Buying something that doesn’t yet exist. At first glance, that sounds like the riskiest investment you could make, but take a second and third look and you’ll see it’s actually what everyone does when they buy a property off plan.

Buying off plan means securing a property that isn’t yet built, but which you believe will be a good investment based on your assessment of the architect’s plans, an artist’s impression of how the finished property will look, the reputation of the developer and builder, and the general location of the development.

The plan has advantages for both the developer and the investor. The developer usually needs help covering the upfront financial requirements of the development, so, for this reason, will try to attract a number of investors by offering good incentives. They can include, among others:

  • Preferential Pricing – the first properties are usually sold at the cheapest prices because early sales mean cash in hand for the developers. Once they’ve met their initial financial requirements, they will inevitably push up the prices of the remaining properties to recoup the profits they lost in the initial, discounted phase.
  • Pay Today, Profit Tomorrow – this is where present vs future value comes in. Very often, buying off plan means you can secure ownership of a property with only a 10 or 20 percent deposit. Depending on the type of development, you may not have to pay the remaining settlement amount for between 12 and 24 months, during which time the value of your property may have increased significantly. This capital appreciation is what makes buying off plan particularly attractive for investors, despite the risks.

There is, however, the chance that property prices will dip, not rise, during the interim period between deposit and settlement. In this scenario, the property may not be a secure enough prospect to warrant a bond for the balance of the purchase price, and the investor suddenly has to raise the cash needed to complete the sale, or face losing his deposit. He may also be sued for the outstanding amount by the developer or builder.

This is why it’s imperative when buying off plan to really do your homework when it comes to the reputation of the developer and the area in which the development is taking place.

A professional valuation by an experienced and objective valuer can prove vital when assessing the investment risk and potential of an off-plan development. Remember, however, that these types of valuations are based on the site plans and not on the finished property, so the value is therefore placed on the property based on the builder’s specifications.

For more information on the advantages and risks of buying off plan, as well as assistance with a professional valuation, trust the Property Partnership. Our expert valuers undertake valuations of both land and building assets, as well as plant and machinery assets for a range of purposes using a range of proven valuation methods. Talk to us today.