What does 'Off Plan' mean when buying a property?
Find out what Off Plan means when you are buying a property. 'What does Off Plan mean?' plus over 150 other property related terms and jargon in plain English
Fancy buying a property which hasn't even been built yet. That's "Off Plan". Most are straightforward but don't assume anything. I'll run through what to watch out for.
OK, let's just explain the terminology. Before computers created models that allowed you to walk through properties which didn't exist the only thing buyers had to go on was the architects plans and so you made your decision "off the plan".
You might be lucky and get a few artist impressions as well but fundamentally knowing things like the actual sizes of the rooms of the particular property you were interested in was a case of studying the plan.
That, of course, was risky and developers knew it. This was only for the brave who couldn't be absolutely sure what they were getting so prices were discounted to reflect this.
Now, of course, its much easier to visualize. Most developers will produce detailed models of every apartment in a block and throw in some beds, a kitchen, bathroom essentials and living room furniture so you can get a much better feel of what you are buying before you buy.
That all has bought more buyers, much less risk involved. You can see exactly what you are going to get and how all your furniture can fit in.
More buyers and less risk means prices have risen. You'll pay today "off plan" pretty much the same as you would for a property that actually exists and yet the fantasy that "off plan" delivers good value lives on.
So what should you be on the lookout for if you buy off plan?
1) How far progressed is the building?
Some off plan properties are offered for sale before the builder has even purchased the land or applied for planning permission.
Know what the score is before handing over a deposit. You wait months thinking someone is laying the brickwork of your new property only to receive a letter informing you that the deal is off (because they didn't buy the land or didn't get the planning permission or underestimated the build costs).
I take a trip to the location first. If the place isn't bordered off with big signs displaying the developers logo and, preferably, the odd JCB wandering around I'm not buying. Its too early which means too much has yet to be progressed.
2) Check out past buildings
Every major builder/developer has a forum on the Internet - not a forum owned by them but usually one run buy people that live in properties they have built. These will tell you what people love and hate.
No developer is going to get gushes of love from everyone so expect some grumbling, especially from people who expected a palace for peanuts, but you will get the general vibe.
Its quite obvious, for example, to see Barratt generally built properties with wafer thin walls so you can get to know your neighbours even if you don't want to but their pricing reflects this and there is much less grumbling about after sales support than other builders who try everything to avoid fixing issues caused during construction.
3) Check out their terms for the sale
Most developers insist on an upfront deposit the day you reserve (say around £1,000) and exchange of contracts within 3 weeks. There is nothing unrealistic about this but make sure you have a mortgage agreed before reserving (preferably a Pre Arranged Mortgage (PAM) but an Agreement in Principle (AIP) as a minimum. If your mortgage doesn't work out and the developer isn't in a good mood you'll lose your reservation deposit.
4) Check the Ground Rent schedule
If the property you are buying is leasehold there will be two annual payments you need to make ... forever!
- Service Charge - a payment for the upkeep of the building, communal electricity and whatever other services everyone benefits from, periodical major repairs such as the roof, etc.
- Ground Rent - a payment for the land underneath the building!
There are pretty good legal mechanisms in place for controlling the service charge - charges must be reasonable for the services provided and you can ask a court to intervene if you think things are getting out of hand.
Ground rent is a different kettle of fish. Its simply written into the lease and you either sign up to it or you don't buy the property.
Dubious developers use this in the worst of ways. They'll start off with a low service charge - say £250 per year - and then write into the lease how this will increase over time. One of the UKs largest house builders, Taylor Wimpey did just that - stating the ground rent would double every ten years.
That means a ground rent of £250 per year on day one would escalate to an annual payment of £8,000 after 50 years ... and you try selling a flat with an £8,000 yearly ground rent charge!
To find out everything you need to know about buying off plan pick up a copy of my ebook How to Really Buy a Property.