In layman’s definition, off plan purchase is buying a property which hasn’t been built yet. In order words, ‘you’re buying an idea’. A plan of a property has been shown to you with its, floor plans and other details like, title, size, facilities, construction period etc and you are to make a decision on whether or not to invest in same.
Buying properties off-plan is not a new concept. As a matter of fact, it has been around for years although, for obvious reasons, most people are still prefer to buy an already completed property (which they can see, feel and authenticate). This they believe is safer than investing in a product which only still exists on paper and I must agree with them.
While I understand the scares and fears of many, if you really want to excel as a real estate investor, buying properties off-plan is your best bet. This is where your risk taking abilities kicks in.
I got a call from a client (about 2 years ago) who was inquiring about some of the properties I was marketing at the time. He asked for a viewing of the properties and I was happy to oblige. After seeing all the apartments I had to show him, he asked for other pipeline projects of the developer and how he could key into them at the initial stage. I immediately understood his needs and objectives for real estate. This is a very enlightened real estate investor who understands the game (I said to myself). Just like any business man, a real estate investor buys cheap and sells at a premium. Since it’s a known fact that most people are only comfortable with buying the finished product, a smart businessman keys into the project at the initial stage when he is sure of buying at the lowest possible price and watches the property appreciate in value over the construction period.
You see, every developer has one major challenge and that is construction finance. Developers are always looking for the cheapest and most reliable sources of finance to ensure profitability and timely delivery of their projects. So, if he can get 30%-40% of his property sold off-plan at cost price, he is more than happy to deal because he knows the project appreciates with milestones. The client who buys at 0% completion and the one who buys at 30% completion aren’t investing the same amount. By 30% completion, you can be sure the developer will demand some premium for prospects taking a position at this point.
The secret therefore is off-plan purchases.
However, I must mention at this point that there are so many fraudulent and unreliable developers out there; this is why most investors would rather wait for finished products in the first place. So, you have to play safe and play smart. Before you invest, the following are a few precautionary measures you can put in place:
1.) Go on an inspection of the developer’s previous projects (If none, get some sort of guarantee/referee),
2.) Ask the current owners questions on the quality of the product,
3.) Find out if the developer delivers on time. If not, have your lawyer include late delivery penalties in the contract of sale (make it monetary and monthly).
4.) Check and verify the title thoroughly. Make sure you are very clear on the promised title to be given on the property after completion and the remaining lease on the land.
5). Ensure you get periodic reports on construction progress.
6.) Make your payments in line with construction milestones of the project.
The above should guide you and keep you on the safe path while investing in real estate off-plan.
Remember, play smart and safe.