As investing in off-plan properties is becoming increasingly popular, it’s crucial you know what to be aware of with these types of property investments. In this guide, we’ll cover what makes certain developments lower or higher risk and help you make more informed decisions on an off-plan purchase.
So, for starters, should you invest in a property that has not started construction on-site? In short, probably not! Here’s a checklist of questions property investors should go through and ensure they know the answers to before considering purchasing an off-plan property.
- Have they started on-site?
- Do they have planning in place?
- What is the track record of the developer?
- Do they have a quality contractor in place?
- Are they forward funded?
- Do they have construction updates available?
- Can you see press coverage about the developer?
- Are they experienced in the off-plan field?
- Can they provide evidence of completed sites and are they finished to a high quality?
Answering these questions will help you better understand the risks involved with purchasing a specific off-plan property. Now, we’ll dive into the importance of looking into these areas and how they impact investments.
Why do developers start selling units before starting construction?
Sometimes developers need to sell a certain number of properties before they can start on-site. This is typically when a developer relies on deposits to fund the construction of the development.
These kinds of developments are often highly incentivised, and in many cases, a large proportion of units need to be sold. In extreme cases, sites can require up to 75% of the units to be sold before they can start on-site.
This can naturally lead to delays, and if they don’t sell enough units, it could even cause the development to not be built out at all. These types of developments come with a higher risk when purchasing off-plan property.
Does planning need to be in place?
For most conventional property investments, there absolutely needs to be planning in place to start approval, but it’s still worth making sure they have the right planning permission. You can always check planning applications online.
To find a planning application, visit the government’s website to search the register of planning decisions. After putting in the appropriate postcode in, this will tell you what local council it relates to and provide a link to the local council’s website.
On the council’s website, you can typically search planning applications and documents by using the application reference number, address, postcode or even through a map. Once you find the appropriate application, this will then allow you to see the details of the application and decision.
What if construction stops?
Property developments can be delayed for a range of reasons from a lack of finances to a rise in material costs and disruption to supply chains. It’s important to look at the small print of the contract. This is where a long stop date, which is the agreed date for the property to complete by, will usually be written.
Following that date, buyers who still have not been able to move into their new-build properties may be entitled to get their deposit back and rescind the contract if they wish. You will usually need to seek professional legal advice on the best way to get your deposit back. If you’d like to, you can also extend the long stop date.
Sometimes things happen beyond the control of a property development. This is where a force majeure clause comes into play. This is a contractual clause that alters parties’ liabilities and obligations when an extraordinary event or circumstance beyond their control happens. Again, you’d need to seek advice from a legal professional to find out what this means for you.
How can you spot a quality construction contractor?
When considering buying an off-plan property, you need to ensure a quality construction contractor is undertaking the work. Check that they have a solid track record of not only building quality properties but also that they’re building developments on time. Make sure they also have the financial support and backing to finish the build and aren’t over-stretched.
Do your due diligence and research the contractor and entire team behind the development. It can also be helpful visiting their developments that have been built out and asking residents what they think of their properties.
What is a forward funded development?
It’s essential to understand how a development is being funded before agreeing to purchase an off-plan property. This impacts the amount of risk involved in investing in a property within the development.
When a scheme is forward funded by professional institutes, this means the whole build is already funded and the team have been properly vetted. This provides more security and a lower risk compared to fractional funded development.
What is a fractional funded development?
If a developer relies on investor deposits to fund the construction, this is a fraction funded development and is typically higher risk. This is because companies often give high incentives to sell these properties often through attractive starting prices.
However, if they need to get a number of deposits to fund the construction costs, this can cause major delays – and the development may not even get built out if they struggle selling properties off-plan.
Buying off-plan with Salboy
For starters, Salboy never sells a scheme before construction has started on-site. We also have a solid track record of delivering property developments. Since 2019, Salboy has completed eight developments, which has brought forward 2,750 new homes. We’ve even won national and international awards for our ambitious and well-designed schemes.
Our schemes are developed by our dedicated construction arm, DOMIS Construction. This allows us to control and manage the entire construction process from beginning to end, and it ensures the developments are built to the highest standard and provides more certainty throughout the build process.
Additionally, Salboy has strong financial backing with access to forward funding on all of our developments. This means we don’t need deposits in order to be able to progress with construction on-site. On top of that, deposits are protected by our co-founders, so if there are any issues, you’ll get your deposit back. This provides even more security and peace of mind.
And as buying an off-plan property through a reputable property developer is absolutely crucial, Salboy are well-placed to ensure the purchase and building of the development runs as smoothly as possible.
Salboy Case Study: Fifty5ive, Greengate, Salford, Greater Manchester
A great recent example of our work is Fifty5ive next to our Local Blackfriars development.
- In Q4 2020 Salboy started on-site with our dedicated construction partner, Domis Construction.
- Fully forward funded by our partners and completed ahead of schedule in Q3 2022.
- Now fully sold out and fully occupied and managed by Local Manchester.
- Our 8th scheme delivered since together with Domis and part of the 2,750 homes we’ve built since 2019.