Off Plan Property: What You Need to Know

For many investors, buying off the plan is the ultimate way to invest in property.

By purchasing property that has not yet been completed, you can net yourself some fantastic savings and profits down the line.

Sounds great, right?

Well, unfortunately, it’s not that simple.

There’s a lot of horror stories when it comes to buying property off-plan. There are several things you need to consider before making your investment to ensure a successful one.

Buying off the plan doesn’t have to be scary. With some research and knowledge, you can make the best investment possible with off plan property.

What Is Off Plan Property?

Off plan property is a property that has not yet been completed but can still be purchased. This means a property that is still in the planning or development stage.

This, naturally, can sound very risky.

After all, it’s not often you invest money in an asset that is essentially not there yet.

However, buying off the plan has some extraordinary benefits attached that make the risk worth it.

These benefits have started to attract many investors, with off plan property and new-build properties becoming increasingly popular over the last few years.

It’s no longer rare to see homebuyers visiting showrooms, with more and more new build properties being built across the UK.

In fact, in 2020, the number of new UK homes registered to be built hit a 13-year high.

How Does Buying Off the Plan Work?

Buying off the plan is very similar to traditional purchasing methods. The added benefit though is you will be able to see how a property looks beforehand.

You can do this through the help of computer-generated imagery, or even a virtual reality tour.

Naturally, many investors are hesitant about purchasing property they can only see online, but the benefits to off plan can outweigh these shortcomings.

With that in mind, let’s look at reasons why investing in off plan property is becoming such a popular choice in 2021.

Benefits of Buying Property Off Plan

Perhaps the most obvious reason why off plan is ideal for investors is that it’s cheaper.

To offset the risk of buying an asset that hasn’t been built yet, developers usually offer investors considerable buying off plan discounts on the price of the property.

These savings can be quite substantial, with properties sometimes hundreds of thousands of pounds cheaper than market value.

The below market value rates don’t just apply to the purchase price, though.

Some developers and investment companies offer extra benefits, like free furniture packs or assured rental returns to sweeten the deal.

With property prices already below market value, investors have the chance to earn even higher capital growth rates.

This is because the price of the property is likely to increase during the development process, with the value even higher once it’s completed.

Across the UK, there’s set to be significant capital growth over the coming years.

In the latest Savills house price predictions, UK properties are set to increase in value by 21.1% by 2025, with areas like the North West offering growth rates of 28.8%.

With these growth rates in mind, there’s arguably never been a better time to invest in the property market, making the low prices of off plan property an even more valuable benefit.

Another benefit is the opportunity for assured returns on your investment.

For many property investors, the most important aspect of an investment is rental yields.

Rental yields are the return on your investment you earn through rental income.

According to the latest UK House Price Index figures, the average rental yield is around 4.44%.

Typically, anything between 5 or 6% is considered good, showing the UK average is falling behind what is ideal for investors, with house prices rising at significant levels.

However, some developers and investment companies can offer rental yields between 6 to 8% assured for several years.

These offers can give you peace of mind on your investment, with consistent returns over the next two or three years.

While these assured returns are attractive, it’s important to keep in mind the wider property trend.

Suppose rental income is low in an area, or the average rental yield is dwindling due to high house prices. In that case, you don’t want to get duped by temporary gains – unless you plan on selling the property shortly after buying.

Be sure to research wider property trends and invest in a location with high growth potential for the future.

A big stumbling block for many investors is managing their properties.

After all, if you invest in a property overseas or in a location many miles away, it will be hard to monitor your property and fulfill your landlord duties.

With that in mind, many off plan developments come already furnished. This means you won’t have to buy and design the interior of the household already.

Moreover, some off-plan property for sale comes with a designated rental management company.

This is a huge plus for investors unable to monitor their properties, as rental management companies will do all the ins and outs of property management, including acquiring rent for you.

If you’re looking for a hands-off investment, buying off the plan could be a good idea.

On the flip side, many investors or homeowners enjoy the ability to build the interior of their homes to cater to a specific tenant.

This is why the optional furniture packs on offer are so ideal. If you want a completely hands-off investment you can opt for a furniture pack, or choose not to invest in one and control the interior of the property yourself. The choice is yours.

Another top benefit to consider if you want to buy off plan property is the ability to pick and choose what you want to buy.

Let’s say you’re buying a unit in a brand-new block of flats. If you invest early, you can choose the exact unit you want in the building, such as ones with the best views or best amenities available.

By securing the most attractive properties, you can help ensure tenant interest later down the line. You can also get units with the dimensions and specifications suitable for your goals.

