Around the world, off-plan in property markets have provided many investors with great opportunities to add profitable buy to let properties to their portfolios, or buy a holiday home at a keener price. Before embarking on such a purchase it might be worth considering a few things, including your own risk-profile. It takes a bit of imagination and nerve to extrapolate what a property will look like from a plan on a piece of paper.
Off-plan property purchase – what is it
Buying off-plan is where you are buying the right to buy a property once it is built. This is a different type of contract to one where a property has already been built, or is being sold on as a resale, where a tangible building exists.
The current economic climate has thrown up a number of issues for off-plan buying, most notably placing the developer under greater scrutiny. Experience shows that some developers have lost access to funding, which they were relying on to finish off partly-completed developments. So for a buyer, this has meant a deposit committed for a property purchase, which can be locked up in a deal where delays then happen.
Off-plan property buying-why do it?
The upside to off-plan buying has generally been in the discount offered. Prices generally move upwards as the development starts to reach completion. In some instances a discount may also be available if a developer is looking to shift the last few remaining units of a development, in order to move onto the next development project.
In addition a buyer is getting a new build, with all its efficiencies, low maintenance and latest technology as part of the fabric of the building. Many buyers also find it attractive to have the opportunity to input to the selection of fixtures and fittings, to make it more personal.
Off-plan investing -what can you do to protect yourself?
- Think about your exit strategy for the investment you are making and ensure you are comfortable that you may well be investing for the medium to long term.
- Check that the contract is assignable. Should you get into financial difficulties, or your personal circumstances change and you need to exit the deal, you might need to sell on (or ‘assign’) the property deal before completion. So you need to be sure that the contract allows you to assign it.
- Check the level of discount you are getting for buying off-plan. There is inherently a greater risk buying a property which is not yet built, so the price should reflect the level of risk you are taking as a buyer.
- You might want to consider buying using Escrow, which provides a guarantee, or additional level of protection. Deposits are put into the custody of a neutral, third party by a buyer, to be retained until the pre-determined stage of building work has been completed. However Escrow is not always widely used by developers, nor common in many countries and can add cost to the buying process.
- Buyers with the bank guarantees tend to be protected more in certain jurisdictions like Spain.
- As a buyer of off-plan property abroad, ensure your contract is as legally watertight as possible, with a specific completion date and clauses for late completion linked to a penalty or compensation.
- Stick to what you can afford. Some individuals have not found Off-plan buying has worked for them in a falling market. Some buyers embarked on a bit of a gold-rush, buying several properties off-plan, expecting to “flip” the contract (sell it on), never having to complete and pay stamp duty, or other completion-related expenses, only to find the pool of potential buyers suddenly dried up and they were left completing on purchases they could not afford.
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Property Venture® is an award-winning, UK-based agency for overseas property who helps people buy investment property and holiday homes in Europe, more easily and safely than they can on their own, because we offer grounded common-sense advice.
The focus is mainly greater Europe: Poland property, UK investments, Spain property, Turkey property, Cyprus property
On the Advisory Board and a Member of the Association of International Property Professionals (AIPP) the business has been vetted, approved and voluntarily commits to Industry Regulation and the Professional Code of Conduct. We are known for our quality customer service and non-pressurised approach to sales. Take a look at what our clients say
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