What is Buying OFF-PLAN?
The concept of buying OFF-PLAN, (before the property is built), is not new - many people searching for homes abroad or at home, whether it be for retirement, a holiday home or purely for investment purposes have been buying OFF-PLAN property all around the world for many years. However, this trend is on the increase as more people begin to realise the benefits.
To buy a property “OFF-PLAN”, means reserving either a plot, or a specific property, at the initial stages, usually prior to the development commencing, or when the plans are first approved. It is the opposite of buying a re-sale, or a newly built property. Buying property this way is becoming increasingly popular, as they often offer larger financial rewards, particularly on capital growth.
Why OFF-PLAN Investments - How does it work?
The smart investors are now getting to know about new developments in their early stages, and pick and choose the properties of their choice, and at favourable prices. As a general rule, the prices will normally go up during the launch period, or prior to construction, by between 5% and 10%. There will then normally be further increases of around 10% to 15% during the period of construction, which is usually between 12 - 36 months. The early investor who secures the property at an “OFF-PLAN price”, will therefore achieve a very healthy capital growth, prior to the property even being completed.
What capital is required to Purchase OFF-PLAN?
A reservation fee is required when you buy a property OFF-PLAN; this figure varies depending on the developer and the Country you are purchasing in. This payment secures the property of your choice, at the “OFF-PLAN price”, normally for a period of around 30 days. Then the Contracts are sent out to the purchaser and their lawyer, who has this 30-day period to view, agree and sign the Sales Contract. When this Sales Contract is returned, a further payment (usually between 10% to 25% of the property price) is required, which secures the “OFF-PLAN” purchase price for the selected property. It also secures the price against any further increases.
The final balance is then paid on the completion of the property although some developers require staged payments during the various stages of the build. As the property will appreciate in value over the development stages, often “OFF-PLAN buyers” may decide to sell the property, even prior to the final completion. So even though the property has not been completed, they are able to take full advantage of the capital growth gained.
You should also consider the quality of the development and of course the location, and size of a specific project. Many early buyers have already found it financially rewarding to buy "OFF-PLAN" property. With the predicted property demand expecting to grow at an even greater rate, now really is the ideal time to invest.
Buying to Let
You have deicide to buy in South Africa! Then you should decide if you are an investor or a speculator:
If you are looking to invest in property overseas, you best buying in the established and proven markets, which offer good weather and ease of access.
If you are a speculator, Africa, this country has the potential to becoming well establish and therefore offering you a good return on your investment over the forthcoming years.
Buying OFF-PLAN
Nine times out of 10 buying OFF-PLAN is the best route to good capital appreciation, Although, if you require rental income straight away this is not the best option, as you may have to wait up to 24 months for the apartment to be built, and several months afterwards for the marketing to kick in before you see any rental income.
Outgoings as well as income will be considerations when buying a property to let overseas. Factor in that unless you are going to manage the place yourself – you will have to employ a managing agent to oversee any minor repairs that your property may need as well as arranging cleaning services between each client.
Yield
In layman’s term the yield is the annual rental income expressed as a percentage of the price of the property. For example, if you buy an apartment for £100,000 and during the course of the year your rental income is £10,000, the yield is 10%.
The net yield, however, the income minus all overheads, including fees and taxes – is the critical figure. Around 4-5% net is considered viable, bearing in mind you will need to achieve 7-8% gross to realise that figure net.
In order to achieve these magic numbers, the golden rules of buying-to-let are:
Purchase in a country that is easily accessible by plane, if a beach resort make sure the weather is consistent all year round, this is important for you to maximise your rental income during the peak times.
Ideally, buy a two-bedroom apartment – most families, who will be the major rental market, consist of two parents and two children.
Only buy a property that is no more than 50 minutes’ drive from the airport and within 20 minutes of beaches and amenities.
The Desirable
For good year round rental potential, investors should buy a property that is in close proximity to local amenities, golf courses, the beach.
Also consider a development that offers many facilities such as communal pools, restaurants, direct access to the beach or a golf course.
Other significant minutiae that matter include the number of weeks you make the place available to rent and when – you may want to reserve your property for personal use – void periods (empty weeks), and seasonal fluctuations in the weekly rent you can charge, generally known as high, medium and low weeks that are dependent on exactly where the property is in the world.
Thirty weeks in any one 52-week year is considered the average annual number of weeks you should aim to let the property to make the necessary 4-5% net yield to make the property viable and to keep your head above water at all times. The best way to determine this is to speak to rental agents in the area of interest to find out how similar properties perform through-out the year.
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