Off-plan property investment
Commonly found to be one of the most popular asset classes in the UK, off-plan property refers to the purchase of an apartment or house prior to its practical completion.
As rental demand continues to grow across the UK and the supply of rental property continues to dwindle, an increasing number of investors are choosing to invest in off-plan properties in some of the UK’s most popular rental markets. Below you can find a handy guide that explains the basics of off-plan property investment in the UK.
What is off-plan property investment?
Off-plan property investment is essentially when you invest in a property while it’s still in construction or in the planning stage. This can be a completed newly built property, a refurbished building or a new-build that is not ready for tenants to move in yet. You will buy the property based on the location, CGI images and floorplans. Off-plan property has become more popular in recent years as investors have recognised that off-plan properties give more scope for capital growth and better rental returns. Off-plan property should not be confused with off-market which is when the property is sold directly by the developer without advertising it to the general public. Off-plan advertisements can be found through agents and on online portals such as Rightmove and Zoopla.
The UK is currently experiencing a huge shortage of stock in its rental market. with demand for rental properties far outstripping supply. According to The Guardian, the demand for rental stock in the UK has increased by a massive 23% in the last year. As a result, rents are also growing at an impressive rate – with rents throughout the UK hitting record heights and seeing year-on-year growth of up to 4.2%. This has created an excellent opportunity for investors, especially in the off-plan market as tenants tend to look for brand-new properties in desirable areas that are low maintenance.
We have created this handy guide for those that are new to off-plan property investment. Here we will clearly explain the process of purchasing an off-plan property and some of the benefits you will experience when you invest. We have tried to include as much information as possible, however, if you have any questions that we have not answered here, do not hesitate to get in touch today.
- Rents increased by 4.2% throughout 2022
- The demand for rental property has increased by 23% in the last year
- UK house prices are predicted to increase by 8.9% between 2023 and 2027
- Rental values are expected to increase by 4% in 2023
Process of off-plan property investment
Step 1 – Research: When buying off-plan properties, the first thing you should do before you start your property search is to do your research. Like with normal property investment, you need to research areas, the performance of the property market and how you will go about financing your property, as well as what is involved in buying a property off-plan.
Step 2- Choosing a property: When you have researched everything you need to know, it’s time to start your property search! It’s best to choose an agent that specialises in off-plan property investment as they can advise you and be on hand to help you throughout the sale process. Once you have chosen a property, you will need to put down a deposit to secure it.
Step 3 – Appointing a solicitor: Once you have secured your property, you will need to instruct a solicitor to carry out the conveyancing and raise any enquiries on your behalf. The developer’s solicitor will also provide you with a contract pack. Once satisfied, you will need to sign the contract and pay your exchange fees. Once you have exchanged, your purchase is legally-binding.
Step 4 – Completion: Once your property is structurally complete, your solicitor will be issued a completion notice. At this point, you will then have 10 working days to pay the remaining charges on the property. Your solicitors will also carry out any final legal work such as searches and final reviews of documents. Once these are all signed, your purchase will officially be completed!
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What are the benefits?
Lower entry prices
One of the biggest advantages of investing in off-plan property is that off-plan properties tend to be a lot cheaper than completed properties in the resale market, which means that you will get a brand new property for a much lower price and you are likely to see better returns as a result.
More scope for capital growth
On the back of the lower entry prices will be the fact that your property will experience more capital growth than the same property that has already been built. When you invest in off-plan property, your property will have increased significantly in value by the time the property is built.
Your property will be more appealing to tenants
As we have previously mentioned, there is a huge shortage of high-quality rental stock in the UK, so new properties tend to be more popular with renters. When your property is built, you will find that your property will generate more interest from tenants, especially if it’s in a desirable area. More importantly, tenants are also more prepared to pay more for a newer property.
Flexibility on your preferred units
When you invest in off-plan property, you will have the option to choose your preferred unit (depending on availability). When buying your property, your consultant will send you floor plans, so you can see what the layout of your property will be and where it will sit in the development, so you will have the option to choose whatever is the most suitable for you.
New-build properties tend to be easier to manage than older properties as all the appliances, fixtures and fittings are brand new. If you’re buying an apartment, the development will have a management company in place, so your investment will be completely hands-off.
Off-plan and new build properties will adhere to up-to-date energy efficiency standards, meaning that the energy bills will be more affordable for tenants. This is a huge selling point for investors because it means that their property will be more desirable and therefore, they can charge a higher rent for it.