Why is buying off-plan becoming a better investment prospect now than in the past?
- James Egan
- Aug 13, 2021
- 3 min read
The market has changed, house prices have gone up, and so have build costs, however rents have stayed more or less the same.
Well established developers have been leveraging their cash reserves and stable build teams to not only buy, but also build, much cheaper than most individuals can right now. Buying their properties complete has provided a better yield to us than even we could buy and refurbish comparable properties for ourselves.
An experienced investing partner like British Living Group can connect you to established, stable developers in prime locations, and also ensure your funds are protected all the way through to completion.
We've set out a few reasons why we believe off-plan investments are more attractive now than ever before, and some tips for mitigating risk.
A lot of 2019/2020 investment strategies have been negatively affected by Covid cost inflation, so their returns are lower in 2021
Established developers have economies of scale to protect them from the impacts that Covid has had om the property market
The overall time and monetary return is higher buying off-plan now than buying and refurbishing yourself
A lot of 2019/2020 investment strategies have been negatively affected by Covid cost inflation, so their returns are lower in 2021
House prices have gone up over 15% in the past 12 months in some areas we invest in, even those in poor condition/in need of renovation
Building costs have gone up significantly too, some of our budgets have increased 35% over 2020
Timber is forecast to remain in short supply for a few years still as Brexit restricts supply from Europe
Rents have stayed the same in most areas, lagging 1-2 years behind house prices
Lower yields and higher risk of further increases for the “retail” investor
Established developers have economies of scale to protect them from the impacts that Covid has had om the property market
Old commercial buildings and land can be purchased at a fraction of the cost of individual houses
Cash rich developers can buy in bulk at prices that others can’t
Their labour is usually employed on a permanent basis at a fixed wage
They attract blue chip tenants in commercial spaces to share the investment risk with you
The overall time and monetary return is higher buying off-plan now than buying and refurbishing yourself
Buying and refurbishing yourself over 6 months
Significant capital at risk outlaid for purchase, design, permissions, building work, etc.
Higher purchase price for poor condition
Significantly higher and volatile building costs
Unpredictable timeline with material and labour shortages
Reduced returns for higher level of risk compared to previous years
No guarantee of budget or work quality with smaller firms
Buying off-plan from a reputable developer
Deposit as only capital outlay
Fully refundable and secure, held in escrow/with solicitor until completion
You get capital growth on the full value of property during construction when you’ve only outlaid 10%. Eg. If you put down £10k on a £100k property which appreciates at 5% PA, then over 6 months that will increase in value 2.5% or £2.5k. £2.5k on your £10k deposit is 25% return in 6 months or 50% PA!
Fixed price on completion means no surprises or cost creep during a renovation
Building warranty means no unforeseen big bills in the short term
Buying in bulk from a developer
With the same advantages as above, but with a further discount
Bigger discounts mean you are sitting on more equity alongside your capital growth, but for the same deposit your return increases
We hope this has been helpful if you've found yourself stuck, not buying this year, or struggling to make deals stack. You're not alone, and there are alternatives!
Get in touch with us to find out more about the developers we've worked with and what we have an offer from as little as £75k!
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