What is buying “off-plan”?
Buying “off-plan” is simply a term used when you purchase a property,
whether house or apartment before it has been built or in some cases a long time
before the build is actually due to complete. (This is termed as the ‘Build
Programme’ ie: the date of the completion of the unit)
The property is referred to as a “plot” as the house/apartment has
not been given a postal address. This is usually given once the build is complete.
Any architectural plans of a development will show the plot numbers, from which
the builders/contractors will refer to. This is sometimes referred to also by
the solicitor at the time of preparing the contract, unless in the case of apartments,
it has been given an apartment number instead. In the worst cases the same unit
can sometimes have both!
Why do people buy “off-plan”?
There are several reasons why people buy “off-plan”.
1. Investment. Although there is a degree of risk and uncertainty the discount
incentives can out way these. Incentives vary but many developers will offer discounts
in the region of 5-20% off the market value. This is usually easier to negotiate
if a purchaser is buying ‘in bulk’, ie: when one person buys more
than one unit at the same time.
2. A development may not be fully build complete for several months, sometimes
years, during which time property prices have hopefully risen, hence an increase
in capital growth. Once build complete then the property can be re-valued with
hopefully an increase from the original purchase price.(On average the capital
growth is expected to be around10-20% dependant on geography and market conditions)
3. Assignable contracts. This legally allows an off-plan property to be “flipped”,
ie: sold after exchange of contract, but before legal completion. This is always
clarified by us with the developer before the original sales are agreed and sold
with that in possibility in mind.
Although this is fairly usual, not all developers allow this, but if so, then
it is made clear in the contract. From the purchaser’s point of view, this
facility allows them to reap the rewards that the capital growth can bring, without
the need to complete the purchase themselves or having to apply for a mortgage.
They can literally walk away from the deal after having made some profit and they
avoid stamp duty because the lease is engrossed in the final purchaser’s
name.
4. Back to Back Sales. This is similar to an assignable contract in theory, but
the only difference is that it is often required that the original purchaser has
the responsibility of making sure that the second purchaser completes on the property.
The first purchaser has a legal requirement to complete (with or without the second
purchaser).
So for example should a situation arise where the end purchaser failed to get
a mortgage and on completion could not complete, the person who purchased directly
from the developer would have to, otherwise they are in breach of contract and
the developer could rescind the contract and keep the deposit and the property.
5. Getting first pick of the prime units. Obvious reason really - to enable a
purchaser to choose the best property before the build is complete and before
the developer himself increases the price, to take advantage of the capital growth
for himself.
Whether you're a property investor, budding property developer, hotproperty or property hotspot watcher,
or just climbing the property ladder, you're probably going to have one thing in common - wanting to make a
return on your investment. Even if you don't believe in the old saying about investing being driven by just two
emotions: fear and greed. The resulting by-product of making a re turn on your investment is always the most desirable one.
Officially, off-plan marketing begins when the developer releases the development to estate agents. There's a launch date, maybe a
big event to raise the curtain on the scheme, and a certain number of off-plan units up for grabs.
There are, however, also pre-launch sales. Developers use these to test the water and they can be a good way to get a
discount on the property or buy with a lower deposit.
The bad news is that most pre-launch business is offered to large investors buying multiple units - pension funds,
large investment syndicates, and the like. But not always. Agents do sometimes get pre-launch property and this they usually
sell to established and serious investors on their books. So it makes sense to cultivate relationships with agents who
are regularly used by developers. Investment companies can also have access to discounted pre-launch properties -
but you will have to pay them. As a general rule of thumb it can be a real advantage with off-plan to get in early.
The primer plots and best discounts can be available at this point - hence the queues. If the launch goes well, later releases
will probably be more expensive. Bear in mind, though, that if you buy and the launch doesn't go well, prices may be reduced
later on, which will put you on the back foot from the get go. Remember too, whether you're in there at pre-launch or launch,
you can definitely negotiate on the price, on the deposit, and on additional features such as parking spaces.
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