Buying Off-Plan and New-Build Properties

Buying off-plan property in London and other prime locations is often seen as a good way to secure high-value real estate before it hits the mainstream market. But is buying off-plan property cheaper, easier or safer?

In this Black Brick Buyer’s Guide, we look at some of the attractions of purchasing off-plan property and consider why off-plan property investment may or may not be the better option in London.

What is an ‘off-plan property’?

When you buy off-plan, you are investing in a property that has not yet been completed.

The purchase is typically made based on the architect’s design or blueprint, an artist’s impression or CGI rendering, or an in-person visit to the part-finished construction site.

Buying new-build property while it is still ‘off-plan’ allows you to complete the legal process and be ready to move in (or rent out) as soon as construction is finished.

Why buy off-plan?

There are several perceived advantages to buying off-plan property in London’s busy housing market, not all of which are directly financial considerations.

For example:

• Buying off-plan property can be cheaper, as developers will often offer you a discount in exchange for securing a sale early in development, particularly if your deposit is used to cover some of the upfront construction costs or if you are buying in bulk.
• Even without a discount, rising property prices mean you may be able to secure a property based on a current valuation which is then worth more by the time it is completed. However, beware, as the reverse is also true.
• Other advantages of buying new-build property:
  • Staged payments – many new builds ask for a reservation deposit to secure the property, followed by 10% on exchange of contracts. There may be a further staged payment of typically 10% to make, but the balance of 80% isn’t due until completion.
  • The property should be in good working order on the day you take possession.
  • You may be given a choice on design, floor coverings, colour scheme and more.
  • New-build properties are often guaranteed by new build warranties for the first few years.
  • You may face less competition when buying an off-plan property, which is unusual across the rest of London’s property market.

To buy off-plan, you must be willing and able to wait until construction is completed, meaning it may not be appropriate for those within a property chain or under time constraints. If the circumstances are right, however, off-plan and new-build property can be a compelling proposition for both homebuyers and career landlords.

Is it safe to buy off-plan?

Buying off-plan is not completely risk-free, especially if you pay a deposit or a percentage of the purchase price upfront. As with any other product, there is always a degree of risk when buying something that does not yet exist.

One of the biggest risks when buying off plan is the length of time between agreeing to buy and completion. If you plan to take finance, your lender will want to do a bank valuation once the property has completed. In a rising property market, there is little risk of the bank valuation coming in lower on completion. However, in a falling market there is always a risk that the price you agreed to purchase doesn’t match with the valuation figure on completion. Lenders will only ever lend to you based on the valuation figure, not the agreed purchase price, so if there is a discrepancy between these two figures, you will need to make up the difference using your own cash.

Legal Documents

It is especially important to have any contracts and other legal documents checked by a conveyancing lawyer with experience in buying off-plan.

Contracts for off-plan property often give developers ‘wriggle room’ in case anything comes up during the construction process. Without good advice upfront, you could find the developer has the right to change or even reduce the floor plan of your future property, or that the contract indemnifies them against any immediate maintenance or repair costs.

Payment Terms

As mentioned above, there is a risk associated with making any payments before the property is completed, especially if you are one of the first to buy property on a construction site that has not yet even broken ground.

Even if everything goes according to plan and on schedule, there may be a question over whether your initial deposit counts towards the final purchase price – so again, work with an expert who you trust to spot these kinds of issues.

Who Can Help?

Black Brick’s expert buying agents have gained a particular reputation for finding the best properties before they reach London’s open market. For off-plan and new-build properties, this means we can make sure your offer is the first the developers receive.

With ‘boots on the ground’ in the capital, Black Brick is in the perfect position to help you navigate any areas of concern, to successfully purchase your next property before it even hits the market.

What you need to know before buying off-plan

There are a few more administrative issues to keep in mind when buying off-plan property in London, or anywhere in the UK:

• Not all lenders offer off-plan mortgages, so your access to finance may be reduced.
• Marketing often uses artist’s impressions and computer-generated imagery, so consider visiting the site in person.
• Construction may not complete on schedule, so be prepared for delays as to when the property will be occupiable.
• Completed property might not be perfect, so allow extra time to deal with the ‘snag list’ and ensure you agree with the developer that your own independent surveyor can inspect the property prior to completion. It’s much harder to get snags dealt with after you have completed on a purchase.
• If your property is part of a first phase on a larger site, there could be ongoing construction work very nearby for a long time into the future.
• Check what else is going to be built in the immediate area and how this may affect the development you are in, and specifically the view from your property.
• Stamp duty still applies to off-plan purchases.

Is off-plan property a good investment?

Off-plan property may be a good investment in prime locations, especially where there is a deal to be struck. However, buying new-build property in London is not necessarily the most direct route to capital appreciation.

The bigger and faster capital gains are still typically seen in older period properties, which are more unique and characterful, rather than an identikit apartment in a development of several hundred dwellings. These types of property are also more likely to hold their value in the long-term, for the same reasons.

As a rental investor, you may benefit from lower initial costs with an off-plan property, especially since there shouldn’t be refurbishment or repair costs for a while. However, the opportunity to make improvements to older buildings – such as adding insulation and modern central heating – is often what enables investors to substantially increase the rental yield and resale value of these properties.

At Black Brick, we don’t advise against investing in new-build property in London, but it is important to tread carefully when buying into these kinds of development, as (with exception) they do not generally offer as much potential for capital appreciation in the immediate future.

Should you buy off-plan?

Ultimately, there is not a ‘yes’ or ‘no’ answer to whether buying off-plan and new-build property is the better option. For homebuyers, the advantages come with an added level of risk. Meanwhile, some investors want new residential property ready for immediate occupation, whilst others prefer a property which they can add value to.

If you are interested in the opportunities offered by an off-plan purchase, contact Black Brick today to see how our expert property advisors can help.