Buying Property off plan in the UK and overseas

What is buying off plan property?

Properties are sold “off the plan” usually 3-18 months before they are ready for occupation
This is common in Spain and other areas with a high level of demand
In the UK it is mainly property investors that by property off plan
Developers will often give discounts to encourage investors to pre-buy a proportion of the stock, this is sometimes a requirement of the bank, a way to improve cash flow, or to help marketing (sometimes negating the need for a show home)
Investors are gambling on a rising market, as most later phases on a development are sold at a premium

The process of buying off plan?

The buyer pays a reservation payment to show they are committed
The buyer has to make a part-payment at exchange of contracts. This is typically 5-10%.
Sometimes further payments are required after exchange. This is common overseas where the schedule of payments matches the progress of the build, in the UK there may be a second payment if there is a long delay before completion
The buyer may get their deposit back at completion depending on the form of the discount
Exchange and “ownership of the contract” typically happens within 28 days of reservation, however completion cannot happen until the building is signed-off for habitation
Most mortgage offers are only valid for 30 or 90 - days, so it is not possible to get a mortgage offer on an off plan property, until the nearer the date of completion. This can be problematic - some investors can be left with property worth less than they are contracted to pay for it!
Completion will happen sometime later unless the investor sells the “assignable” contract or “flips” the property before fully owning it
Much of the rise in a property value can happen at this early stage – so investors often gain rapid capital growth for a low initial investment

Exchange or deposit bond

Some developers allow the use of exchange or deposit bonds – an insurance policy where the investor pays a low fee. This is used where there is insufficient time for the investor to raise the required deposit. The bond is paid out if the buyer does not find the money at exchange

Selling off plan property before completion

Some investors will exchange contracts but sell the property on for a higher price, before completion, without incurring stamp duty. This is because the contracts are “assignable”. This is also knowing as “flipping” or “turning” a property

Using a developers discount to fund an off plan purchase

Although the buyer would have paid a part payment at exchange – the developer may have offered a “gifted deposit” or a “cash-back” – so the buyer may get their cash-investment back on completion