Different Types of Off Plan Investments in our Property Market – Explained

The Property Market (Off Plan Investments) has always been a topic to follow for most if not everyone as we all want a Home to live in, an investment that can give us steady rental income and a property that appreciates and secures our future.

Over the past 2 – 3 years we have experienced a complete change in the dynamics of the Twin Cities Property Market with investors putting their money into low-rise, mid-rise and high-rise projects instead of the traditional investments in plots, houses or shops. Historically, commercial buildings were owned by a single person with very few apartments building which were owner by multiple owners in the twin cities, but this trend is now changing. We now hear terms and ideas such as: buy back guarantee, guaranteed rental returns, rental discount; guaranteed annual returns to name a few. Our focus of today’s article will be to explain these terminologies as investment types, so investors and home buyers have a better picture of where to put their money for maximum benefits.

We will divide investment types into the following categories:

1. Rental Returns
2. Personal Home

Just to be sure, in this article we are focusing on just Projects (Off Plan) Investments. If you want to learn more about Off Plan investments then you can read our Off Plan property guide by clicking here.

Forced Savings:

This is the historical Off Plan investment category where a buyer commits to buying a property by paying a down payment and the developer commits to deliver the property in a decided time period. In most cases the development is linked directly with the payment plan and these instalments are the forced savings which a buyer invests towards an asset which should increase over time if they made the right selection.

In most cases there are no Rental Returns or Buy Back guarantees on this investment category (only some developers are offering so it is good to do due diligence before investing on why they are offering it as sometimes ‘too good to be true’ turns out to be exactly that).

Who is it for?

This investment category would suit the following buyers:

1. Those looking to secure their future home
2. Those looking to invest a small amount and pay monthly and build an asset
3. Those looking to save their money into an asset that would give them Capital Gains or Rental Returns once its ready

Rental Returns:

At present there is an ongoing trend in the Real Estate market to give attractive monthly rental returns on Off Plan properties. Developers are doing this to position their product as the best investment option as the competition is fierce and with so many projects ongoing it is difficult to convince buyers without giving some additional benefits or marketing gimmicks. I’ll try to explain how this works briefly via key points:

1. In most, if not all, cases the buyer must pay the full price of the property upfront to be eligible for these offers. Keep in mind that the actual possession may happen after 2-5 years of booking depending on the project.
2. In return of the investment the developer starts paying a monthly rental to the buyer at a fixed rate till the completion of the project. This usually varies between 8% – 12% annually which means 0.66% – 1% monthly.
3. There is usually an exit clause where the buyer can ask for their money back and depending on the time period of their investment get a profit on the original investment besides the rent that they have already taken. This varies from 5% – 10% per annum.
4. In most cases the developer asks for a minimum investment time period commitment to be able to enjoy these returns. This usually is at least one year.

Who is it for?

This investment category would suit the following buyers:

1. Those who have enough to buy a property at full price and prefer to get returns from the investment instead of investing elsewhere
2. Those who have an amount saved which does not secure a good and cannot pay monthly instalments so want to invest it to get ready returns

Risks:

There is no such thing as a guaranteed safe investment when it comes to Off Plan investments, the one way to secure your investment is to do your research up front. Some ways to avoid risks when investing in Off Plan are as follows:

1. Do thorough research on the developer and their history.
2. Check their past delivered projects and compare the initial 3d plans with the actual delivered projects.
3. Check their delivery track record – see if their projects were on time and if not try to find the reasons behind the delay to judge their position.
4. Compare their launch prices with the prices of the delivered units.
5. Don’t fall for marketing gimmicks and always ask to see the booking form and agreement draft before paying or committing to anything.
6. Always keep a Real Estate Consultant on your side as it is our job to know all the above and we usually get our commission from the developers so our services will not cost you anything, but you will gain extensive market knowledge and experience on your side.
7. Avoid developers who try to cut out the Real Estate Consultants and approach you directly saying they will give a better offer, they can’t. Consultants sell multiple units for the developers (sometimes multiple developers) and will always know how to get the best deal for their clients. Also, an unethical developer might do the same to their buyers so it’s always good to have support on your side.

We hope this article brought some clarity on the types of investments in the market. We welcome your comments and suggestions and you can get in touch with us by visiting our website.