Affordability can be a struggle for homebuyers.

The average UK property price surpassed the £250,000 mark for the first time in late 2020, with costs rising at their highest rate since 2004. And with prices set to increase by 21.1% by 2025, costs aren’t getting any cheaper.

Many homebuyers opt for mortgages to cover these rising costs, but this can be particularly problematic for buy to let investors.

This is because you can’t use traditional residential mortgages for properties you aren’t going to live in, and buy to let mortgages can be a lot more expensive than standard mortgages.

Luckily, with new build properties, you can access extra finance options with a Help to Buy equity loan.

A Help to Buy equity loan is a loan from the government. You can combine it with deposits and a mortgage to help buy the property.

This loan can range between 15 to 40% of the property price, depending on where you live, with you having to put down a 5% deposit.

So let’s say you find a property that is worth £249,309 (the current UK average in early 2021).

This will mean you will need to pay a £12,465 deposit, with the loan covering £49,861.

That covers 25% of the overall price, with just the remaining 75% needed to be covered by a mortgage.

Since April 1 2021, these loans are only available to first-time buyers. If you are eligible, you can save a tonne of money and get even better mortgage rates.

Negatives of Buying a House Off Plan

By buying a house off plan, you will typically be purchasing a property that has just started construction.

Depending on the scope of the project and the number of units within it, this may mean you could be waiting several years before completion.

If you’re buying a property to live in, this can be problematic as you could wait over a year before you move in.

Similarly, for investors, this will mean locking and committing your finances to a project sometimes years in advance.

That’s not to mention the potential for delays, which is why researching developers is so vital.

You will want to invest in an off plan property that has a reliable developer behind it. Keep an eye out for their track record and completed portfolio to ensure you are making a safe and secure investment.

If you want to buy off plan property, you may encounter some mortgage difficulties along the way.

In many circumstances, mortgage lenders may be hesitant to provide off plan mortgage rates for a property that is yet to be finished. This is for a number of reasons, but the main one is it’s incredibly risky for the provider.

For this reason, the vast majority of mortgage lenders don’t offer an off plan mortgage.

Moreover, most agreements are only valid for six months. This can be problematic given the fact that it may take upwards of a year for the property to finally be completed.

This means you won’t be able to get your mortgage when you reserve your unit. That opens up a huge risk, as a lender may not be willing to provide the funds when the time arrives.

If 2020 taught the world anything, it’s that life is unpredictable.

When you invest in an off plan property, you’re essentially investing in the future, with the property potentially taking multiple years to reach completion.

With that in mind, when you invest you run the risk of investing in a region where the market crashes.

This could put you in dire straights with limited capital growth or tenant demand.

Luckily, for the next five years at least, the market is set to soar in regards to both house prices and rent.

In fact, rental income is set to increase by 17% by 2025 according to Savills.

Tenant demand is already sky-high in the UK, with renting becoming a more common lifestyle choice for under 40s who have been priced out of the housing market.

Be sure to research the area you are going to invest in to identify if there is positive growth over the coming years.

Another danger of investing in a property in advance is the potential for a developer to go bust.

Off plan developments can last several years, and in that time a lot can change for a developer.

Whether that be a failed project or a lack of investors, there’s always a chance an investor can go bust before delivering the finished product.

To avoid this problem, be sure to check if your deposit is protected.

There’s no legal guarantee this is the case, so it’s important to read the small print.

You can either check and see if the deposit is held in escrow (developer can’t access the deposit until the property has been completed) or that the deposit is protected under an insurance policy.

For the latter, it’s important to note that insurance will usually protect deposits up to around 10% of the purchase price.

Naturally, though, the most important part of this process is by researching your developer’s track record.

If you invest in a developer with strong market experience, a bunch of properties to their name, and a history of delivering projects on time, you should feel confident.

Be sure to check out reviews on sites like Trustpilot to see if an investment company or developer is right for you.

Perhaps the biggest danger with off plan property is the financial commitment.

You may have to pay a sizeable deposit, which can be up to 25% if you opt for a buy to let mortgage.

Moreover, you may be susceptible to legal proceedings if you cannot afford the property upon completion and will lose your deposit if you pull out of the purchase.

It’s important, then, to do ample research and be sure you can avoid the ins and outs of property investment before you start your journey.

For those looking for off plan property to live in, you may encounter this next problem.

Here, you may be able to move into a property before the entire project is completed.

This is common if you are purchasing a house on a newly built housing estate.

Therefore, when you first move in, you may essentially be moving into a building site, with workmen and noise still prevalent for months to come.

