Planning for ‘Off Plan’

Abode2 investigates why “off plan” property transactions will hit record high in 2022

A record numbers of homes sold will be “off plan” by the end of the year, a leading property group has predicted. The National Association of Property Buyers believe the number of properties available for purchase before they have been constructed will soar to levels never witnessed before.

According to data 37% of new homes sold in England and Wales were sold off plan, up from 35% in 2020 but down from the peak of 47% in 2017. Jonathan Rolande, from the National Association of Property Buyers, expects the numbers to rise sharply in upcoming weeks.

He said: “The lockdown blip has seen the numbers sold off plan reduce but we expect these to rise quickly to match and overtake the previous high of 47% in 2017. City centre apartments will lead the increase with increasing numbers sold to owner occupiers rather than investors. Buyers love the certainty of fixing a price on a home at today's value, no matter what the market does in the future during construction.”

Mr Rolande, the director of House Buy Fast, added: “Older buyers often take advantage of part exchanging the family home for a brand new apartment or smaller, more manageable house. The PX process gives guarantees unavailable in the 'standard market' eliminating viewings and fall throughs. But buyers shouldn't forget that new builds are premium products and are priced accordingly – there is often better value to be had in the second hand market. Buying off plan is a decision made out of a mix of personal preference and necessity, very often people commit early because they simply cannot find what they want elsewhere thanks to the incredible shortage of property coming to the market.”

Statistics show that in 2021 24% of detached homes were sold off plan (up from 21% in 2020), 33% of semi-detached homes (up from 31%), 45% of terraced homes (up from 41%). Off plan flat sales fell to 44% from 50% in 2020. (Reason – Covid hitting city living.)

Buyers of off-plan paid a record £1.1bn in deposits in 2021, compared to £348m in 2007.  Today most off plan sales are to owner occupiers when before 2016 most off plan sales were driven by investors. Cotswold District had more off plan sales than anywhere else – 86% of new homes completed there last year. In the past London has dominated the off plan sales market.

According to Jonathan there are a number of pros and cons of buying off plan:

Pros:

* You can secure a property at today's price. If property prices go up you gain. Eg. A property bought off plan in Jan 2021 at £350,000 would after 9.6% annual rise (per UK HPI) be worth around £383,600. (In theory.)

* Possibility of getting a good deal. Developers often sell the first off plan properties on a development at a keen price to get some money in.

* Possibility to part exchange your existing house or benefit from some kind of assisted move programme offered by the developers.

* You may be able to take advantage of Government incentives.

* You have a formal agreement to buy so the sale is very unlikely to fall through. You can start planning the move with confidence. Less likely to be affected by a broken chain.

* New homes are built to the latest designs and have the latest tech. They are also much more energy efficient.

Cons:

* New homes are often sold at a premium known as the new build premium. So this may eliminate any profit due on an off plan to price rises.

Research by Unlatch says that the premium paid by new build homebuyers increased by 10.8% in the last year with these homes now commanding 40.2% more than existing homes. (Interesting stat, though seems a bit high?)

* You don't know what an off plan house or the area will look like until it is finished.

* There may be delays in completion. (Current reasons/excuses – labour shortages, supply chain issues, weather, Covid, Brexit, energy crisis etc.) Developer contracts usually have a 'get out clause' if they need to delay – but you can't.  Delays could cause problems with selling your old home (broken chain etc.), arranging removals, maybe needing temp. accommodation. Your mortgage offer may also expire – most only last 6 months, sometimes less.

* New period properties often have a lack of character and reputation for not being very well built.

* You may be living on/near a building site for several months/years.

* New build properties often have a lot of faults/ snagging issues.