Off-plan property is a great option for both investors and buyers looking for a new home. These projects are held to strict standards on construction and financial guarantees that protect the owners while contributing to a new eco-friendly era for the property market.
Return on investment
The main advantage of off-plan is the difference between the contract price of the property and its market price at the time of commissioning. Developers build in popular areas where there is demand and prices are rising. Thus, when buying off-plan, the price agreed by the buyers and developer is always lower than market prices. At the same time, it is important to buy during the design and early construction stages as developers keep increasing prices as construction advances.
A Tranio client bought a flat in Berlin’s residential complex The Mile in 2014, a building with 260 flats to be commissioned in 2016. Last year, our client paid €336,000 for this flat but since then, prices have increased by at least €63,000 and now start at €399,000. By the time The Mile is finished, an apartment could cost up to €437,000 (including price increases by developers) at the current price growth rates — a potential 30% increase in just three years.
Structured payments and guarantees
Off-plan property is typically paid for in installments according to a schedule agreed with the developer. Each payment is safeguarded in an escrow account until the agreed release date when the developer has fulfilled its obligations for that construction stage. Early buyers can even cash out before the project is finished and capitalise on rising prices by selling on the contract on to someone else.
Payments for off-plan apartments in the London’s Canary Wharf residential complex Wardian are structured in the following manner: 5% of the price within 21 days of reserving, 5% after six months, 10% after 18 months and 80% (final payment) after the property has been commissioned (scheduled for 2016).
More options to choose from
It can be difficult to find modern housing in popular city neighbourhoods and central locations in particular, as pre-owned homes are rarely put on the market. An off-plan property bought early gives the buyer more options when it comes to views, layouts and size.
The advantage of choice is particularly valuable when it comes to choosing investment property. Real estate destined to be let will achieve maximal occupancy and rates if it reflects local demand patterns. For example, studios are popular rental properties in many European cities but are often hard to find. By scouting out development projects early on, investors will have more options for their budget.
Design the dream
Layout and interior changes are easy to approve during the early stages of construction before the internal walls are put up and the utilities installed. This can save a substantial amount when designing a property to the buyer’s personal taste. At the same time, developers offer a range of turnkey fittings that, if selected, will be installed by the commissioning of the building.
Being able to change the layout of a property is particularly important in Austria for example. The flats here are often small: a one-bedroom apartment can measure just 35–40 sq m and a two-bedroom apartment 55–60 sq m. Changing the layout during the early stages for no extra fee is a really great way to adapt this new space to practical or aesthetic needs.
New property comes with new technology and today developers are held to high standards in terms of materials used and the environment. Most countries have energy efficiency standards and places like France even disallow the sale of property without the correct certificates.
Energy efficient light bulbs can actually reduce electricity bills by 75% while modern water and heating systems also make utility bills smaller. For example, flats in the new development (above) in Berlin’s Charlottenburg-Wilmersdorf have smart home systems that monitor and control resource usage in real time.
Off-plan property has many benefits but it does not mitigate the risks of investing into an apartment or house that only exists on paper or as a construction pit. Nevertheless, in Europe buyers are protected against cheating developers and economic shocks by various laws. For instance, trust managers in Austria receive the whole payment from the buyer and transfer the installments to the developer after each successfully completed stage. They will also find another developer if the current one goes bankrupt or fails to perform its obligations properly. Construction of property for sale in Germany is usually guaranteed by banks while the interests of buyers in France are protected by the state.
Off-plan property in Europe is sure to prove a very lucrative investment, especially in cities with strong economies and high demand.