Are Off Plan Property Investments Failing to Deliver?

Are Off Plan Property Investments Failing to Deliver?

Investing in a property before it is built has been seen as one way for investors to achieve greater returns.

Buying off plan property is increasingly popular in areas where there has been a lot of new developments, such as Manchester.

However, what is the risk that projects will overpromise, leaving off plan investors struggling to get back what they have put in?

 

The Attraction of Off Plan Property

Off plan can be a cheaper way to buy property. The value at a preliminary stage is likely to be lower than it is on completion of the development.

This obviously then means that there is greater capacity for capital appreciation, compared to buying on a more traditional basis.

Furthermore, with modern technology, including advanced proptech CGI programmes, investors can be taken on virtual tours of developments when they are at the planning stage.

While this is not a substitute for being able to see a physical, finished, structure, it is a valuable marketing tool.

Regardless, the financial benefits of investing in off plan property have outweighed the uncertainties, until now at least.

 

Disappointments for Overseas Investors

The momentum of the Northern Powerhouse concept has contributed to more overseas investors, in China especially, to buy off plan in Manchester and Liverpool.

 

Many off plan projects have offered overseas investors generous interest earnings on deposits and guaranteed rental incomes as high as 9%, but in the case of Liverpool, many of these projects remain incomplete, according to MoneyWeek magazine

 

Several developers have collapsed, leaving abandoned projects behind, some stalled, some never started.

One estimate is that as much as £500 million in deposits from off plan investors may now be lost.

 

The Risks in Off Plan Investment

To be left with nothing but a Land Registry number is a poor outcome for a property investment.

At its peak, the rush for off plan, buy to let investment in Liverpool was attracting deposits of up to 80% before anything was actually built.

This buyer-funded model of development has been commonplace where banks have been reluctant to lend funds, but it means that the financial burden is carried by the buyer or investor rather than the developer.

 

Even in regular off plan investment, where deposits of 10% are common, there can still be the risk to the investor of losing tens of thousands of pounds, should anything go wrong with the development

 

There are clearly risks in investing in off plan property developments that promise high yields, particularly in a time of economic uncertainty.

The lesson is, if something looks too good to be true, it probably is.