Buying a property off the plan is a situation where a purchaser buys a property that is yet to be constructed. Off the plan purchasing is a trend that has seen many aspiring property owners and investors secure their dream homes by putting their money on nothing more than an architectural plan. It can be something daunting especially if you have never done it before. It is a route to home ownership that some consider risky, but one which has proved very rewarding for others, especially if the project is located in a trendy growth area. It is one of the easiest ways of getting onto the property ladder because you only need to deposit a small percentage of the purchase price then pay the balance later. Buying off the plan can also significantly reduce the amount of Stamp Duty you need to pay because you only have to pay the amount based on the value minus the construction costs. Before committing yourself to buying a property off the plan, here are the pros and cons you need to know.
The Pros of Buying a Property Off the Plan
1. You Get First Choice
Buying off the plan gives you the chance to pick your apartment first before others get in. You also get to choose what you want changed or improved as long as it is within the set price. Since most people wait for fully constructed houses to buy, buying yours off the plan allows you to choose the best location and the one you believe is ideal for you. Buying Off the Plan in many cases comes with a list of optional extras, much like buying a car which is then added to your property as it is constructed. You can also choose how much you are willing to pay for these options.
2. Timing and Value Growth
Since the settlement can be a few years away sometimes as far as three years, it is good for you since should the market value grow, you will make a good equity growth. Buying Off the Plan in a trendy area can see the value increase in the time it takes to complete the construction.
3. You Lock in a Purchase Price
Buying off the plan allows you to lock in the price and saves you from any future market trends that may see the rest of the houses in the area increase in price. Even if your home’s value goes up, you will not need be paying any extra. You can then invest in another property and continue growing your property portfolio.
4. Your Property will be Brand New
The house you pay for off the plan has never had a previous owner or tenants. You will be the very first owner. Whether you choose to live in it or rent it out, it is new. And everyone likes new things! All the appliances and fixtures will be flawless and in perfect condition, you won’t need to renovate or fix anything that is in ill repair.
The Cons of Buying Property Off the Plan
1. Unpredictable Market Trends
You are never sure of how the market will turn out when buying property off the plan. It is like literally putting all your eggs in one real estate basket. If the market goes up, you made a good bargain. If the market remains flat or goes down, then you will have paid an inflated price for the house. Buying Off the Plan can be a risk, but as we have seen in the recent years the property bubble inflates and deflates organically and this just comes with the territory.
2. Inflated Prices
Home buyers and investors usually think they are locking down the price by buying off the plan and actually don’t consider the fact that the developers have taken market predictions into account before selling the house. This means that they are predicting how much the house will cost once complete. If the value of the house goes up, the situation is fair for you. If nothing happens in the market conditions, then you buy the house at an inflated price and there’s nothing you can do about it.
3. There is not a lot of Flexibility
Between paying for your off the plan house and the completion of the construction, there could be around 12 months to a couple of years or more. However, you do not have the luxury to look around or compare prices in this time. You have already locked down the price, but also got locked down since you have already paid. What you select for options in your contract is also what will eventually become your home or investment. If you feel you have made a bad choice early on or rushed into buying, it can be very difficult and costly to change the plans.
4. Little or No Opportunity for Improvement
Once you have committed to pay for an off the plan property, there’s really not much you can do to increase the scope of your influence on how the property turns out. You might have great ideas on things to renovate or improve its value or the rental yield, but there’s nothing much you can do. Once the property is complete you are stuck with what you ordered. If the property is too small or not to your liking your options are only to rent it out or sell straight away.
So is buying a Property off the plan a good idea?
You know your situation and real estate investment goals best. Having read the pros and cons of buying property off the plan, you are ready to make your decision. The following tips might help you make a good decision.
- Carefully research and check on all the parties involved including the builders, developers, management company, contractors etc. It is better to have a developer with a good track record of successfully completed projects that have been sold off plan.
- An investigation of similar neighbourhood properties would also be a great idea. You should carefully examine and gather information about comparable nearby homes, their prices or rental amounts etc. and whether there’s a possibility of rent increase in the future. This will aid in projecting the amount of return you expect to get if you sell or rent out the property in future. Real Estate agents will help you a lot in this since they have all this information at their disposal. Never rely on the developer for this information.
- It pays off to buy properties in prime locations with high growth trends. Location is a great factor in understanding the potential of a property. A site near appealing facilities like transport links, schools, hospitals and shops is more promising. It pays off to buy the cheapest property in a good location than an expensive property in the worst location. Additionally, visiting the site constantly with your agent helps a lot.
- Carefully study the contract and ensure you watch out for any restrictions on sales the developer might have imposed in case you have plans to flip the house. If possible, ask for advice from professionals e.g real estate agents or a lawyer.
- Understanding your target market whenever to buy property is a must especially if you are planning to let or sell it after completion. Discuss with local estate agents to understand where the demand is likely to come from. Details, dimensions and specifications should be suitable for the target market.
- Finally, know your financial position, your borrowing capacity and the lending policies of the bank or your financial provider. It is advisable if you have a good payment plan to avoid putting all your money in the investment.