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Offplan dosent mean extra profit anymore

Discussion in 'Buying Overseas Property' started by mickthepropertyguru, Sep 25, 2008.

  1. mickthepropertyguru

    mickthepropertyguru New Member

    OFFPLAN does not mean extra profit. Not anymore and for the foreseeable future.

    Every single development that i know of, that have come to completition, have not gained that much or in many cases have lost money. Even when due dillegence was carried out, ie: you bought in the right place, good developer, right price per metre sq, etc.

    This is due to many reasons, yes the Credit Crunch, yes the Recession around Western Europe is recking havoc, but mainly due to the lack of speculative buyers pushing prices up on themselves.
    In every development that i know of, there are many investors who cant afford the mortgage, cant get a mortgage and are willing to sell at purchase price or less 2 or more years later.
    Investy definitely hit the nail on the head when he said "dont purchase offplan" in a post made a few months or more ago.

    In most cases the offpaln units were actually more expensive than resale units around it.
    To all the first time investors, I'm telling you, don't buy off plan, let others take the risk and when completition comes and after you will be able to purchase the units at the same price 2 or 3 years before. Granted it probably wont stay like that but there is a time frame before and after completition that the price does not rocket because of many reasons.
    There will be very few offplan developments built in the last few years seeing a noticeable increase for the next 2 -3 years.
    Take your time and you will do far better than jumping onto the Offplan roller coaster, in which the only real winners are the agents getting 15%- 30% on each unit while you take the risk. Don't be so fast to put 50k in a property into an industry that you know little about, if you step back a bit you will see that this is the height of madness.
    If you have to buy offplan, do not even show interest until you get a written price on a furniture pack. This is an expense that many don't think on and its something you will pay dear for. Many companies only give you a guaranteed rental if you buy there furniture pack which is usually priced a lot higher anyway.

    Buying costs usually 5 - 10%, selling costs 5- 10%, furniture usually 7K - 10K (studio) and up, CGT: 18% - 20%.
    With offplan you actually need good appreciation over the first few years just to break even.
    Two things to bear in mind............
    Your property is only worth the price you can sell it at, regardless of appreciation which is usually speculative.
    A huge percentage of investors will not be able to sell their property when they need to.
    Last edited: Sep 25, 2008
  2. Last edited: Sep 26, 2008
  3. wesrae

    wesrae New Member

    Whilst I'm sure there are some off plan developments which will turn a profit over the next few years, I agree with this Mick. Especially when you consider you can rent a key ready property for 2-3 years instead of wiating for your off plan to be ready.

    Mick's statement was right about the OP properties being more expensive than the existing ones around them. I would add to this that in most cases the older existing buildings are also far better quality than the new builds we are seeing!
  4. mickthepropertyguru

    mickthepropertyguru New Member

    Prices falling

    With regards tot he article, there wont be a price collapse in Dubai but more than lightly prices will fall in the next 2-3 years. But to be honest a Developer will never say "actually don't buy here".
    I definitly wouldn't even consider an off plan in Dubai. It will be finished around the time saturation will be hitting. Prices may fall in 2 -3 years but more importantly, it may be difficult to rent!
    Just to reiterate,
    You will be able to buy apartments on or after completition at the same price as they were bought for off plan 2 or more years before.
    Anybody who is selling property will know of dozens of people wanting to sell their apartment for the same price they bought it for due to financial reasons. Dubai is no exception ! Thereofre there is no need to buy off plan and hold the risk.
  5. Investy

    Investy Senior Member

    I agree with Mick.


    Let them and others fund the build, and take the risk the development may come to nothing.
    Only buy once built. That way you remove the risks and get to see the bricks you buy.

    Will always be plenty of desperate sellers / unsold units at completion.
  6. mickthepropertyguru

    mickthepropertyguru New Member

    Offplan dosen't look great now............
  7. gsinker

    gsinker New Member

    depends on the location

    The trouble with buying off plan in the past was the hype that surrounded the property and the locations.

    Buying off plan can still work if there is a clear exit. Buying to flip still works if the property is in a good location with a high demand.

    The problem i have always seen in the past is the expectations of buyers.

    If you put money in a bank CD or a IRS you expect a retun on your investment over a period of time. sometime 1 year or 2.

    In 2 years time you get your money out of the bank and paossibly you will have made between 4 - 6% as a return on your investment.

    This same theroy seems to be lost on people when it comes to Real estate. People are led to believe they can make 25% - 59% inside 1 - 2 years.

    Thats all well and good but for such a high return there is a high risk, but buyers dont seem to want to look at the risk. People assume they will get a huge ROI but they will not run the risk of losing or just getting back only 6%

    Another issue is that people are taken in by clains of 25 - 50 % ROI but fail to understand that 20% of the money given to them is taken back in mortgage payments or property fees or rental fees.

    There are still some opportunities for Off Plan investment you just have to look around and tread carefully and do the Math. Peel back the layers.

    I would not ever making a sweeping statement that something is better than something else. Check the numbers and look at your true exit.

    Just food for thought.......
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