Guide to Buying Off-Plan Property Overseas
Buying off-plan abroad provides overseas property investors with an opportunity to get great returns or holiday homes at a better price.
However, investing in an off-plan property overseas can be a daunting prospect. While additional risk and nightmare stories exist, buying an off-plan property overseas can be a great decision if you do your homework. This guide takes you through the top things to consider for safely investing in an off-plan property overseas.
Benefits of Buying Off-Plan
- 1. DiscountsThe main reason for many and the most significant benefit of buying off-plan is price discounts. Early investors get huge discounts, as much as 30% or more, with a deposit of around 10% – 15%.
- 2. Capital growthA well-chosen project will deliver rapid capital growth on completion. For example, a discount of 25% on the property’s price and local property prices increase by 5% while the property is built would result in a 30% capital gain on the property when you pick up the keys.
- 3. Stage paymentsYou don’t have to find the full amount immediately. You have some time to pay for your off-plan project. Typically, a deposit of 10% and stage payments during the construction, with the final payment when the property is complete.
- 4. Best choice of propertiesThe first batch of customers will have the best selection of properties compared to buyers purchasing later on.
- 5. ChoiceDepending on the development, you can often choose the décor, fixtures, fittings and finishes. It allows you to make custom upgrades to the property before it is built.
Drawbacks Of Buying Off-Plan:
- 1. Developer collapsing or abscondingThe biggest risk for anyone buying off-plan. The developer could go bust, run off with the money or not finish the project.
- 2. Changes in market conditionsThings change! Global factors Covid, recession, and war are just a few factors that can impact the value of your property. Similarly, local factors such as delays to local attractions (e.g. a theme park) can result in your property value falling significantly.
- 3. Financing Rule ChangesAre common in any country, not just overseas. Essentially, the market falls, creating a negative equity scenario where the finance provider reduces or pulls its financing for the project as it seeks to protect its loan-to-value ratio. You are then required to make up the difference to complete the project or lose your money.
- 4. DelaysThe first batch of investors can sometimes be required to wait longer for their property to be built. Generally, developers need to sell some properties to get funding from the banks, which can sometimes delay the start of projects.
- 5. Long WaitIt is not uncommon for construction projects to take months or years to complete. And sometimes, the properties may be completed first. The amenities that form part of the development are then started by the developer – affecting your income opportunities if you plan to rent.
Top Tips for Successfully Buying Off-Plan Property Overseas
The risks can be frightening, but you can mitigate the risks and realise your dream of buying an off-plan property overseas. You need to do your homework and get expert help.
- 1. TimingDepending on your risk appetite, you can time your investment in the project. At the pre-construction stage, the potential risks and rewards are at their highest. Once construction has begun, the risks and rewards go down as the project gets closer to completion.
- 2. Independent ValuationA good, experienced surveyor local to the area will provide an accurate valuation of the potential value of the property and the discounted value you should be expected to pay.
- 3. Developer Financial Stability and Track RecordThe developers, must have an excellent track record. You should check their company records to see their financial history and current financial status. Also, your lawyer can check if the developer has been the subject of any legal action. Similarly, an online search for reviews on the developer will provide more insight into the quality of the developer.
- 4. Assignable ContractSome developers allow you to sell the property before completion. It enables you to extract a bigger profit from the property without paying out the full price. You also avoid paying stamp duty and closing costs. Before signing the agreement, your lawyer will advise you on whether this will be possible.
- 5. Title DeedsA lawyer will check that the property is built on titled land and not leased
- 6. Ownership of linked land and amenitiesWho owns the land and amenities connected to your property? A sneaky developer could build on the green spaces. The residents should have ownership, often through a Homeowners Association.
- 7. Unobstructed ViewsSurprisingly common, you find your beautiful views blocked by new developments. Again, your lawyer and surveyor can undertake checks to establish the risks of this happening
- 8. FinancingIt is possible to get funding for off-plan property, depending on the developer’s reputation, the development project, and whether you meet the loan requirements. Never rely on the developer’s promises that you will get financing.
- 9. Use a currency specialistTo protect your property costs from adverse currency rate changes. They can lock in an exchange rate for the stage payments over the entire project. Your stage payments will not be exposed to nasty surprises due to currency market volatility.
With good preparation and help from experienced experts, an off-plan property provides huge benefits for overseas property buyers. Whatever your choices, we can help connect you with recommended experts to help your property dreams a reality. Tell us about your overseas property plans?
