What is buying off plan?



This is where investors purchase a property that doesn't exist.

I'm not referring to buying a make-believe property! I mean one where you're relying on a development company to build the property.

How does the process work?

You may have seen eye-catching brochures for the development of a fancy new luxury resort.

You're invited to invest in this property and receive a discount if you do it early. You're told you can sell during construction or after project completion for a huge profit.

This sounds too good to be true!

Well, let's look at this from the developer's point of view.

The developer has enough money to draft the plans and print enticing advertisements for his proposed development. However, he needs a lot of money for the land, and his bank requires security.

What does he do?

He entices people like you to invest early in his property by offering you a discount. He uses the investors' money to obtain a bank loan for the land.

Administrative staff then begins collecting more money from additional investors. At this point, the developer should have sufficient funds to begin construction and pay the builders. He can start the project without having any money withdrawn from his account!

Now, let's look at the same investment from the investor's perspective.

You invest early in property for a hefty 15% discount. One year later, the price increases by 10%. You wait another year when the price increases by another 10%. If you sell your share in the property, you could end up doubling your money!

So you and the developer both win, right?

WRONG!

Before investing in buying off plan, consider the following:

1. You must sell your apartment or property within a tight timeframe which requires many buyers and a liquid market

2. You won't receive your money back or a deposit refund if the project fails

3. Prices have to rise quickly for you to make a profit

you'll make nothing if they remain static or rise slowly

4. The initial valuation of the property must be correct; if it's overvalued by even 10%, you'll lose money

5. Investing in foreign tourist markets is risky because locals can't afford the resale property

Now, you have the true facts.

Unless you're a developer, stay away from buying off plans!