What is Off Plan Property? Benefits & Risks

A real estate investment done right can generate so much profit both in the short and long run. When it comes to buying real estate, you can either go for completed properties or you can invest in an off-plan property. 

But what is off-plan property and exactly what it is that makes it a suitable option? This is what this blog is all about. This article covers everything you need to know about off-plan property management from their main benefits to possible risks so keep on reading till the end.

What is an Off-Pan Property?

Benefits of Investing in an Off-Plan Property

• Lower Initial Prices
• High ROI Potential
• Greater Property Customization Freedom
• Flexible Payment Plans
• High Rental Demand

Potential Risks of Buying an Off-Plan Property

• Project Completion Delays
• No Immediate Rental Income
• Market Instability
• Developer Insolvency

What is an Off-Plan Property?

Off-plan properties, sometimes referred to as real estate projects or pre-construction properties, are those currently under construction but still in the market for sale.

In this type of property purchase, investors pay a deposit before the project begins. However, sometimes, investors wait for the construction work to start before buying such properties.

When an investor buys this not-yet-constructed property, they sign an agreement with the developer. The customer relies solely on the property plans as well as specifications when buying this type of real estate.

Benefits of Investing in an Off-Plan Property 

Here is why investing in off-plan properties is the wise thing to do

• Lower Initial Prices

An off-plan property meaning the one that has not yet been finished or even started construction is available at much lower rates than a finished unit. Moreover, developers offer special discounts at this stage to encourage more buyers to invest in the property which further lowers the price.

This allows investors to secure real estate at prime locations at a fraction of the price and with the potential to generate substantial capital appreciation. This lower entry cost is what makes investing in off-plan properties more accessible to all.

• High ROI Potential

As your off-plan property reaches completion, its sale or rental value multiplies significantly. Over time this rise in value can compound giving buyers a significant boost in their investments.

You can easily find plenty of off-plan properties in high-demand areas or rapidly growing neighborhoods at very affordable rates. Buying off-plan real estate at such locations where the property value has a very high chance of seeing a significant rise gives you the best ROI.  

• Greater Property Customization Freedom

When you buy a finished building, you do not have a lot of freedom to customize it to meet your needs. On the other hand, when you invest in off-plan properties you can have it built the way you want it.

You can choose the layout, finish, style, and other key aspects of the building which gives you a sense of ownership. This way you can tailor the construction of an off-plan property to your needs which is not an option when you invest in completed projects.

• Flexible Payment Plans

Another benefit of buying an off-plan property is that you get flexible payment options in this case. Buyers who cannot make a significant upfront payment can choose to invest in off-plan real estate as it allows them to split the cost over several years.

According to the agreement, the buyer pays small periodic amounts during the construction phase to keep the process moving. Once the project finishes the remaining amount is then paid which saves you from immediate financial strain.

• High Rental Demand

When you buy an off-plan property and build residential or commercial units on it, you can easily find tenants as people prefer newer developments more. This increased rental demand allows investors to rent out their properties at premium rental rates which generates a huge ROI.

This high rental yield in the first few years makes up for the risks or losses that investors face during the construction phase of the project. 

It is always a better idea to look closely at the rental demand as well as the potential rental yield that an off-plan property can generate before investing to be on the safe side.

Potential Risks of Buying an Off-Plan Property

Here are a few risks that come with investing in off-plan properties

• Project Completion Delays

 This is a major risk that can happen for several reasons. Things like financial issues, failure to comply with the regulatory requirements, obtaining approvals, or other unforeseen logistical challenges during construction can delay the completion of the project.

These delays can last for months or even years and that can put your investment at great risk if you do not proceed as per your planned timeline. 

• No Immediate Rental Income

As the off-plan property needs time to complete, it means you have to wait for quite some time before you can expect to get any return in terms of rental income.

Thus, investors who are looking to create a consistent cash flow based on the rental income from their real estate cannot invest in off-plan properties.

• Market Instability

The real estate market is very unstable and you have to take that into account when investing in off plan properties. By the time of completion, there is a chance that the market conditions change for the worse owing to economic conditions, certain government policies, or sudden interest rate changes.

This way even if your property value rises, the poor market conditions can cause it to drop. In a weakened real estate market, the value of the property can become much less than what the investors initially paid which is not a very ideal situation.

• Developer Insolvency

Another risk associated with the off-plan property investment is the developer going bankrupt or having financial difficulties. This is caused by financial mismanagement on the part of the developer or sudden economic downturns which can significantly disrupt the project.

In some cases, this can also lead to poor construction quality or even project abandonment which puts your investment at great risk.

Conclusion

Investing in off-plan properties is a great strategy for buyers who are looking to diversify their portfolios and get ahead of the volatile real estate market. This type of investment gives you many benefits including low initial costs, high capital appreciation potential, greater customization, and very high rental yields once the construction is completed.

However, just like other real estate investments, there are a few risks associated with off-plan properties as well. These include delays in project completion, poor real estate market conditions, or the developer going bankrupt.

With proper planning, consultation, and deliberation it is possible for you to minimize these risks and find off-plan properties that guarantee the highest ROI. Visit My Property Manager today to get the best property management services all over Dubai, UAE.