Whether you are a newbie or a sophisticated Real Estate investor, I strongly believe that you have come across either of these terms; “Off-plan Property“, “Off-Plan Project” or just “Off Plan“.
Buying Off-plan property might have great advantages for both developer and investor if done right, however, understanding the risk and benefits associated with an Off-plan project will help you escape the risk and navigate the benefits with ease
In simple words, an Off-plan property could mean keying into a building project at the stage of development or construction period.
One thing is very important when buying an Off-plan property and that is understanding the risks involved and how to eliminate them to take complete advantage of every deal because every deal counts.
After reading this article, you should be able to
- Completely understand the meaning of Off-plan property
- Understand the stages in an Off-plan property
- Understanding the risk and benefits associated with an Off-plan to help you make informed decisions
- Carry out detailed due diligence on every off-plan investmnt opportrunity
- Learn how to take complete advantage on your next Off-plan property aquisition
WHAT IS AN OFF-PLAN PROJECT?
On the most basic level, an Off-plan Property means buying a property at the development stage or buying a property before it’s fully constructed or developed. This could mean buying a property when it is just an idea on a piece of paper, under construction or towards completion
There are 3 basic stages at which you can key into an Off-plan project.
These are –
- Early Stage or Launch period
- Middle Stage
- Finishing Stage
OFF-PLAN PROPERTY – EARLY STAGE
Buying Offplan property at an early stage simply means buying at the inception of the idea. 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.
Buying into the early stage of an Off-plan requires a lot of guts and understanding, however, buying at this stage can be similar to joining a company’s stock at the initial public offering also known as IPO. Buyers at this stage usually hit the gold, that is to say, they enjoy Maximum affordability and discount on this property and this helps them realize faster Capital Appreciation that will lead to a higher Cash flow.
Early buyers also wield a lot of influence on how the rest of the project is going to run, in terms of structural planning, designs, room sizes, set-backs etc
OFF-PLAN PROPERTY – MIDDLE STAGE
This might include everything, done from laying the foundation to roofing the structure.
Buyers at this stage also enjoy a level of discount but not in any way compared to buyers at inception. They can also wield some level of influence on specific designs, and minor structural adjustments to their personal units.
OFF-PLAN PROPERTY- FINISHING STAGE
Once the structure is roofed, the project enters the finishing stage, and this might include plastering and rendering, tiling, painting, fixing sanitary systems and closets, etc
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% more than early buyers.
RISKS AND BENEFITS OF BUYING OFF-PLAN PROPERTIES
Just like in every other investment, there are risks and benefits associated with investing in an Off-plan property, therefore, the importance of “Due diligence” before committing Your money to an Off-plan project should never be swept under the carpet, In fact, It should be treated as an utmost necessity.
Let’s start with the benefits of buying an Off-plan property, then we will look at the risks, and then finally discuss a list of due diligence that will help you circumvent the risks and take complete advantage of any Off-plan deal.
7 BENEFITS OF BUYING AN OFF-PLAN PROPERTY
Here are 7 benefits of buying an Off-plan property in Nigeria. They are;
1. YOU PURCHASE PROPERTY BELOW MARKET VALUE
Off-plan projects have proven to be 25% to 60% cheaper than completed projects of the same standard and Specifications.
This is because the Developer partners with investors or homebuyers to achieve large-scale property development. On the other hand, the investors/homebuyers leverage the expertise of the developer, his ability to get the land and building materials at wholesale price. This makes it a win/win for the investor and the Developer as both partners to get more for less.
2. YOU ACQUIRE PROPERTIES WITH LITTLE DEPOSIT AND FLEXIBLE PAYMENT
This is one of the amazing benefits of buying into an off-plan development. 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 the level of construction, when you keyed into the project and delivery period.
3. YOU ARE SURE OF QUALITY DEVELOPMENT
This is one reason I would choose an Off-plan development over a completed property in most cases. When buying an Off-plan property, you have the liberty to inspect and verify the quality of building materials before committing your money to the project.
You can also follow up during the development period to make sure that the Developer does not compromise on the promised quality or standard. This is never the same with a completed property, where you are not involved in the construction process but buying a ready-made structure.
A reputable Developer on the other hand wouldn’t like to lose dedicated partners and clients, so they just keep to the promised standard and quality, knowing that majority of their Clients will be inspecting for quality through the delivery period
4. AN OFF-PLAN PROPERTY IS A GUARANTEE OF A BRAND NEW HOME
Have you ever bought a property that was portrayed as new, only to later realize that the property was renovated and manicured?
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.
Another beauty of an Off-plan property is the fact that you won’t worry about maintenance at least for the next 5 to 10 years if the house is built with good materials except you are using paints that are highly sensitive to environmental conditions and you like it shiny at all times, then we can understand that repainting can be a choice renovation and can’t be compared to real issues like cracks, leaking roofs and structural defects etc
5. YOU ARE AT LIBERTY TO CUSTOMIZE
This is another unique advantage and I am going to explain this with an experience I had recently in 2020.
