Off-plan investments refer to purchasing of property before it is fully constructed. This can be during the planning stages or in the early construction stages. This method of financing is beneficial to both the investor and the developer. The investor gets high returns while the developer gets the financing needed for the project.
Some of the advantages of off plan investing include;
- Lower purchase price
Developers offer the properties to the investors at a price lower than the market price. This is done to ensure that the project secures buyers as soon as possible.
- Flexible payment plans
Most developers offer flexible payment options such as instalments and mortgages. This means that the investors can opt for plans that best suit their abilities.
- Capital growth
As the construction progresses, the property value typically increases. This means that investors who purchase off-plan benefit from substantial capital growth.
- Customization options
The buyer has the option of selecting locations, layouts and finishes according to their preferences allowing them to customize the property to meet their needs.
Despite these advantages, off-plan investments can have the following disadvantages.
- The risk of project delays
Construction projects can sometimes delay due to factors such as financing issues, bad weather or legal compliance issues. These delays can impact the expected timelines for property appreciation affecting the buyers’ financial plans.
- Market fluctuations
Real estate markets can be volatile, and the value of property upon completion may not always meet the expectations. This was experienced during the COVID-19 pandemic where the effective demand for real estate products dropped unexpectedly hence the value of properties lowered. Real estate firm Erdermann properties limited had a Ksh 7 billion project that was affected by the pandemic. The project failed due to financial constraints arising due to the hard economic times during and post COVID 19. There was poor uptake to fund the project and it was halted.
- Potential for disputes
The payment terms may be a cause of disputes between the developers and the investors if the options available are unfavourable. Disputes may also arise due to contractual issues such as ambiguity in the contracts.
- Failure to deliver
A developer may fail to deliver due to financial constraints when the target market fails to take up the properties or in some occasions due to fraudulent cases. Therefore, investors should do their due diligence to ensure the credibility of the developers.
