Buying off plan: Should you or shouldn’t you?
Buying off plan is quite simply buying a property before it’s built, or at the design stage. With developments seemingly soaring up every other day, potential investors may decide to throw caution to the wind and pounce on properties, even before the foundations have been laid. But is the risk worth it? And does it pay off?
The trend experienced a positive upsurge in recent years due to government incentive schemes such as help to buy, offered exclusively on new-builds, a market struggling with demand in excess of supply, and property prices constantly on the climb. However, if recent reports are to be believed, then the tables are now turning. Brexit uncertainty coupled with a weak economic outlook, flattening housing stocks and tighter household budgets has cast a pall over the property market. So, could buying off plan pay off in the present market scenario?
In rosier times, off-plan buyers could confidently wager that their property value would rise even before they moved in. But present market condition could mean that buyers may end up being compelled to pay more for a property which has decreased in value. Moreover, for first time buyers, it is useful to remember that banks only make mortgage offers six months before the property is completed. Thus, pushing buyers to make the difficult choice of buying closer to the completion date, and forego the profits that come with a cheaper early buy, or paying a deposit without a mortgage in place – a risky move.
So, should you choose to buy off plan or not?
It all comes down to your essential nature as a risk-taker. Are you someone who thrives on volatility? Do you love taking gambles, and pulling off upset wins? If the answers are yes, then by all means go for it. However, it is important to approach buying off plan pragmatically, and adequately consider both, its advantages and drawbacks.
Get your bucks worth and more: The value of your new home or investment could experience an upsurge before you even move in. For instance, if you settle on a purchase price of £400,000, but the property’s value climbs to £450,000 on completion in six months’ time, you can then immediately sell it and make a cool £50,000 in profit.
You can save: An early purchase commitment could also help you pull off welcome savings. Developers regularly offer a discount, usually 5%, in exchange for securing a sure sale and maintaining a steady cash flow.
Take your pick: When buying off plan, more often than not, you get to customise or choose desirable property features such as a ground floor unit with an attached garden, tailored interior finishes, corner positions, attractive views or larger driveways and parking spots to name a few.
It’s a gamble: One can argue whether fancy brochures, plans, 3D models and visits to developers’ marketing suites are enough to consider making a sound property purchase decision. Projections more often than not, fail to paint a true picture, and you may find that the end results have disappointed your expectations.
Prices may fall: Unpredictable market conditions may cause the value of your property to fall unexpectedly. And even though your investments are forced to take a blow and your profits take a plunge, you will still be expected to honour your contract.
Mortgage could be a hassle: It is not unknown for lenders to have reservations, when it comes to loan-to-value on new-build flats and developments. Moreover, if the value of your property falls before its completion, the lender will persist on basing your mortgage on the current value, while the developer will emphasise on the former. This may result in you having to pay the difference, leaving your wallet considerably lighter. Other mortgage issues arise from the development missing its completion deadline. Since most home loan offers only have three to six months validity, your mortgage offer may become invalid, causing you to begin the application process all over again.
Buying off plan is certainly a property investment avenue that is worth exploring. And making a success of it will more often than not come down to balancing its risks and rewards, with an intuitive intelligence and a fair amount of foresight.