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Off Plan Property: Things To Consider Before You Buy

Posted on 14/08/2020 12:15 PM | by NaijaHouses

Off Plan Property: Things To Consider Before You Buy

There are many advantages to buying property from a developer. You have the option of purchasing a new house fully built or buying before construction has finished i.e. off-plan. Buying off-plan property offers several distinct advantages. As a result, this form of real estate investment has become a favoured option for investors across Nigeria.

Abuja and Lagos have numerous off-plan property developments to choose from. The off-plan market in these two cities can be considered to be very liquid when compared to the secondary or pre-owned housing market.

Buying off-plan: what does that mean?

Buying off plan means committing to purchasing a property before it has been completely built. Both residential and commercial real estate can be bought off plan.

Often this means making a commitment from project conception i.e. from when the property is just a sketch on paper or a 3d image on computer. However, this is not always the case as an off plan property can also be one on its way to being built: maybe the foundation has just been completed or it’s yet to be plastered.

The benefits of buying off plan

The main reason why you should buy off plan is that it’s cheaper to do so and usually much cheaper. This price discount stems from two places namely:

  1. The risk of purchasing something that has not been completed
  2. The inconvenience of not being able to take possession straightaway (i.e. move in immediately)

This is a win-win situation for both buyer and developer. The buyer gets a property “on the cheap” and the developer gets some early sales.

Other benefits include:

  • Potentially having your own input into things such as interior design, kitchen finishing and bathroom tiles etc.
  • The earlier you key into a project the better your choices of land plots, units or the best views
  • Extras can be negotiated into any deal struck e.g. smart home technology

How you make money investing off-plan

There are two primary ways of profiting from an off plan investment: a simple way and a more advanced way.

Buy and hold: the simple way

This method entails a buyer holding onto their investment for the longer term and seeing the discount gained as a bonus: icing on the cake.

This is the only method recommended for those new to investing in real estate. It is simpler, less risky and there are fewer variables to contend with. You simply lock in the discounted price of a property you want to acquire, with a small down payment.

Let’s say you eventually get a 20% off-plan discount. This can be treated as money you can use to invest in something else. Perhaps deposit on another residential development or used for land banking outside the city.

In a rising real estate market such as Abuja, where prices are always going up, price discounts gained can be upwards of 50% by the time construction has actually finished!

Flipping before completion: the advanced way

Buying a property off plan means initially putting down only a small deposit. The rest is often only payable when it’s finished or is to be paid in installments, depending on the project reaching set milestones. Deposits can be as low as 5% in certain cases.

As an example:

You buy an off plan property for 40 million Naira, putting down an initial deposit of 2 million Naira (5%).

As demand increases, 7 months down the line, property prices in the neighborhood rise by 5% meaning the house that is still under construction will be worth 42 million Naira upon completion.

You may be able to find a buyer looking for a home to live in or just a straight up investor, willing to pay you for the right to buy the off plan property. For instance, they might offer you 4 million Naira for the right to buy the property at 40 million Naira upon completion.

You have essentially flipped the property for a 2 million Naira profit: a 100% return on investment (the other 2 million is for the initial deposit you put down making a total of 4 million Naira).

This strategy is extremely popular for developments in prime locations and is frequently used where properties are bought at very early stages of development: when marketing is still at its infancy.

The process of buying off plan property

  1. You’ll likely pay an application or reservation fee indicating your interest in the said off plan property. Fees vary by developer but are usually around 10,000 Naira. These fees are usually deducted from the deposit paid at later stages.
  2. You hire a lawyer that will go through the same legal process as you would when acquiring any other property. So things like company history, legal searches and going through the contract will be done. If everything is ok, your lawyer will give you the go ahead to pay the initial down payment and sign the contract.
  3. Here you will monitor progress of the construction work and pay any installment payments agreed as per your contract.
  4. Upon completion, the developer will request final payment(s) to be made ahead of handing over the keys to you.

How to reduce the risks

No investment goes without risk, consequently there are some risks you need to be aware of before buying off plan, including:

  • The market might fall and hence real estate prices go down
  • Developers might face financial issues
  • Projects may face delays
  • Construction defects

The good news is most of these risks can be lessened quite easily. As long as you invest in the right market/location and work with a reputable developer that has a verifiable history: the chances of things not going to plan are minimal.

Finally: should you buy off plan?

The resounding answer is yes. But only if you know what you are doing, purchase in a good location, target the right type of property and buy from the right developer.

When it comes to location, Abuja and Lagos offer the best off plan investment prospects in Nigeria. This is chiefly due to the fact that the demand for residential housing in these two markets is strong and growing daily. Every day people are moving to these two cities, thus causing house prices to rise. This trend is likely to continue for the foreseeable future. Abuja has a few more advantages than Lagos as it is still mainly a developing city and is growing at a faster pace.

With regards to the right type of property, residential properties are by far and away the safest to invest in: due to the strong demand. Commercial properties can be extremely profitable but are for more seasoned investors.

Finally, when it comes to finding an off-plan property, it’s best to work with reputable real estate agents. Estate agents have access to a wide network of contacts that can bring you the best developer deals possible: stress free.

Buying off plan can be either extremely lucrative or highly risky. It all hinges on where, what and how you do it. In this article we’ll discuss all you need to know about off plan properties in Nigeria, including how to invest for maximum profit.