Are you considering buying off-plan property for the first time?
There are a lot of benefits to doing it this way.
However, there are also a lot of potential pitfalls. Our top tips for buying off-plan should give you a great starting point.
Let’s get going!
First things first, what is buying off-plan?
Essentially, this just means buying a property before it’s built. To some people, this is a scary prospect. Many property buyers choose to steer clear!
However, there are a number of advantages to buying off-plan:
- The property can be worth more than you paid for it on the day you move in! Off-plan builds can often take up to two years to finish. That’s plenty of time for the price to appreciate nicely. (Though of course, the reverse is possible.)
- You can often get a discount off the full price. Off-plan builders and developers build in clusters. And the more properties they have sold before they get started, the more secure they are. That means that you have quite a bit of leverage to negotiate with. It’s possible to get a home for quite a bit less than you would if you paid for the same house already built.
- You can have a say in the build itself. If you get in on the ground floor, it’s possible for you to suggest changes to things like fixtures and fittings. Not an opportunity you’ll get buying a twenty-year-old property!
- It’s often more affordable for first time buyers. To encourage buyers, off-plan property developers will often accept smaller deposits, often as low as 5%. What’s more, it’s often possible to spread the purchase across the build time. Again, this can put properties in the financial reach of people who might not be able to afford them otherwise.
Of course, there are also some disadvantages, too:
- Naturally, the waiting time. Some people simply don’t like the idea of waiting one or two years to move into their home, especially if they’ve already paid a substantial sum towards it.
- Mortgage lenders vary on how they treat off-plan developments. Though it’s possible to get a mortgage, there’s no guarantee it will be tailored to your individual situation. There aren’t many ‘off-plan specific’ mortgage lenders! The other thing to bear in mind is that mortgage agreements often only last for six months, so you may have to re-apply depending on how long the build takes. (Though more builders are choosing to offer 12-month mortgages for this specific reason.)
- You can lose a deposit. If you decide to pull out of the agreement at any time in the build, you could lose your reservation deposit. (On rare occasions, the developers may decide to take legal action if you’re unable to complete the purchase.)
- Unless you’re last in, expect more building work! Finally, if you’re one of the early movers, you might find that until the other properties are completed, your neighbourhood still feels a bit like a building site. This won’t bother everyone, of course. It’s a matter of preference.
Things to bear in mind when buying off-plan.
Getting a good deal when buying off-plan is all about doing your due diligence to make sure everything goes right. With that in mind, here are the main things to consider.
Research the developer
Naturally, you’ll want to spend time researching the developer. Make sure you take the time to look up their previous developments and check that they’ve experience and a reputation for delivering what they’ve promised.
It’s also worth looking up online reviews for the company, to see what previous buyers have said. Social media can also provide a good – if often unfiltered! – viewpoint. All developments have some teething problems, but you want to make sure that previous buyers were, in the end, satisfied with their property.
What can you strike a deal on?
To be realistic, the more cash you have, the better positioned you are to negotiate a deal on the price of the property. (As we mentioned earlier, off-plan developers always need capital.) However, that doesn’t mean that you can’t negotiate other things even if you’re buying with a larger mortgage. Stamp duty…fixtures and fittings…you never know where you might be able to get money off or ask for changes.
(It’s worth noting that Help to Buy properties are harder to negotiate on, simply because the demand for them is so high.)
Have you ensured proper protection?
If you can afford it, always get legal assistance in making sure that everything’s watertight in the paperwork. You want to make sure that the developer is completely insured and covered, so that if they go bust or are unable to complete the development, you still get your money back. The legalities matter a great deal, so this isn’t an area to try and save money. Get the best help you can.
Will there be any road issues?
If your property is part of a new build community outside of town (as is becoming more and more common), then one issue to be aware of is access.
Some modern developments have suffered because they rely on new access roads. Occasionally, the local authorities may refuse to take on the care of these roads. As a result, the residents become responsible for paying for the maintenance, which means apartment-style ‘service charges’. Charges which can be quite excessive!
Ask in advance what the access will be, and whether there’s likely to be any disruption.
Buying off-plan abroad
For many expats and retirees, buying off-plan abroad can be a great way to buy a beautiful property at a price you wouldn’t get at home.
However, there are a few additional things to consider if you’re interested in buying property abroad:
- Legal consultation is even more important. Every country has its own unique planning rules and regulations. Often, these will then vary from region to region. Unless you’re fluent in the local language, it’s essential to get legal assistance here. The last thing you want is to lose five or six figures thanks to some local red tape!
- Don’t lose money on your currency exchange. If you’re buying a property abroad, at some point you’re likely to make a big currency transfer. If so, make sure you shop around for the best possible rate. If you just go straight to the bank as many people do, you could end up paying far more than you need to. A quality FX broker should be able to save you a lot of money in fees and help you time your exchange so you get the best possible rate.
- Again, check what protection is on offer. Different locations will offer different levels of protection for off-plan buyers. In Spain, for instance, the level of protection is quite high. In other countries, it’s essentially ‘buyer beware’. You don’t want to leave yourself with nowhere to go if the developer reneges on the deal or simply goes bankrupt.
- Know the local law of ownership. Some countries will only allow residents to buy property. In Thailand, for instance, foreigners are not legally allowed to own land. This means they can buy apartments, but not houses. Make sure you know the regulations in your new country.
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