Buying Off-Plan
Buying Off-Plan means reserving a property on a new development before the property is completed, often before construction has started and on some occasions even before the licence to build has been granted. The developer is obviously very keen to sell as many properties as early as possible to minimise the risk to themselves and to obtain better interest rates on their development loans from banks and investors. To help sell the properties at this early stage the prices are normally extremely competitive, for the reasons above, and also because there is nothing to show potential purchasers except a floor plan and an artists impressions of the finished development.
The real key to why buying Off-Plan can be such a good investment lies in the fact that normally you only have to pay approximately 30% of the purchase price as a deposit and then often nothing until completion of the property, when the rest can be financed on a 70% mortgage.
There is nothing unusual in this and it is common practice throughout most of Europe, meaning that you are effectively funding the builder throughout the works. All monies paid are also required to be covered by a bank guarantee, meaning that anything paid is returned if the builder defaults. The major problem with this type of purchase is regarding the funding.
One of the final reasons for the popularity of selling before official completion of the construction is that you can drastically mitigate your capital gains tax liability.
Whilst mortgages are readily available on these properties, the purchaser does not take legal ownership until completion. As the purchaser has no legal ownership, there is nothing that the bank can lend against and therefore any money required before completion will have to be raised from personal resources. Usually this comes in the form of raising funds from any existing UK property or from personal savings, however this needs to be carefully considered before placing a deposit on a new home. The usual maximum borrowings can then be raised at completion, clearing any short term borrowings that may have been necessary.
Resales
Rather than buy off plan and have to envisage the finished product; and also accept the potential risks involved during construction, many purchasers prefer to purchase something completed after viewing. This market is extremely buoyant and serves to boost the off-plan market.
In general, resale properties prices are open to negotiation but buyers should first have in place the finances available to make any purchase.
