You can protect your off plan property investment.
We have highlighted the main two risks with off plan property investment property prices falling and the developer going bust fortunately we can reduce this risk and even remove it altogether.
To reduce the risk of your developer going bust you can look at the track record of the developer, how long have they been around and if they are a publicly listed company are they profitable. However you can go one step further to remove your risk completely, make sure they have a buildings certificate in place. NHBC (National House-Building Council) is the leading warranty and insurance provider for UK new build property. You will often see their flags flying outside a new development, this is a good sign. Most people know that an NHBC guarantee will give you 10 years cover once the property is built but what is not so commonly known is an NHBC guarantee will also protect your off plan deposit up to 10% if the developer goes bust. This completely removes your risk and allows you to invest in off plan property with a lot more confidence.
Nobody has the ability to know what the future will bring but we can make educated decisions when we look at property investment prices. Property prices both through cycles below is an example of how it looks.
Stagnation > slow growth > fast growth > big and fast growth > Big and fast falls > slow falls >
Stagnation is when the property market isn’t doing anything, you may see news items mentioning small growth one month and small drops in prices the following month. If you invest in off plan property at this stage make sure you get a long completion date and invest with caution. Normally property at this stage in the market however can be very attractive as yields are better.
Slow growth is when the market is beginning to recover you may also hear terms like “green shoots” being used by the media, this is stage is the start of a recovery in house prices. Now maybe the time to consider off plan investment.
Fast Growth is when the property market is pushing on and good capital growth is being achieved, this is when everyone starts talking about property investment and the TV shows start talking about property as a great investment.
Big and fast growth is when it all gets crazy this is the end of the property cycle when the amateurs pile into the market this is the time to stop investing in off plan property. Ignore the hype!
Big and fast falls is the panic stage of the market property prices are in freefall and everyone is trying to sell to cut their losses only the crazy invest in off plan now.
Slow falls the market begins to realise how foolish it has been and things begin to settle heading towards stagnation again.
Red don’t buy off plan it’s far too risky
Amber proceed with caution
Green best time to invest in off plan property
At the moment the UK property market is divided between London and the rest of the country. In our next article we will look at the UK market and discuss the best places to profit from off plan property.