| Because
stock markets around the world have lost a lot of their appeal, the excess
money in people’s coffers has been ploughing into international real estate
at a rate never previously experienced. As a direct result of this
intense interest in overseas property the demand for real estate in many
locations such as Dubai and Spain is outstripping supply by up to 75%.
Because of
this fact it is increasingly common for investors to enter into off plan
property purchase: there are a number of pros and cons to this method of
buying real estate and this article examines them for you to help you decide
whether off plan property investment is right for you.
The Pros
of Off Plan Property Investment
1) If
you buy off plan when the villa or apartment is at the drawing board stage
or initial stage of build then you have the potential to make considerable
input into the internal layout and finish of your chosen property. |
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You
can change around internal walls, select paint colours, tiles, carpets,
kitchens, bathrooms etc., and custom design your property as though it
were a self build but without having to pay the extra for an architect
that you would if you were self building!
2) By
buying a property off plan today you are securing the price of that property
at today’s prices. By the time the property is completed it may very
well have risen in value thus making you a significant return on your investment
immediately. Furthermore, if you can ‘just’ afford to buy at today’s
prices know that if you wait until more completed properties come on sale
you may have missed the boat and have been priced out of the market.
3) Developers
usually require stage payments from their buyers throughout the build process.
This means that you don’t have to make a large one off payment, you can
save to afford each payment, you can budget to afford each payment and
you are effectively securing a high value asset for a very low initial
capital outlay.
4) Some
investors buy property off plan never intending to pay for it and certainly
never intending to live in it! |
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take full advantage of the stage payments method of funding the build and
never make the final payment which is usually the largest; rather they
put the property back onto the market just as it is about to be completed
and take out all the profit from the natural increase in value the property
has achieved throughout the period it took to build it. Obviously
this is a rather risky approach as the property market does go down as
well as up and there might not be a buyer waiting in the wings at just
the right moment for the vendor.
5) Some
developers use private investors to fund the build of holiday accommodation
by offering them guaranteed rental yields on their completed property for
a fixed period of time. This is a purely symbiotic relationship in
theory as the developer has inward cash flow from the property investors
to afford the build and he then has a set number of properties he can let
out via holiday and tour companies or even privately for a fixed period.
He obviously takes any excess rental yield and thereby profits. The
investor is guaranteed an income and owns a property that is hopefully
increasing in value over and above what it cost them to buy in the first
place - therefore everybody’s happy!
The Cons
of Off Plan Property Investment
1) By
buying a property from a developer off plan you are taking a risk on that
developer. What if he encounters financial difficulties during the
build and never completes or what if he doesn’t build properties to a high
standard? Ensure you see examples of his previously completed projects
and speak to other customers who have been through the process with the
developer already and ask about their experiences. Get guarantees
of the builders financial status written into the contract if possible.
2) How
secure will your investment be? You need to ensure you have a water
tight contract drawn up and employ independent legal representation to
protect your rights and money throughout the build process. |
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If
anything happens to the builder what do you actually own? Can you
get your money back? What guarantees do you have? By buying
off plan and paying in instalments it is usual that the title deeds are
not drawn up in your name until completion meaning that in theory throughout
the build process the builder can re-mortgages the land on which your property
will stand and until he repays the lender you cannot take legal ownership
of your property.
3) You
have no way of guaranteeing the finish quality of the property you’re buying.
You need to ensure you discuss your expectations with the builder and have
them written into your contract. Furthermore, as mentioned, you should
inspect previous examples of his work. Also make sure you have some
legally binding guarantees covering the structure of the building for five
or ten years.
4) If
you’re buying into an area where there is a massive amount of development
going on it will be very difficult to know what the area is going to look
like when finished. Your particular developer may finish his properties,
roads and shared areas off well, what if nearby developers fail to do so
or if nearby developers are actually building aesthetic eyesores for example?
You will have no idea who or even what your neighbours are going to be!
They could be like minded people, they could be an industrial unit! |
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Off plan property investment has one more down side and that is you will
have to wait a long time to move into your dream home. You will be
paying out for something for a long time before you actually benefit from
it.
So, do the
pros of off plan property investment outweigh the cons? You decide…
Rhiannon Williamson
writes about living abroad and investing in international real estate.
She also maintains www.shelteroffshore.com
- Shelter Offshore Investment & Real Estate which is an online resource
for expatriates, international investors and anyone planning a new life
abroad. |
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