The idea of off-plan real estate investments is actually quite a clever way in which many have made millions. The theory is simple really, people invest in a property when it is in the planning stage. The developer needs money and investors before the building gets off the ground.
Investing in an off-Plan property project might have great advantages for both developer and investor if done right, however, understanding the risk and benefits associated with it can help you escape the risk of off-plan real estate investing.
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In simple words, an Off-plan property could mean investing in a real estate project at the pre-construction or construction stage. It also means buying a property when it is just an idea on a piece of paper, under construction or towards completion.
#1 The 3 Stages of off-Plan Real Estate Investments
- Launching Stage
- Construction Stage
- Finishing Stage
At this stage, the project is yet to commence and the property is at the inception of level. This could mean buying a plan on a piece of paper, or while the location is still under set up, which might include bush clearing or sand filling.
Buyers at this stage usually hit the gold, they enjoy great discounts discount and this helps them realize faster capital appreciation.
Buyers who buy during the construction stage also enjoy a level of discount but not in any way compared to buyers who bought during the launching stage. This person can influence some levels of construction detailing during this stage.
Once the project is roofed, the project enters the finishing stage, and during this stage, plastering and rendering, tiling, painting, fixing sanitary systems and closets, etc have been done.
Buying at this stage could be less risky and more expensive. depending on the inflation rate and the speed of property appreciation in the neighbourhood, finishing stage buyers could b spending more than 25% to 60% when compared to what the subscribers in the early stages paid.
#2 Benefits of Buying Real Estate off-Plan
Off-plan projects have proven to be 25% to 60% cheaper than completed projects of the same standard and Specifications. Hence buying real estate off could save you some money as you will be buying the property below the normal market value.
Buying a Property Off-plan will give you a flexible payment option. The Developer gives you the option to make a little deposit Sometimes between 10% to 40% and to spread the balance through the development period which is usually spread between 3 months to 24 months, depending on your level of entry stage – Launching, Construction or Finishing.
You get quality construction and finishing when you buy a property off-plan, you have the liberty to inspect and verify the quality of building materials before committing your money to the project. You can also check from time to time during the development period and ensure that the Developer does not compromise on the quality or standard.
If you are buying an Off-plan property, congratulations you are sure of a brand new home, unlike a completed house, of which you may not be 100% sure. Sometimes the Completed homes you bought, could be renovated structures.
Buying off-plan property gives you the opportunity to customize your property the way you want, you can do some internal reconfiguration. It puts you at liberty to structure your kitchen, your wardrobe, and room sizes according to your desire although sometimes, it might come with a little extra cost. it will save you the stress and extra cost of breaking Walls and re-adjusting designs.
Buying off-plan development could give huge savings as you do not choose to pay for the property in a lump sum. Leveraging on off-plan projects is a great way to achieve your investment goal and secure your dream home.
#3 Risks Involved in off-Plan Real Estate Investing
No investment goes without risk. The property might not increase in value to the expected level. It might fall or stay the same, and you won’t be able to sell it, leaving you committed to buying a property you don’t want.
The finished property may not meet the buyer’s original expectations, either because of personal reasons or material defects.
The developer may go out of business before the construction of the property is completed, and the buyer may not be able to recover the money paid in advance. The developer might go bankrupt after the deposit has been put down but before the property has been completed.
Off-plan properties may take longer than expected before being completed due to the developer’s inability to accurately predict the properties’ delivery date. This delay may also result from the low turnout of investors who, in most cases, are the primary source of finance for the project, leading to the loss of some investors who finance their projects through loans or mortgages.
Instead of using project funds invested to finance the proposed project at hand. They start competing with other firms and divert the funds generated into financing other projects or initiating a new one which makes the project longer than expected.
You should confirm if there are no building restrictions or encumbrances from the government. Always make sure that the project is fully endorsed by the government before you invest in such.
#4 Due Diligence to Follow before Investing in off-Plan Real Estate
Title Investigation; Find out the Title of the land on which these properties are been built and be sure the land is free from Government acquisition or any form of encumbrance.
Building Approval Verification; You definitely don’t want to pay for a property that will be demolished in the future by the state government without compensating you. Therefore it is important to confirm and make sure the Developer got approval for the structures he is erecting and be sure he is following the approved Procedure.
Sales Contract Verification; Before you subscribe to any Off-plan project, you have the right to ask for documents from the developer of the property you wish to purchase. Make sure you run your investigations on these documents to make sure they are authentic.
Check the Credibility of the Developer; It is vital to find out who is behind the Off-plan property construction you wish to invest in, and their track record in delivering similar projects before committing your hard-earned money. Don’t be swayed by the size of the company nor by their vague promises. keep your eyes on track records, and the number of satisfied clients they have been able to produce in previous times.
Investigate the Quality of the Developer’s Previous Projects; One of the beauties of buying into an Off-plan property is the fact that you can verify the quality of building materials in use and also follow up to make sure that this quality is maintained throughout the construction period without compromise.
Many investors focus on price only to get caught up in a deal that won’t make financial sense in the long run After studying the terms and conditions, it’s advisable to show it to your advisor for more insight, and please note that terms can be subject to negotiation.
Never be afraid to assert your interest, tactically, without being aggressive, and please don’t get hooked on price bait, review the agreement terms over and over again.
Request for 3D images of the development project; A 3D image or video, showing what the project will look like upon completion is a very important reference. Keep them in your documents and files.
Visit the project site from time to time; simple as it sounds, it’s very important to follow up the construction process on your Off-plan property to ensure agreed qualities are used and the best standards observed.
You can inspect the property at least once every month during the construction period or have someone you trust, do this for you.
Having seen the risks, benefits as well as due diligence, associated with an off-plan project, please give us feedback and let us know which topic you would like us to cover next as we are dedicated to helping you solve all your real estate-related problems.
Remarks on off-Plan Real Estate Investing
Develop a close-knit relationship with Real Estate Consultants who understand the details of off-Plan real estate investing.
Be developing the right relationship with the right experts that can get you information on new properties before they make it to the public.
This puts you in the rare and wonderful position of beating the competition to the punch. This gives you a much better shot at receiving the rock-bottom prices that are often missed by those waiting too long to invest in off-Plan real estate projects.
The contents of this article are for informational purposes only. Always do your research and consult the relevant expert before you invest in off-plan real estate projects.
My Candid Advice
Real Estate Due Diligence in Nigeria should never be ignored, real estate is one of the most expensive investments in this world, it makes your money, livelihood and life savings on the line. If you are not extra careful, you may become the basketball of land scammers, fraudulent sellers, and dubious agents.
If you don’t carry out special due diligence, you may be presented with fake property documents, buy disputed land or purchase a government-acquired property.
I am Bolaji Afolabi, I am the Lead Partner of Globalclique, a pan-African Real Estate + Technology + HR Consulting Company with offices in Lagos, Nigeria, and Kigali, Rwanda. Our company specialize in providing AI-enabled Recruitment Process Outsourcing (RPO) & Solutions tailored for the real estate, construction & Allied industries.