Alan Forsyth from Property Secrets has provided this informative article about Off Plan Investing.
Buying off plan was very much the way to invest several years ago, and worked very well in a rising market.
For instance I bought off plan in Leeds city centre 11 years ago, as new build apartments were just starting to be built – and sold on 6 months after completion making a good profit.
This type of investing worked well for investors in Dubai, and many emerging European markets over the last 7-8 years up until 2008 – with investors seeing excellent return on investment before they even completed.
This investing then suffered as the credit crunch kicked in. Investors hoping to secure 85-95% mortgages then saw loan to values reduce to 65-75% meaning extra funds were required on completion, and this affected some end values.
So done well it can work very well, done badly you can see losses on completion.
So why is this a good time to invest off plan again?
Developers are willing to give very good discounts for those buying off plan to secure some early sales.
We can also negotiate values now often as much as 30% below the peak values, and that is before we then negotiate our discounts!
These discounts now can give us excellent rental yields – which at their peak in the UK had dropped as low as 3% to figures now of around 6-8%.
Due to the credit crunch, very little development has happened in many cities over the last 2-3 years, as developers have not been able to build properties at prices that fitted new values. Often they have been repossessed and new developers have come along and bought the land at far cheaper prices, allowing them to build out the properties at attractive prices – and they can pass on these savings to investors buying off plan!
This lack of supply has also meant demand is strong from tenants and owner occupiers, and we have managing agents who have confirmed the demand for properties in the areas we have targeted.
So the big attraction now is:
- Put down deposit now, with excellent discount negotiated off current values of between 20-30%.
- You gain any capital growth until completion – in around 18-24 months time.
- Brand new properties on completion.
- Excellent specification attractive to tenants and owner occupiers.
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Alan Forsyth, Property Secrets