The Pros And Cons Of Buying Off-Plan

01/11/2018

Buying off-plan, in its simplest definition, means purchasing a property before its built. It’s typically related to apartments or flats although that is not always the case. This trend has been steadily increasing in popularity especially because the government is pushing to get more new builds on the market.

In a sense, buying off-plan is like investing in a vision. Some developers are even keen on getting buyers to invest in these properties that are yet to come to fruition. They can even go as far as selling the properties before the builders are on site.

Buying off-plan definitely has its advantages. However, it’s also true that doing so has its risks and it’s critical that you make yourself aware of these, more so if you are a first-time buyer. So what are the pros and cons of buying off-plan?

Pros of buying off-plan

Price and potential return on investment

Without a doubt, the price is what’s tempting a lot of people to buy off-plan. You see, purchasing off-plan means that you are purchasing a property at a price that is below its future market value. And in some cases, these properties are even sold at a discount which makes them even more attractive.

Then there is the potential return on investment. If situated in a rapidly-rising market, the value of your property may already increase significantly before you even move in. This should prove as an excellent investment when the time comes that you decide to resell the property.

Warranty

Naturally, buying off-plan means that the property is brand new when you move in. And under the National House-Building Council (NHBC), new homes across the United Kingdom come with a 10-year warranty.

This is actually one of the advantages of buying a new build versus an older property. Additionally, most developers conduct a ‘meet the builder’ scheme where buyers are able to know what’s happening with the property as the construction progresses.

Ability to personalise your new home

Another significant advantage of buying off-plan is that it allows you to select a unit based on what will suit your needs. As the buyer, you can also have a say in colour schemes and are often given an option of packages for the quality of finish depending on your budget.

After all, being able to customise your new home with fixtures and fittings of your choice is a dream come true for many future homeowners. Unfortunately, this is not the case with buying an old build. And even if it’s possible, it will most likely cost a lot since you’d have to remove the existing ones first.

Cons of buying off-plan

Limited space

Although it’s true that it’s a lot easier to personalise a property that was bought off-plan, it often comes with limited space. The way that new builds are constructed doesn’t allow owners to do extensions and add more value to them compared to properties that are already established.

This can be frustrating if you are planning to build a family since you will have a relatively small living space. Lucky you if you can find one that has ample space but it’s very rare.

Getting a mortgage

It is possible to get a mortgage to buy a property off-plan, but you have to keep in mind that different lenders have different products to offer. Additionally, only a few lenders offer mortgages that are designed specifically for off-plan properties. It’s also worth noting that most mortgage offers run out after six months and here lies a considerable risk.

If the development of the property takes longer than six months, you can always re-apply. However, you can’t control what is going to happen during the development period. What if the market conditions become difficult and the mortgage valuation survey values the property lower than what was initially agreed on?

To make things worse, what if your financial standing takes a turn for the worse? What if you or your partner lose your job? If this happens, the developer can still hold you to the contract that you signed and can even sue you.

Let’s say that the property you bought off-plan loses £50,000 in value over the next three months and it won’t be completed after a year. You reapply for a mortgage, and the lender won’t give you the same amount that you agreed on previously. Since you cannot complete, the developer will sell the property to someone else for £50,000 less. The developer can then sue you for £50,000 worth of damages.

Property not increasing in value

Provided that the property and the area around it increased in value (hopefully), the return on your investment can really be huge. But while that is true, the other side of it is that you can also potentially lose a lot of money if things don’t turn out as expected.

This can happen for many reasons such as changes in market conditions which is out of your control. It could also occur if the property is located in an area that has low or falling levels of investor demands. Politics and policy conditions may have an impact as well on why an off-plan property will not increase in value.

If this happens, you will end up holding onto a property hoping to see some capital growth. This can have a massive effect on your investment strategy especially if you are the type of investor who buys, builds, and sells.

Developer risk

A lot of things can happen while an off-plan property is under development. For instance, they may change specifications of the development prior to completion. This can lead to your future property being not-so-desirable after everything has been said and done.

The developer can also run into financial problems or worse, they can even go bust or run with your money. As much as you or anyone else doesn’t want to think about it, the fact remains that these things happen. The result? Your investment capital could be at risk.

Conclusion

Buying off-plan is undoubtedly appealing, and there are a lot of real and good reasons why. However, doing so is very similar to gambling that can be a huge payoff but can also make you lose a lot. Before you take the leap, see to it that you weigh all of the mentioned pros and cons here.

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