Off-Plan Property vs. Existing Property: Which to Buy?

Thursday, 29th September 2016

By Julian Nabil

With the continuous rise of real estate prices due to the persistently high demand, developers have begun to expand on their off-plan investment offerings, amid different facilitations to ease the purchase cost for buyers and help them secure better financing terms from their lenders.

Off-plan properties are usually sold before they are constructed or completed, with a small deposit initially required in advance, while the remaining value is paid on installments, according to a schedule agreed upon with the developer. Developers sometimes also offer incentives for early adopters.

With the growing supply, it has become common for homebuyers who search for their dream home to be caught in the dilemma of buying off-plan homes with comfortable installments or existing properties, with the price to be fully paid up front.

While each option presents its own series of advantages and disadvantages, the right choice is largely based on the needs of each buyer, weighing financial factors against time and risk crucial to the purchase decision.

 

Purchase Price

A main aspect to consider in any investment is the purchase price. For resale properties there is often room for negotiation, while for off-plan investment the price is set. It is also believed that the price of upcoming off-plan homes will rise due to the application of the new value-added tax (VAT), which will affect the price of construction and finishing materials.

New homes are more expensive, but are usually priced at lower than their actual market value for a number of reasons, particularly that builders generally want to initially secure a limited number of sales at the beginning to get the next phases of the project going. Another benefit to purchasing off-plan properties is that the buyer will pay the property’s value at today’s prices, rather than future estimates, whereby the property’s value is likely to appreciate over time.

There are also custom-tailored payment facilitations, like mortgage loans provided by banks for home seekers under certain terms, with interest rates, monthly installments and down payments that are relatively lower than normal loans and with longer repayment period.

Move-in Timeline

Timing is another main factor to consider. Resold homes are more convenient for buyers who does not have time on their side, a house ready for moving in is a crucial bonus. However, for buyers mainly concerned with investment and resale value, a five year wait is only part of the investment plan.

Delayed delivery of yet to be built houses, is a risk to be considered, as many uncontrollable factors could affect the delivery timing.

Resale value

Off-plan homes will often have a better resale value, as their prices are likely to rise significantly by the completion date and be worth more than the buyer has paid. Early buyers can capitalize on growing prices and cash out before the project is finished by selling the contract.

The resale value of existing homes is generally lower than new ones; however, this still depends on the growing market value of the neighborhood.

Neighborhood

Other aspects go into the investment value of a property, one influential example is location. preference could differ from one person to the other, but it is generally one of the main advantages that could trump everything else and help homebuyers on the fence make the right decision.

Community when it comes to resale value is crucial, as an investor or a homebuyer is not buying the actual brick and mortar but a presence in a neighborhood. In addition to the boosting effect of the reputation of the real estate market for the location chosen.

In a poll conducted by Invest-Gate on the most important factor a buyer takes into account when purchasing a home, other than price, 54% of the respondents chose location and 43% picked surrounding community.

There is a main advantage to older neighborhoods. Usually located in or close to the city center, older well established neighborhoods are surrounded by sound infrastructure serving the area, public transportation, a variety of schools, supermarkets, clubs, and shopping centers.

However, buying in a newly constructed area gives you the advantage of being the first owner and guaranteeing that the building and facilities are new and unused; in addition to better utilities and infrastructure.

Maintenance and Renovation

Homebuyers should know that resold homes may need some upgrades to integral components, such as fixing drainage issues and updating the electrical system. Although with desired changes come higher costs, all renovations will add to the home’s future value.

As for newly constructed properties, they are usually require minimal renovation from the side of plumbing, electricity, and core finishing.

Another bonus to off-plan houses is that builders sometimes allow for some flexibility for buyers to customize their homes’ designs during the construction phase.  This may require an extra budget, but a buyer may deem that adding one’s personal touches is worth it.

Whether the decision is to purchase an en existing property or an off-plan property, investing in real estate in the current market is believed to be one of the best investments anyone can make. The main equation in the decision, however, boils down to time verses money, an aspect that is shaped largely by the purpose of purchase.

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