For investors exploring the diverse range of opportunities on offer within the UK’s lucrative property market, off-plan property investments are becoming an increasingly popular option. Indeed, this is not restricted only to those seeking to expand their existing property portfolios; some buyers choose to go off-plan even when searching for their prime residency.
Buying a property before it is built can seem somewhat outlandish to some, however it can prove to be a clever investment for investors seeking long-term capital growth and rental income. In a bid to meet the housing shortage here in the UK, new-build developments are rapidly springing up across the country in both established and up-and-coming markets. However, the entry-point to this type of property asset can seem both confusing and overwhelming.
So how can UK investors and foreign nationals take advantage of off-plan property investment, and what are the key considerations to keep in mind when assessing the different opportunities on the table?
Why buy off-plan?
Before we delve into the finer points of making a successful off-plan investment, let’s consider why buying off-plan has become a more mainstream option in recent years.
One of the biggest attractions of buying off-plan is the discounts available on the property – some investors can receive discounts of up to 15% on the price of the asset. At the same time, the buyer also stands to gain from the capital growth of the asset over the construction period. For instance, if the local property market experiences 5% year-on-year growth in housing prices, then the overall value of the asset will also appreciate in line with this. In short, the property could be worth significantly more than what was originally paid by the time the buyer moves in.
Some off-plan developments also deliver regular returns on the initial outlay. This means that investors are able to receive an income from the property during the development phase, before they even take ownership of the completed asset.
Based on these advantages, off-plan property investments are ideally suited to investors seeking to benefit from capital growth of their asset and regular income in the form of rent. What’s more, unlike the more traditional routes to property ownership, the upkeep of the asset will be minimal given off-plan developments incorporate modern furnishings and state-of-the-art facilities.
The do’s and don’ts of off-plan investment
Before embarking on an off-plan property investment, buyers are encouraged to conduct due diligence to ensure they make the most of the opportunity. To offer some guidance, I have outlined some of the key factors to keep in mind when considering this form of investment:
What type of property is right for you?
Topping the list of considerations for off-plan property investment is the need to have a clear idea of the type of asset one is after. Off-plan properties come in many shapes and sizes, from hotels and care homes to student accommodation and residential flats, so having a clear idea of what you want to achieve from your investment is key. Will it be an income-generating asset or something that will be sold to market in the short-to-medium-term?
Conducting in-depth research can help you determine what kind of property is best suited to your needs. Meanwhile, each sector also has its own unique characteristics that dictate market demand, so diligent research could help you better understand what types of properties are most lucrative in different areas.
The significance of location
This brings me onto the importance of location. After all, a successful investment is characterised by regular rental yields, the ability to find occupants, strong capital growth and the potential ease of resale. Location is a driving factor of all of these considerations.
If we are to take student accommodation as an example, buyers must ensure that the development is in a town or city with a sizeable student population and consistent demand. Within the confines of the city itself, investors should consider whether the accommodation is within close proximity to the university and local transport links, and if it will be easy for students to access local amenities like bars and cafes.
Keeping a watchful eye on key trends in an area will help investors pinpoint locations that meet the needs of their targeted demographic. For example, places like Liverpool and Newcastle consistently rank as some of the top UK student cities, and with the injection of capital to improve the infrastructure of both cities as part of the Northern Powerhouse Strategy, new-build developments are on the rise.
Do your homework on the developer
Working with developers who are experienced and able to effectively support your needs is without a doubt one of the most important considerations, particularly for those buying their first off-plan property.
After all, the firm chosen will be managing and developing the project, so it’s vital to get a clear understanding of their proficiency and track record. Looking through the developer’s past portfolio, or indeed even visiting previous projects or current construction sites, is a good way of going about this. This will showcase the quality of work that can be expected and offer assurance that the upfront investment will result in a great property.
Check you’re protected
Once you have selected your property and developer, the final step is to make sure that you have a guarantee that the quality of the final product will meet expected high standards.
Investors are therefore encouraged to pursue opportunities within developments that are covered by a warranty such as NHBC Buildmark. Offering buyers a peace of mind, NHBC Buildmark is a 10-year warranty scheme that offers protection for newly-built or converted homes. Moreover, this protection starts from the initial exchange of contracts and can be used to cover any remedial work costs if problems arise as a result of the builder failing to meet certain standards.
Given the overwhelming demand for properties within the UK, buyers stand to benefit from an off-plan property investment if approached strategically. A diligent approach can ensure all risk is managed effectively, and buyers are left with a rewarding, long-term asset. What’s more, it is an exciting avenue for domestic and foreign investors seeking to benefit from the UK’s lucrative real estate market.
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.