Investing in property has long been one of the most popular ways to grow wealth and generate income. But as an investor, one of the first questions you’ll face is whether to put your money into an off-plan property or an existing build. Each option offers unique advantages and drawbacks, and the best choice will depend on your investment goals.
So, let’s compare off-plan and existing properties, examining the pros and cons of each to help you make an informed decision.
Off-Plan Properties
An off-plan property is purchased before construction is completed— or sometimes even started. Investors buy directly from developers, often at a discounted rate compared to the property’s expected market value upon completion.
Advantages of Off-Plan Property
- Capital Growth Potential:
Off-plan properties are often sold below market value, giving investors a head start on capital appreciation. By the time the property is completed, its value may have significantly increased, especially in areas with high growth potential. - Modern Specifications:
These properties are built with the latest designs, layouts, and energy-efficient features, which appeal to modern tenants and homeowners alike. If you intend to let the property with bills included or short-term letting (holiday lets), having an energy efficient property is crucial for keeping bills low. - Customisation:
In many cases, buyers can personalise elements such as flooring, fixtures, and finishes during construction. - Incentives from Developers:
Developers frequently offer incentives such as payment plans, stamp duty contributions, or furniture packages to attract off-plan buyers. - Low initial investment needed
Often you need as little as 15%-30% deposit to secure your property, and then you have time to save up or obtain financing whilst the construction commences. - Warranties
New build properties always come with a new build warranty, such as the 10 year NHBC Buildmark warranty, meaning if there are any structural defects within that time period, the repair work is covered. There are often warranties on the internal fittings (such as kitchen and bathroom fittings) and appliances such as the boiler, ovens, etc. This helps keep maintenance costs low for the first few years of ownership. - No chains
As you are buying direct from the developer, there are no annoying “chains” with sellers relying on onward purchases in order to sell. This means the sellers are less likely to pull out of the transaction.
Drawbacks of Off-Plan Property
- Delayed Returns:
As the property is not ready for occupancy, investors won’t see rental income immediately. This could be anywhere from 6 months to 4 years. - Market Risks:
While the property’s value may grow during construction, there’s always a risk of market downturns affecting your returns. - Potential Delays:
Construction timelines can be affected by unforeseen issues, leading to delays in completion. - Developer Risk:
Choosing a reputable developer is crucial. If the developer faces financial issues, the project may be delayed or even cancelled. - Change of investor circumstances:
Whilst delaying the financing can be an advantage to a lot of investors, there is also a risk your circumstances may change whilst you wait for the project to be delivered and thus rendering you unable to fund the purchase. As you will already be legally tied into the purchase, failure to complete will result in loss of deposit. - No option to view before buying
Whilst developers will provide brochures with CGI images of what the building and apartment will look like, or offer show apartments as an example product, you will not be able to physically view your unit prior to exchange, therefore the finished product may not turn out exactly as expected.
Who Should Consider Off-Plan?
Off-plan properties are ideal for growth-focused investors who are willing to wait for potential long-term gains. If you’re investing in a high-growth area, the initial discount and appreciation during construction could yield significant returns. It is worth considering the risks and carry out stringent due diligence before you invest.
Quick Tip: Scroll down to the bottom of the article to download our full FREE guide to Off-Plan investing.
Existing Builds
An existing build, as the name suggests, is a property that is already constructed and available for immediate purchase and occupancy. You are usually buying from an individual owner who makes the final decision on who they sell to.
Advantages of Existing Properties
- Immediate Rental Income:
For investors seeking a steady cash flow, existing builds provide an opportunity to start earning rental income as soon as the purchase is completed. - Tangible Asset:
Unlike off-plan, you can inspect an existing property in person to evaluate its condition, location, and rental potential before agreeing to purchase. - Lower Risk:
With an established property, there’s less uncertainty compared to off-plan investments. You’re buying what you see, and the surrounding market is already established. - Easier Financing:
Lenders are often more comfortable financing existing builds since there’s no construction risk involved. You will also know before exchanging contracts and becoming legally bound whether you can obtain the required funds.
Drawbacks of Existing Properties
- Higher Upfront Costs:
Existing properties may not offer the same discounts as off-plan, and you’re competing with other buyers in the market. You also need the full funds immediately, rather than just a deposit. You will also be competing with the open market, so if multiple buyers are interested, only one of you will be successful in securing the property. This can lead to bidding wars and you may end up paying slightly over the asking price in order to have your offer accepted. - Potential Maintenance Costs:
Older properties may require repairs or updates to meet tenant expectations, cutting into your profit margins. Usually there are no warranties, so you are responsible for any repairs required. - Less Energy Efficient
It is less likely that the property will have the most energy efficient or modern specifications. This may detract tenants from renting your unit. Also, if you intend to let the property with bills included or for short-term lets (holiday letting), this may mean your monthly energy costs are higher. - Limited Growth Potential:
While existing builds can appreciate over time, they may not offer the same explosive growth potential as off-plan properties in emerging markets. It may take years to see any growth in capital appreciation. - Chains
As you will likely be buying from an individual or family, their personal circumstances can impact the pricing, speed of transaction and overall likelihood of completion. The owners may be required to buy another property to move into, which can come with lengthy chains of transactions tied together resulting in less flexibility in timescales and price they can accept.
Who Should Consider Existing Builds?
If you’re an investor looking for immediate income, existing properties are a reliable choice. They’re ideal for those who prioritise cash flow over long-term capital growth. Be aware you are competing with the open market so you may be less likely to bag a bargain.
Off-Plan vs Existing Build: A Comparison
How to Choose the Right Option for You
Both off-plan and existing builds have their unique advantages and challenges. Your choice in properties should align with your investment goals:
- Growth-Focused Investors: Off-plan properties in up-and-coming areas can offer higher returns over time.
- Income-Focused Investors: Existing builds provide a reliable, immediate cash flow, making them a safer choice for income generation.
Additionally, consider factors like your risk tolerance, available funds, and the current market conditions in your target area.
At ERE property we specialise in helping investors worldwide find the perfect property to meet their goals. Whether you’re looking to buy off-plan or an existing build, our team of experts is here to guide you every step of the way.
Contact us today to explore your options and start your property investment journey!
Scroll down just a little further for your full FREE Guide to Off-Plan Investing!
