Should you buy off-plan or is it better to invest in older properties?

Off-plan purchasing is buying a property from a builder’s plan before it has been built. This is an investment which will help the developer gain the capital needed to complete the project as they rarely have the funds for big residential developments to begin with so they allow you to put down a deposit to purchase one of the planned properties. This deposit will go towards allowing the developer to pay for wages and materials in the construction of the property and before the property is eventually sold. This agreement will also help the developer as they will find it easier to get investment from banks as they now have a buyer lined up for their property. 

Off-plan purchasing is often done by people who are buying to let, instead of someone who is buying with the intention of living in the house themselves. 

There are many benefits of buying off-plan, the main advantage being that you can buy a new property sometimes 5-10% below market value. Why wouldn’t you want to start your portfolio saving potentially tens of thousands on a new property?

Risk could be argued as the main factor which is why more people don’t buy off plan, you are not getting your property at a discount for no reason. The developer may be great at building houses but if they can’t get other people to put down deposits to raise capital to cover the costs of the development, the project could stop and you’ve already agreed to buy a property that will never be built.  You are sometimes at risk of losing that deposit if that happens, so it is a bit of a gamble. Nobody wants to lose that sum of money but you should only put the deposit down if you can afford to lose it and you should always research the developer, like with any investment. If they have a long history of successful developments, there is less risk (but still some), but if it is a relatively new developer which hasn’t had any successful developments, I would be more sceptical in investing. Also, a good tip would be to look at some previously built homes by a developer as they may have a good track record for building homes but over the past few years, there has been some big construction companies which have had many complaints from residents about the actual build quality of their homes. So whilst you may not be at a high risk with the development not going ahead, when the houses are build they may be shoddily put together which may cost you later down the line if repairs are needed for your tenants and they are not covered by the developer. With a pre-built home, you can have a look around it to get an idea of the fit and finish, as well as getting a get a surveyor to inspect it for you before you agree to anything. This can’t be done with off-plan properties. 

Another risk, which is not as bad as losing your investment over a property that was never built, slow investments could postpone build dates and delay you getting the keys to your new-build. This can cause issues with mortgages expiring and rates increasing in the time which has been delayed. So it is a good idea to forecast for delays and remember that mortgages are not always set in stone so you should budget for a more expensive offer also. Delays do not just affect mortgage rates, your projected value of the finished property could actually decline once it has been built if the property market is decreasing. So it is not a good idea to invest in an off-plan property is the market is volatile and you are looking at buying off-plan. 

Also, if you have agreed to buy one of the first properties in the development, your tenants may be annoyed by the noise of ongoing construction nearby as others are being finished which may affect the amount you can get it rent. 

But it’s not all bad, off-plan houses are new builds so are much more energy efficient which will be more desirable for renters and you would save on electricity bills if you are buying it for yourself. Also, in many cases, you get to choose the fixtures and fittings in these homes so you can spec. 

So please consider all of your options before investing and seek professional advice, but under the right circumstances, buying off-plan could be a fruitful investment if you properly research what you are buying first. You should note that you should be in it for the long run with and off-plan investment for a true return and it is only for people who can wait to recoup and start profiting. 

An image of a JCB next to concrete blocks with houses covered in scaffolding in the background and a mound of dirt in the foreground. This is to represent off-plan purchasing as the image shows hoses being built.
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