A client requested a 4 bedroom terrace in Oniru Victoria Island. She said that she wants her Master’s bedroom to be on the ground floor, for some personal reasons. Of course, after seeing several Properties, she realized that it was like a mission impossible as developers are in the habit of creating master bedrooms on top floors.
She ended up taking an off-plan and instructed the Developer to put her Master’s bedroom on her choice floor. This was done and this woman felt good and very satisfied.
Buying an off-plan property also 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. The beauty of this is that it will save you the stress and extra cost of breaking Walls and re-adjusting designs as we’ve always seen in the cases of those who buy Completed projects.
Note that Breaking and re-adjusting designs of a completed house if not done properly can alter the structural integrity of a building.
6. EVEN IF YOU HAVE A POOR SAVING HABIT, OFF-PLAN PROPERTY CAN BE A GOOD LEVERAGE TO ACHIEVING YOUR INVESTMENT GOALS
Imagine saving 50 to 200 million naira to buy a home of your dream, or to buy your retirement home.
Sometimes, you will realize that before you save 50% of this money, something comes up and you break your savings. Other times you could be faithful with your saving and by the time your saving is completed, you realize that, that 70 million naira home you’ve been saving for is now selling at 120 million or your chosen property or location is no longer available.
Leveraging on Off-plan projects could be a great way for you to achieve your investment goal and secure your dream home even if you have a poor saving habit.
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7. YOU ACHIEVE FASTER CAPITAL APPRECIATION AND BETTER CASHFLOW
Let me explain this with an event you could relate to if you’ve been following us since 2019.
You probably remember late 2019 when we launched Vantage Court Phase 1 at 13.5 million naira?
Well, those Bungalows were sold out at 18 million at mid-2020, despite the COVID-19 pandemic. This means that early investors made a capital Appreciation of 34% which amounted to 4.5 million naira during the construction period and this was in less than 12 months.
In 2021, the rent value of each unit here became 1.5 million naira per annum. This means that early investors are already making 11.5% in annual Cash flow compared to late investors who are only making 8.5% on the same exact structure in the same location.
Bungalows at this location currently sell at an average of 32 million at the time of writing this article.
This also means that if any of the investors should decide to sell a unit of their investment at Vantage court, they will be making approximately 146.15% profit at the time of writing this article, and that will be an 18.5 million naira profit on a 13.5 million naira investment in a space of 2 years and remember that we didn’t add the 11.5% they already made in Cash Flow per annum.
Now let’s see the risk associated with buying an off-plan property and how to completely avoid them
WHAT ARE THE RISKS INVOLVED IN PURCHASING AN OFF-PLAN PROPERTY?
Buying an off-plan property could be very risky because you are buying a promised idea and therefore stand a risk of “promise not delivered” or “promise not fully delivered” – Therefore it is super necessary you undergo the following due diligence process before committing your hard-earned money into any form of Off-plan project.
Although I have written a comprehensive article on due diligence that can be found in my blog, I am going to give you a list of 7 Important Due-diligence you must carry out before putting your hard-earned money on an off-plan project. Each of these 7 is as important as the other, and this means that none should be left out.
Before I drop this list, to give you leverage on your next deal, I would recommend you subscribe to my newsletter for more insightful topics that will put you more advantageous when buying or managing your piece of real estate, Land, Off-plan or completed projects.
7 IMPORTANT DUE DILIGENCE REQUIRED BEFORE INVESTING IN AN OFF-PLAN PROJECT.
1. TITLE VERIFICATION
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. Learn more on land titles and documents here
2. BUILDING APPROVAL CONFIRMATION
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.
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. It is recommended that your Real Estate Advisor guides you through this process.
3. FIND OUT WHO IS BEHIND THE OFF-PLAN PROJECTS
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
4. QUALITY ANALYSIS
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. Do your analysis on building materials used and be sure you are ok with foundation type, quality of materials been used, estate structure etc. And if you are not well informed on the quality and standards, please hire an expert you can trust
5. UNDERSTAND THE TERMS AND CONDITIONS IN YOUR DOCUMENTS
The terms and conditions, attached to a piece of the transaction could be more important than the transaction.
Before you sign the contract on any Off-plan property, it is crucial to Study the contract and agreements carefully to avoid signing a financial life sentence. 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 a price bait, review the agreement terms over and over again, and discuss them with your advisor for clarity and insight.
6. HAVE A COPY OF 3D OF THE OFF-PLAN PROPERTY
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.
7. FOLLOW UP ON THE CONSTRUCTION PROCESS
As 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. A reputable advisor might be your best option for this because their knowledge can’t compare with that of a relative, who does not have comprehensive knowledge of the quality of construction materials and structural Stability.
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.
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