This won’t be a problem for investors but is something to keep in mind if you are looking to make your dream move as soon as possible.

A 10 Step by Step guide to Buying Off the Plan

1. You pay a reservation fee, typically valued between £1,000 and £5,000. This is usually deducted from the deposit.

2. Hire a conveyancer or solicitor to handle the legal process. This includes local searches and looking at contracts. If you invest with a property investment company, an experienced solicitor will usually be offered to you who is well-versed in the property market.

3. Once the legal process is done, you will pay the deposit for the property and exchange contracts. After this, you can no longer back out or will lose your deposit.

4. Monitor the progess of the development and arrange a mortgage if you need one for your investment.

5. Depending on the property, you can pay for a snagging survey to check for any defects on the property.

6. Get ready for completion. The developer will usually give you two dates; the short stop and long stop. The former is when the developer expects to finish, and the long stop is when the developer must be finished.

7. Upon completion, the developer will service a notice to complete, providing you with a set amount of time to complete the purchase.

8. You will pay the remaining fee for the property.

9. The property is yours!

10. Use the services of a property management company to find and manage tenants.

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Types of Off Plan Investment

When looking at off plan investment, there are some top options to consider. With both residential and student property investments available, and each making a potentially excellent investment, you may be confused about which route to take.

Residential Off-Plan Property

Residential property is the most basic form of buy to let.

Here, you can buy a property with the intent of renting it out to a tenant. This target can range from any age and occupation.

Traditionally, young people tend to rent more and will likely want to rent flats and apartments in city centre locations.

Younger people tend to want properties that are more environmentally friendly, have easy access to amenities, and are more affordable.

This is important to consider when purcashing properties. If you want to target this tenant group, you will want to invest in a modern property with ideal amenities.

However, more old people are starting to rent, too. There are around 400,000 people aged over 60 who are living in rental accommodation. This is a 60% increase since 2007, with a predicted third of over 60s renting by 2040.

Older residents will likely want a more rural location with suitable transport links and access to green space.

It’s important to consider your target tenant and the location, as it will directly impact what property type you invest in, whether that be an ultra-modern city centre apartment, or a sizeable home on the outskirts of a city.

Student Off-Plan Property

Another form of property you may be interested in is student buy to let property.

Student buy to let is identical to residential buy to let, except you will only target one tenant group – students.

Whether that be through purpose-built student accommodation or House of Multiple Occupancy, student buy to let is an excellent form of property investment.

Prices for property tend to be cheaper for students, due to their smaller and more compact designs, which result in higher rental returns than traditional property forms.

The trade off is you will have a smaller tenant group to target and will see less capital growth than other residential properties.

Regardless, it’s important to deliver properties students find appealing. This will mean providing modern properties located in the city centre, with easy access to university campuses, restaurants, and other popular amenities.

Where to Invest in off-plan property?

Now that we’ve covered reasons why you could invest in off-plan property, and types of property worth buying, let’s look at exactly where to invest.

To evaluate an area, it’s important to consider a few factors. These are; affordability, market growth potential, rental yields, and tenant demand.

Considering all these factors, the North West, including Manchester and the Liverpool property market is the best place to invest in the UK in 2021.

Alongside the highest growth rates in the country of 28.8% by 2025 (7.7% higher than the UK average), the North West also leads in other factors.

Here, the average rental yield is 5.1%. It gets even higher in cities like Liverpool and Manchester, too, which have rental yields of 6.4% and 6.3% respectively.

For context, this is considerably higher than both London (4.0%) and the UK as a whole (4.4%).

Alongside these returns, the North West boasts affordability and high tenant demand.

Liverpool and Manchester have a combined total of over 170,000 students. Moreover, the current ratio between housing supply and demand for property in Manchester is around 1:5.

Despite these huge levels of demand, property is still affordable here. Liverpool property investment has average house prices of just over £155,000. That’s about 400% lower than the average in London.

Manchester prices are also lower, and are around £45,000 cheaper than the UK average.

If you want to invest in off plan property, it’s worth considering the North West for your investment.

How to Make the Most Out of Your Off Plan Investment?

It’s widely considered that there are two ways to handle an off plan property investment as an investor. You can either a) keep the property or b) flip the property if you have more experience.

House flipping is an increasingly popular form of property investment for those with vast expertise in the market.

It involves purchasing a property that is typically undervalued and then selling it on quickly for a profit. This can include repairing and upgrading a disused property or holding onto it and then selling.

So, how does house flipping work for off-plan property?

