Buying off-plan property is when you invest into a development that is yet to be built or completed
Buying off-plan property is when you invest into a development that is yet to be built or completed, which means that the Development Company (commonly called the Developer) must have shown you an ongoing development, an architectural design, 3D rendering, and proposed interior finishing of the property in 3D format before you decide to buy or invest. Buying off-plan property is investing in a promise that by a specific period of time, the keys to that particular apartment would be delivered to you, which gives you a lot of advantages as explained in our last article.
Some of these advantages include buying at the present market value to get huge return on investment shortly after your purchase or by the time the property is delivered, being able to modify and personify your property to your taste or preference, flexibility of payment - that is, paying gradually over a period of time to own the property, and many more.
Buying off-plan properties is highly rewarding as it positions you for huge return on investment, mouth watering resale value and good rental yield considering the price you must have bought the property while still under construction. However, as commonly said in the finance world, "most times the risk is higher where the return is higher". Hence, buying off-plan properties is not for the faint hearted anywhere in the world. An investor in off-plan properties stands a number of risks and mostly in countries where the practice is not particularly regulated. Some of the risks of buying off-plan properties are listed below:
1. Insolvency: When a Development Company is in financial distress, it may become difficult for them to complete the project as agreed, the project might be dragged for too long or even abandoned and getting a refund from a Development Company that is insolvent can be very challenging. In some cases, a Development Company faced with increased cost of construction may request additional payment from the investor and this may shortchanged the investor from the initially projected return on investment of the property.
2. Construction and Finishing Defects: Unless it is clearly stated in the document of purchase, the class and exact quality of the finishing may fall short of the taste of the buyer upon delivery. In fact, the neatness of the finishing, the quality of the switches, sockets, paintings, tiles, and every other fixtures fitting appurtenant of the property may not be up to the buyer's taste. These features drive the value of a property, and if they are not well done, the value of the property can reduce drastically.
3. Unit Size: In some cases, the investors might have seen a floor plan that proposes a spacious or massive property and at delivery, the spacing is smaller. This may also affect the return on investment of the property and may discourage a homebuyer that has been dreaming of moving into a bigger space.
4. Uninstalled Features and Amenities: Another risk involved in buying off-plan properties in Nigeria is that some of the features and amenities promised to be delivered in the property may not be installed. Take for instance, a Development Company sells a 3-4 story buildings with a promise of an elevator, and delivers such property without an elevator. Imagine, a buyer that picked a unit on the 4th floor with the hope being at the topmost floor enjoying the nice views and fresh ventilation, but alas, he gets to know that he would have to climb the stairs to his precious 4th floor property. This would drastically affect the value and expected return on investment of such property.
5. Delay: The project may encounter delays and linger longer than it is agreed with the homebuyer or investor. This delay may even be due to some circumstances beyond the control of the Development Company, E.g. Government policy, Climatic conditions, etc. or Lack of funds on the part of the Development Company. During this waiting period, the investor may lose a resale opportunity or rental value of the property, and sometimes it may grossly affect the accommodation plan of the homebuyer. For instance, a homebuyer who has informed his or her landlord of the decision to move out at a specific time banking on the words of the development company that the keys to his or her property would be handed over at a given day may become disappointed.
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In conclusion, every Investment has its own number of risks and real estate investment is of no exception. Nevertheless, just like any other investment, an investor in off-plan property is exposed to the above listed risks anywhere in the world and not only in Nigeria. However, these risks do not change the fact that buying off-plan property is the sweetest, most flexible, convenient and advantageous method of owning a property.
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Author: Gbemisola Ojerinde
