Is Existing Property A Better Investment Than Off Plan?

Off-Plan is seen by many as a risky strategy. Perhaps this is because most people struggle to conceptualise purchasing ‘land with a plan’. Off-Plan Property Investment is certainly less tangible than a pre-built property investment, but does that make it less lucrative?

How Does New Build Price Growth Compare To Existing Property?

New build property has risen 10.6% in the last year after adjusting for inflation and according to Alliance new build home prices have increased 47% over the last decade. In fact, in the current market new-build properties now command a 37.3% house price premium. 

Chief executive officer of Alliance Fund, Iain Crawford, commented: “the market premiums that new homes are commanding has also strengthened and while this demonstrates the superior offering of the new-build sector versus existing market stock”.

The largest annual increase in new build property prices has occurred in the southwest, where the average new build home commands 14.7% more than it did last year, providing strong evidence that this is a solid investment choice.

Crawford continued on to say: “new-build home presents many advantages that an existing home does not, such as a smoother sale and no onward chain to consider, greater energy efficiency, which has never been more important in the current climate and the additional benefit of incentives offered by many developers such as the removal of stamp duty on the purchase.

With many now predicting an end to the pandemic property market boom, a new-build purchase is probably the safest path when looking to negate any downturn in property values over the coming months, as they also hold their value to a far greater extent.”

You may have now decided that new build property investment is going to become part of your strategy… but is there a way to make an even greater return on investment?

What Benefits Come From Investing In Off-Plan Property?

To understand the benefits of Off-Plan Investment, we need to gain insights into development finance. When a construction company seeks finance on a project, if they have pre-agreed the sale of some or all of the properties they are building, then finance is much simpler and cheaper, as they have a guarantee of sales. In some cases, this means they can obtain 100% finance for the land and the building costs. Many construction firms would far rather have a smaller guaranteed profit with no personal risks to directors or shareholders than a potentially larger return but with higher risk. 

To secure these off-plan sales, developers will offer a discount to investors, sacrificing some of their profits, in return for certainty. As a result, investors can buy property below market value.

The properties then typically take 6 to 24 months to complete. Prices are agreed upon at the start, meaning investors enjoy 6 to 24 months of capital appreciation before they receive their keys. Investors have to place a deposit to secure the property, but they have no mortgage or other costs until completion, and they take ownership.   

It’s even possible to make a profit having never fully completed!  One way to sell your off-plan investment for a lucrative profit is through assignable contracts. Redmayne Smith can advise you on which developments offer this as an option. This means you can sell the investment to another buyer before you even buy it. Imagine that, no legal fees, no stamp duty (as you did not buy it), just the cash profit your investment has earned. In combination with the correct investment structure, no capital gains tax would be due on the profit. This concept is normal in the stock markets, and most people are not aware it exists in property markets too.

These are just some of the reasons serious investors need to talk to the Redmayne Smith team. 

The expert team at Redmayne Smith will work with you to personalise your bespoke plan; book your complimentary consultation HERE


Amy Boutle

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