What does Property Off the Plan Mean?
An off the plan property is a property that doesn’t exist yet. There are plans to build a certain property on a plot of land, but construction hasn’t started yet.
When you are buying off the plan, you are buying based off the plan alone (hence the name).
Buying property off the plan comes with several benefits over regular property purchases. But it also has extra risks.
Off the Plan Property Benefits
The biggest benefit of buying off the plan property is the increased capital gains. This is because you are able to buy a property for less.
By selling a property before construction, a developer is able to raise funds for the construction process. This reduces the amount they need to borrow and increases their profit.
To encourage people to buy property off the plan, developers will lower the price. They lose some money from the reduced sale price but this is less than the loan interest would have been.
Buying property off the plan is cheaper for another reason. The value of the property is decided at the time that you buy.
Since property prices trend upwards long-term, you are generally buying a property for less than market value at the time you receive it.
If you bought an off the plan property in 2015 worth $500,000, by the time it was ready in 2017, rising house prices may have driven the price up to $600,000.
So in 2017, you receive a house worth $600,000 but you only paid $500,000 for it.
Another benefit is that you don’t have to start your mortgage repayments until the property has settled. So even though you have taken out a loan in order to buy a home early, you don’t actually have to start paying for that loan until the property is ready for yourself or tenants to move in.
Off the Plan Property Risks
The biggest risk of buying property off the plan is if the opposite happens – if property values drop.
The property market trends upwards, but there are short-term drops. If you buy in the wrong area at the wrong time, it is possible to overpay on an off the plan property.
This is why it’s important to have the proper information before purchasing, or to consult an expert. Property investment is a fantastic method of creating wealth, but it is not without risk. Yet, the same is true of all investments.