There are a number of advantages to buying new builds and off-plan properties and in the right location, they can offer a substantial return on your investment not from just the yield but also for capital appreciation. However, the process of purchasing a new development differs to standard property investment and it is important to understand these key differences.
If you want to invest in new property developments here is a useful guide outlining all you need to know.
The Process Of Buying New Developments
- Reservation. In most cases, you will need to reserve your property, once you have decided which one you are interested in. To reserve it, you must first complete a reservation form which details not only the agreed price for the property but also the deadline by which all contracts must be exchanged. Reservations usually incur a fee which, once you have paid, guarantees that the property will be removed from the market. However, exclusive rights to the property are not unlimited and are usually time-sensitive. If you do not exchange contracts by the deadline agreed, the property is likely to go back on the market, and you may also lose your deposit.
- Know Your Rights. You should receive a copy of the Consumer Code for Builders which outlines the mandatory requirements that all property developers must adhere to. This details the standards required for marketing, advertising and after-sales support and also the terms of your deposit. You can read more about it here.
- Conveyancing. Your solicitor will carry out all necessary searches plus raise any necessary enquiries. They will also arrange a date for any required surveys or valuations and gather the documents required for the contract and mortgage offer [if you are funding the purchase with a mortgage].
- Exchange Of Contracts And Completion. Much like a conventional property purchase, the sale concludes with an exchange of contracts and completion. The deposit is paid when the contracts are exchanged. During the period between exchange and completion, you will need to make sure the mortgage funds are available and put your solicitor in funds for the final sale, which is the purchase price minus any deposits or reservation fees.
Off-Plan Or New Build?
There are two main ways to invest in a new development – as a new build or off-plan. Both offer distinct advantages. Here is a low-down of both options.
Purchasing off-plan means literally selecting a property based on the plans and specifications before it’s even been built. After finding a reputable developer and choosing the property, you will then be asked to pay a reservation fee, which forms part of the deposit [usually between 10% and 30%]. A further deposit is usually required after the exchange of contracts.
Construction work generally begins after the contracts are exchanged. Then, after the building work is complete, the legal completion of the sale takes place. The exact length of the process varies considerably and if you’re investing within a deadline, it is important to find out when you can expect the construction to be finished. A good developer should be able to give you an approximate idea at the very least.
Why Should You Buy Off-Plan?
Buying off-plan is a great way to save money, as you’ll often be given a significant discount off the market price. If the area you are investing in continues to perform well, you can enjoy additional capital growth too before completion.
You may also be given the opportunity to personalise your development and choose fittings such as flooring, wall colour, lighting and appliances. This level of customisation enables you to tailor the property to suit your needs.
Bear in mind however, that you will not get a chance to view it before committing. As a result it’s imperative to examine the property specifications thoroughly so you know what the end results will look like. Also be aware that some mortgage lenders might only keep their offers open for six months maximum and if the construction takes longer than anticipated this could cause problems in terms of financing your purchase. Some mortgage lenders will offer greater flexibility, make sure you check before committing.
Before purchasing, do some research. Find out how reputable the developer is and view other developments they have worked on. If possible, talk to investors who have purchased from the developers in the past to discover how reliable they are and the level of results they deliver.
The Positives Of Buying A New Build
Buying a new build enables you to see the finished property, to inspect it for any problems and if you choose get a professional survey carried out. As the building work is already complete you should not have any problems with obtaining a mortgage but you may not save as much money on your purchase [when compared with an off-plan property investment].
Of course it is still important to check out the credentials of the developer before you commit to buy. Many people choose to purchase new build developments as they are seen as lower-risk alternative to buying off-plan.
If you are considering selling the property within a few years, a new build property may not be the right choice for you as it may take a little longer to gain value on the market. Off-plan properties are often cheaper which means they are well suited to shorter-term investments.
There are other ways you can add value to your new development property. Before committing, find out what scope there is for extension [for example, an attic conversion or conservatory], and whether the property is suitable as a buy-to-let venture which provides an extra revenue stream.
Remember that, as with all property purchases, there is always room to negotiate and that negotiating on price is a quick, easy way to boost your investment returns.
Protecting Your Investment
Investing in a new development is a serious financial commitment and it is important to protect your money as much as you can. Ask the developer what warranties are in place to cover the structural work and make sure these warranties are supplied by a reputable organisation such as the NHBC. Make sure that the warranty features a ‘snagging’ provision, which means the developer is responsible for fixing minor issues for a specified period of time post completion. If the developer fails to carry out the work, the supplier of the warranty should be willing to intervene on your behalf.
For more information feel free to contact one of our specialist sales staff from any of our central London offices.