It has been a popular investment destination for many decades, and the UK property market continues to defy rumours of its demise by attracting strong interest – ranging from first-time buyers and growing families through to seasoned investors at home and overseas looking to expand their property portfolios.
Indeed, appetite for bricks and mortar investment has remained in spite of Brexit uncertainty, although a degree of hesitancy has been unavoidable. The imbalance between supply and demand has meant that house prices across the UK have continued to rise over recent years, while the long-term predictions for the market are also positive; Savills, for example, forecasts that house prices will rise by almost 15% over the next five years.
Supported by the Government’s pledge to step up house-building efforts across the country, there are plenty of opportunities on the horizon for those looking to invest in property. In particular, as Theresa May et al have set a target of building 300,000 new homes each year by 2023, it is likely that off-plan property investment opportunities are going to become increasingly prevalent in the years ahead.
For those who are considering off-plan investment properties, it’s important to learn as much as possible about this route into the property market. So, what are some of the key benefits on offer, and what are the common mistakes to be wary of?
Benefits of buying off-plan
In a nutshell, buying off-plan involves committing to a purchase before the property itself is constructed. And while this prospect may unsettle some investors, it does in fact offer the buyer several significant advantages.
Perhaps the most notable benefit is the profitability. Agreeing to a deal before construction work is complete – and sometimes before work has even started – means that buyers are often rewarded with a lower entry price. Based on the market value of the asset being purchased (should it have already been built as per the plan), investors can save as much as 25% on the upfront cost of the property.
Further to the initial discount, investors still stand to benefit from the capital growth of the asset, both during construction and afterwards. For instance, if the off-plan property is located in a regional market that is performing well, then by the time the development is complete the value of the asset will have increased in line with price inflation. In fact, this greater potential for capital growth is typically the primary reason that buy-to-let investors are likely to be attracted to off-plan properties.
Common pitfalls
As with any investment, there are risks and plenty of important questions to ask before an individual hands over with their money. And when it comes to off-plan investment, here are a few key factors to watch out for.
Finding the right location
Maximising your off-plan purchase means being diligent when it comes to locating an area that is likely to offer strong returns on your investment. Particularly as you’re unable to view the property before securing the purchase, the characteristics of the location become imperative.
Consider the strength of rental demand in the area; popular university towns and cities like Liverpool or Newcastle, for instance, are often characterised by high demand and thus offer promising opportunities for property investors and buy-to-let landlords.
A good starting point is to keep a keen eye on price trends through property portals like Zoopla and Rightmove. Offering some good insight into market trends, these websites can help pinpoint key regions that are undergoing strong growth.
Ensuring the quality of the build
Securing a property that has not yet been completed is understandably a big commitment – one that can make buyers nervous. Investors will undoubtedly be looking for reassurances that the building will be completed to a high standard and will not present any problems in the future.
Developments that are covered by a warranty such as the NHBC Buildmark can give buyers some peace of mind. This 10-year warranty scheme offers protection for newly built or converted homes, starting from the initial exchange of contracts. Importantly, if problems arise as a result of the builder failing to meet certain standards, the cost of any remedial work will be covered.
Working with an experienced developer
On a similar note, it is important to choose an experienced developer with a proven track record. Inevitably, this starts with conducting extensive due diligence into the company and its reputation within the industry.
Importantly, an established off-plan developer will have a portfolio of previous developments they can show to prospective buyers – offering a good indication of the standards and quality of completed projects.
It might even be worth visiting previous developments or projects that are currently under construction to get a more comprehensive insight into their work. Indeed, sales agents will be on hand to provide this information to a prospective buyer, so investors should not hesitate in a lot of questions.
Off-plan investments post-Brexit
Of course, the other key consideration is the broader political and economic landscape. At present, this means accounting for the impact of Brexit.
The UK property market has continued to deliver despite recent economic and political turbulence. In fact, over the past decade – in which the country has experienced the onset of a global economic crisis, three general elections and the EU referendum – house prices have grown at an impressive rate; the ONS has revealed that the average UK house price has risen from £157,000 in 2008 to £220,000 last year.
Encouragingly, there’s little indication that this trend will cease come the 29th March – the expected Brexit deadline – and property investors looking to seize opportunities in the country’s growing property hotspots are encouraged to consider the potential of off-plan investment options.
There are certainly bright prospects on the horizon for buy-to-let investors looking for their next purchase, with off-plan investments offering access to high-quality real estate in prime locations at competitive prices. Importantly, keeping a watchful eye on property trends and working with industry-leading developers will remain key for anyone looking to purchase a property before completion.
As with any investment, failure to carry out thorough due diligence puts the individual at unnecessary risk. But for those who do the groundwork and choose reputable partners to work with, the opportunities in the off-plan property market could prove an enticing form of bricks and mortar investment.
Jerald Solis
About the author
Jerald Solis is the Business Development and Acquisitions Director at Experience Invest, a company that provides property investors in the UK and overseas access to exclusive investments across a variety of asset classes.
He is also a Director at Opto Property Group; a construction firm committed to creating developments that have a long-term, positive impact.
