform comprehensive market research: Be sure to comprehensively research the off-plan market you’re considering, taking into account things like the location and the specific features of any properties you’re looking at.
- Pick your property type: Work out which kind of property best suits your investment strategy, whether it’s residential, commercial, industrial, or a combination of these property types. Each kind comes with its own unique pros and cons.
- Develop an exit strategy: Think about your future plans for your investment. Having an exit strategy is vital should you decide to abandon the investment for whatever reason, ensuring you can keep your losses to a minimum or maximise profits.
- Work with a property investment specialist: Getting advice from a property investment specialist is highly recommended considering the unique nature of purchasing an off-plan property. Alesco can not only offer expert guidance on this type of investment, but has access to exclusive off-plan properties for sale.
How do I invest in off-plan property?
If you’re looking to invest in off-plan developments, Alesco is here to help. Pick an exclusive off-plan property for sale from our portfolio today, while making use of our extensive experience, comprehensive market insights, and deep understanding of property investment. What’s more, we’ll help you with steps like actually buying a property and conducting due diligence.
Get in touch with us for more information or to make an inquiry.
Written by: Ben Whitaker
Experienced professional working in the real estate investments sector. Assisting and advising clients on the acquisition of property across a range of asset classes, with view to achieving robust return on investment.