WHAT TO BUY:
OFF-PLAN B
uying a property off-plan, literally from a set of plans or architect’s drawings, may not be the norm in the UK but it is commonplace
overseas. It may seem to be a leap of faith – buying something that you cannot see or touch – but the advantage of doing so is a reduced price often by as much as 30% of the built property price. Additionally, there is the fl exibility that buying off-plan offers. As the property isn’t built yet, you can decide on fi xtures and fi ttings and, while most off-plan properties come with set plans, in some cases you can alter the internal layout, for example, reconfi gure the size of a room, extend a terrace, or increase the size of the swimming pool. Price reductions of the scale mentioned are made as an inducement to the buyer by the developer because effectively the purchaser is paying the developer for his own property to be built. Prospective off-plan purchasers pay a deposit followed by several stage payments at signifi cant points in the build process, for example when the foundations are laid and the roof goes on, then a fi nal payment on completion. The whole build process usually takes between 18-24 months. Many people made a good profi t by buying off-plan and selling the property once it was built at the higher price.
Very astute investors realised the potential of buying a property off-plan and selling it prior to completion. Firstly, in doing so they avoid paying completion costs and secondly should they sell having made only one stage payment, the capital outlay will only have been the deposit and one stage payment. Known as ‘fl ipping’, the practice worked in a rising market when capital appreciation grew at 20% a year in many countries worldwide in the mid-noughties. However, in a slow or stagnant market such as we are now experiencing, the capital appreciation is lower and the risks higher. It may not be easy to sell the property prior to completion and in such a scenario the buyer will have to complete or default on the payments made. It is certainly unwise to buy a property without ensuring that you have the funds to complete on the purchase. If a mortgage is needed, line this up in advance and be aware that terms can be subject to change. Also, there is always the possibility that the a developer may go out of business. An important point to check – or to see that your lawyer does – is that bank guarantees are in place to ensure your payments are guaranteed in the event that the developer is unable to complete the project.
AIPP CONSUMER GUIDE 13
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