Let’s say you’ve identified a property that’s worth around £200,000. You will pay a deposit to secure the unit, which can be as low as 10% but can range to higher levels.

With a 10% deposit, that means you’ve paid £20,000 up front.

Fast forward 12 months, and the property is still under construction but the surrounding area is having a property market boom. All of a sudden your property is worth an extra £20,000 in this new market.

If you want to flip your house, there’s two things you can do here.

You can either wait until completion and then sell the property on for the extra profit, or sell it on before it’s completed to another investor.

Here, they may pay you £40,000 for the right to buy the unit. In practical terms it means they’re paying the current £220,000 worth of the property as they anticipate the price will continue to rise.

This £40,000 fee will cover your initial £20,000 profit, and will give you a 100% return on your investment.

This methods sound great, but it isn’t recommended you opt for this route.

Firstly, flipping your property is only suited for cash buyers, with mortgage lenders unlikely to supply cash for this type of investment.

Secondly, you won’t be able to take advantage of any future capital growth rates or regular rental income.

The latter is one of the main reasons why proper investment is so good, which is why the next option is recommended for a successful off-plan property investment.

For a successful property investment it’s important to think long-term.

After all, property prices can drastically increase over time, and when you factor in monthly rental income, you can earn a tonne of money across a 20 to 30 year period.

It’s important to keep this in mind when investing in off plan. Rather than looking for a quick buck, buy the property and hold it for the long term, and treat the buying off plan discount you’re getting as an added bonus.

Even if the market drops in the short-term, you’re already saving money as part of the buying off plan discount, which gives you extra scope to see a bigger profit in the long run.

Let’s look at this in practical terms.

An increasingly popular destination for investing is Manchester.

The North West city has seen some of the highest capital growth over the last two decades, and has above average rental income to boot.

In 2001, the average Manchester home cost around £43,750 according to the UK House Price Index.

Jump forward to 2021, and the current average property is valued at £205,067.

That’s a 368.72% increase, or a profit of £161,317.

Factoring in monthly rent which is currently valued at around £1,087 according to Zoopla, and you are earning around £422,197 from an initial £43,750 entry fee.

That’s just from one property, too, with many investors opting for multiple homes in their property business.

This is why holding onto your property asset and selling it later down the line is the ultimate way to handle property investment.

And with prices set to rise even further over the coming years, now seems like an ideal time to consider investing in the sector.

Checklist: Things to Keep in Mind When Buying Off the Plan

There are no doubt plenty of questions to ask when buying property off plan. With that in mind, here are some things to consider when buying off plan property.

Research the area: Check if the area has strong tenant demand and capital growth predictions.
Think about your tenant: consider what type of tenant you’re targeting and what they will want out of their property.
Assess finances options: See if you’re eligible for a buy to let mortgage or other loans.
Conduct due diligence: Check how good the developer behind the project is. View Trustpilot reviews and check out their track record and portfolio.
Invest through a investment company: Choose an investment company to invest with to get further deals and discounts. Some companies will offer free furniture packs worth upwards of £5,000.

FAQ’s

Take a look at some common questions to ask when buying property off plan.

Yes, buying off–plan is a good idea if you do suitable levels of research. You will need to make sure the developer is reliable, and that the area you’re investing in has high growth levels for the future. By buying off plan, you can save a lot of money on a property purchase.

You can buy an off plan property through a property investment company. These companies will provide you with solicitors and can guide you through the property process if you’re a beginner.

Yes, buying off the plan is cheaper than buying traditional properties. This is because the developer will offer big discounts to offset the risk of investing in an asset that hasn’t been completed. Depending on the developer and investment company, you could save thousands, with some properties 55% below market value.

Buying off plan can be risky as the developer could go bust, or the local housing market could crash and lose you money on your investment. To avoid this, be sure to research the developer beforehand and see the latest housing predictions for the area.

Looking at Buying Property Off Plan? Invest Today

If you want to invest today and are thinking of buying property off plan, then why not do it with us?

We are ELEMENT developments, one of the best off plan property developers in the business helping to revolutionise residential living with our brand-new highly sustainable eco properties.

We specialise in residential off plan developments, and have already sold out phases 1 and 2 of our exciting ELEMENT – The Quarter in Liverpool.

Our prices start from just £99,950 with massive assured returns of up to 8%.

If you want to find top off-plan property for sale in the North West, then we are the developer for you.

Enquire now for off-plan property for sale and get access to exclusive deals only with us.

Start your property journey today with ELEMENT and help save the planet.

The future of residential living is now.

Also, be sure to check out our other detailed guides, like our in-depth look into Manchester property investment.

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