Why Buy Preconstruction (Off-plan) Real Estate?
I spent years drafting sales agreements for preconstruction property on behalf of developers. During my representation, I would routinely ask developers why they were so confident they could sell the project preconstruction. The answer was always some variation of the following: Preconstruction sales are a win-win for both the developer and the consumer. Developers get access to needed capital and consumers can buy-into a project at pre-construction pricing.
And judging by the sales of these developers, they were right. Here are 5 reasons why preconstruction real estate is a good investment for consumers.
Developers will often offer discounted prices to incentivize purchasers to purchase new construction. Pre-sales can help finance construction of the development and provide security to a bank proving construction finance to the developer. The developer will then often raise the pricing on units as the project nears/hits completion, which can result in immediate capital appreciation for the buyer.
Payment Against Milestones
Investors generally pay the purchase price in installments and against construction milestones during construction of the project. The investor’s ability to stretch out purchase price payments for a number of years (i.e., during the construction cycle) gives an investor flexibility and can potentially alleviate the investor’s need to secure financing.
When you purchase property off-plan you can leverage your return. For instance, assume you pay an initial deposit of 5% with further purchase price payments against construction milestones and the balance on completion. So, while you are paying the purchase price over time, your unit can appreciate in value during the construction period.
In a rising market, you can potentially assign your contract to another buyer and realize the capital appreciation in the unit and without formally closing on the property.
Selection of Unit and Finishing
Early investors will generally have a wider selection when choosing their respective unit (floor, views, floor plan, etc.). Further, some developers will let you select upgrades and finishes to your unit, thereby giving you the freedom to design your unit to your own taste.
Reduce your Carrying Costs
There are various carrying costs associated with owning real estate. Owners have to pay maintenance fees, association fees, utilities, etc. These fees generally commence on hand-over of your property. However, prior to hand-over, you get the upside of capital appreciation without the carrying costs associated with owning a completed unit.