The trend of “buying off the plan” has witnessed a lot of progress in the last decade with many investors queuing into the idea. The associated perks are tempting and the promise of a huge return on investments has never been this enticing. However, this viral trend in the property industry isn’t void of risks and cons. Matter of fact, it packs a huge share of cons than pros.
The associated pitfalls have been surprisingly unsuccessful in deterring investors. When you flip through the pages of the national dailies, you still find uncompleted apartments and housing projects being sold off in their numbers.
In this posts, “buying off the plan” will be stripped bare while weighing in on the pros and cons. If you’re new to the property industry and would like to invest, then this is for you.
Buying Off the Plan – What You Need To Know
The catchphrase “buying off the plan” in the property market simply denotes the purchasing of an uncompleted property. The property could be nearing completion or just rearing up above the ground, so long as it is not fully completed to taste and it is being sold off then it can be termed as buying off the plan.
Stamp Duty Savings
One of the most flaunted perks of buying off the plan is the potential savings on stamp duty. Naturally, a stamp duty is placed on every property in the market according to its market value. Since you are buying off the plan, the value of the building is lesser relative to a finished one and so does the stamp duty. So you get a chance to save more on stamp duty.
Rise in Equity
Although this is laden with uncertainty, the value of a property is likely to sky-rocket on completion giving you a decent return on investment. According to a property stats conducted in 2017, the value of properties in Melbourne Australia rose by 8.9% in one year. Imagine how many investors would have gotten a day filled with smiles having invested 12 months prior. Suffice to add that this investment is void of loan interest and holding costs.
You Can Start With Little
Perhaps you are on a tight budget but still itchy to invest, buying off the plan affords you the opportunity to start with the little you have. This little here can range from as low as 5-10% deposit of the agreed price. Most deals come with a flexible payment plan and you can spread it over the agreed period while anticipating the completion of the project.
The Equity Might Drop
The instability of the property market can take a huge toll on your property. A whole lot could change in just a month, if you aren’t so lucky and the tides doesn’t tilt in your favor, you might end up with an undervalued property after having spent so much investing on it. It’s a game of chances and uncertainties so if you want to cast your earnings on these investments be prepared for outcomes – positive and negative.
Low Land to Asset Value Ratio
Lands have always had an upper edge over assets and whatever physical entities they are holding in terms of value. While land appreciates in value, the reverse is the case for properties. These days developers in the bid to rake in business fortunes, often congest lands with multiple apartments which result in a ridiculously low land to asset value ratio. Always aim for the highest land to asset value ratio.
Investors are like the unofficial target market for most off the plan business deals. So you are likely going have more tenants than actual home owners in your off the plan investment. Investors won’t pay keen attention to maintenance as much as home owners would do and this can affect the capital value of the building in the long run.
How to Be On the Safe Side
To be on the safe side, you need to have a good counsel. Before involving in any off the plan investment, ensure you have a veteran legal counsel by your side. The complex nature of these off the plan investments can end you up in more financial woes than you can ever imagine if you go unguided. You also need to investigate the background of the developer and know if you are dealing with a transparent and genuine one or not.