As with all investments, the amount of risk determines the purchase price. More risk for the buyer = lower price. Off-plan property is cheaper than built property because it is an inherently riskier purchase. As the national.ae points out, “there is a chance your property may not be built, maybe built late or not to the specifications you expect.” On the basis that they have demonstrated success in the past, developers with a good reputation often charge higher prices than less well-known developers.
Can I sell my investment in off-plan property?
Not until it has actually been built. Unless you manage to broker a deal with somebody you know. There is not an established market in off-plan investments for buyers to sell to other buyers; it is an “illiquid asset” ie. not sellable.
Is buying off-plan better than buying bricks and mortar?
The great advantage of buying actual properties as an investment is in the area of “opportunity cost”.
For bricks and mortar purchases, there is no problem with opportunity cost. The opportunity cost of an investment is how much your money would have been earning if it had been invested elsewhere. A rule of thumb is to say the opportunity cost is 5% per annum – because you might well get this by simply putting your money in a high-interest savings account, or ISA.
The problem with off-plan investment is that, until your property is actually built, your money is not gaining any interest at all. It is not as if developers pay you interest on your down payment. With bricks and mortar, of course, you can immediately start making money on your investment – by either renting it or selling it. With the off-plan investment, your money can’t be touched for years.
The good news about opportunity cost is that you can factor it into your investment equation – just as you would with any other cost. Just make sure your return on the investment is large enough to absorb the opportunity cost.
For more information, please contact me. I will be happy to help with whatever questions you have. www.rgwealthsolutions.com +6011-51565649
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