What is Off-Plan Property Investment?
Investing in off-plan property is purchasing a property during the construction part of the building process. It’s usually purchased at a discounted price to the actual value of the completed state making it attractive to property investors.
While buying an off-plan property isn’t the most common form of buy-to-let, it comes with some unique benefits that can be useful for investors.
Generally, the investor will need to pay a reservation fee and a deposit. The deposit can be anything from 10-20% and upwards of 30% depending on the developer and development.
Buying an off plan investment property in the UK is a great way of ensuring a new build asset that can potentially rise in value during construction and deliver rental returns upon completion.
This is what makes the asset so attractive – an off plan investment property provides two income streams and almost immediate return on investment in terms of capital growth.
Off-Plan investment opportunity
Jewellery Quarter, Birmingham
- Birmingham’s most historic neighbourhood
- 28% property price growth reported over the past 3 years
- Prime city centre location close to all of the city’s amenities and transport links
- Walking distance from key global business HQs including HSBC, KPMG and PWC
Why Choose an Off-Plan Property Investment?
There are many reasons to consider an off-plan property investment. Firstly, property remains a flexible, rewarding and reliable asset in any portfolio, offering the opportunity to deliver two unique income streams.
This asset offers incredible potential for long-term growth, more than you’d find in a traditional property investment. Because off-plan property requires an investor to purchase a property before it’s completed, there is always potential for surrounding property prices to rise, which would result in clear returns for the investor.
This also has the added benefit of providing an investor with a guaranteed new-build unit that they can hand-pick, provided they get in early enough. As far as flexibility goes in the property investment world, off-plan property investment is unmatched in the different strategies it can be adapted to.
Benefits of Buying Off-Plan Property
For investors, there’s a number of benefits to buying an off-plan property investment in the UK, particularly around the flexibility and potential of the asset:
Off-Plan Property Can be Purchased Below Market Value
A major advantage of purchasing an off plan property investment in the UK is that it is typically a lower price before completion. With the UK property market currently facing undersupply, there’s plenty of opportunity for demand to drive the value of a property up during the build.
Purchase Specific Units
Another attraction to an off-plan property is the freedom of selecting your preferred unit. If you’re happy with the location and developer, you usually have the choice of a specific location, features, rooms and much more. Furniture packages are also available for those looking to quickly kit out their home hassle-free.
Guaranteed New Build Apartment
Of course, off-plan properties are new or refurbished builds. This guarantees a contemporary build which benefits from modern features such as energy efficiency, environmentally-friendly specifications and other requirements that new builds have to apply to. This generally leads to cheaper bills for tenants and potentially higher rental prices going forward.
Risks of Buying Off-Plan Property
As with any investment, there are elements of risk and that’s why it’s very important to go with a property developer that is trusted. This due diligence should be a critical part of your wider investment planning.
Firstly, it’s important to know the developer working on the project. Research the developer and ask the questions; How many developments have they completed in the past? What are their building standards for these completed projects? Are they financially stable?
There are also external factors to be aware of before making a property investment such as property values falling. This could affect lending on the property meaning your deposit will need to be higher.
Ensuring you also have guarantees on your property is vital and you should always check to see if it’s included in the contract with your developer. This could protect you against defects that may occur when you complete on your property.
Why Buy Off-Plan Property Investment in the UK?
At a time when the off-plan property investment in the UK can expect to benefit from price growth of 4.5% over the next year, there’s a strong case for investing off the plan.
This is particularly true when we consider the locations across the UK demonstrating excellent potential.
Based on expert forecasts, off-plan property in Birmingham is set to see prices grow by 24.5% over the next four years – the highest in the country – driven by low supply and high demand.
This is supported by predictions that the second city will also lead the way for annual growth each year, further highlighting the potential for off-plan property in Birmingham.
It’s this opportunity to buy at a lower-than-market-value, while also building the value of an investment before it’s built, that makes off-plan property such an attractive proposition.
Read Our Off-Plan Property FAQ’s
How can I find off-plan property?
While completed properties can usually be found at your local estate agents or property auctions, off-plan properties are not always as common.
If you want to find off-plan property, you’ll typically need to go directly to the developer or through an investment company.
You may also be able to find off-plan properties online, particularly on larger property portals.
The most important thing to remember when you’re looking for off-plan property is that if you’re working with a developer or an investment company, you need to make sure you’re happy that they’re a trusted entity
How to buy property off-the-plan?
The process of buying property off the plan is considerably different in comparison to purchasing completed property. Many developers will sell their properties off-plan, so actually finding these is usually relatively simple.
When you’ve found the off-plan property you want to invest in, you’ll need to reserve it with a reservation fee. While this will hold the property, you’ll then need to pay the deposit – which most companies will want within a certain timeframe.
At this point, you’ll either be investing with cash – which will be required on completion – or applying for a buy-to-let mortgage. If you’re financing an investment with a mortgage, you don’t start repaying until completion.
What are the advantages of buying off-plan property?
Off-plan property has a number of unique advantages over traditional buy-to-let assets.
Firstly, it’s typically sold at a lower cost than its completed counterparts and guarantees a new investment property on completion – with all of the fixtures and fittings that residents look for.
It’s during this time that investors can benefit from the asset’s potential for capital growth.
Because off-plan property can take several years to build, values can grow over time, meaning your investment could be worth more before it even starts renting.
If we look at historical property data, this has been the case for multiple investment locations around the UK where prices have increased significantly since 2016.
What are the risks of buying off-plan property?
All investments come with risks – it’s a fact of life.
Fortunately, property is one of the most resilient assets, regardless of whether you’re investing in off-plan property or a completed property.
One of the main uncertainties is the build. While there’s always a risk that this can bring up issues, working with a trusted developer that has a proven track record can minimise this risk.
It’s also important to remember that your money will be tied up during the build period and is much less accessible than other investment vehicles. As long as you understand that builds take between two and three years, you can factor this into your planning.
Finally, as with any investment, there’s potential for the market to fluctuate. Prices can rise and fall but investors can take into account that the UK property market has been on an upward trajectory – barring the odd dip – for the better part of the last decade.
How can I ensure off-plan property is completed to a high-quality?
The most important thing you can do as an investor when you invest in off-plan property is to keep up your due diligence.
To minimise the ‘risks’ of off-plan property, you need to make sure that you’re working with a trusted, proven developer.
Don’t be afraid to ask them questions before you invest. You need to know the past performance of previous assets, the quality of the developments they deliver and their history of delivering on time.
Also look for reviews and testimonials to determine whether their properties match the intended quality that was suggested.