Due Diligence on Developer when buying Off Plan

There’s been some recent negative media regarding failed developments and developers, specifically in the North or the North West of England. Although the case studies raised in the recent BBC episode were true, they touched on two or three worst case scenarios of the hundreds of schemes that are currently underway. It’s important to take these points in context and to make sure that they’re not over-sensationalized and in doing so, tarnishing what is actually quite a strong property market in that area. The infrastructure spending, economic and job growth in the Midlands and the North West, and the Northern Powerhouse schemes overall, are all very positive changes.

What is quite important though is due diligence on developers, especially when buying / investing off-plan. Given past experience, we at Nova Financial Group place significant importance on gaining a thorough understanding of a developer’s track records, financial strength, funding strategy and management philosophy to ensure that we mitigate as many of the potential risks as possible. Further we make sure that when our clients invest in off plan properties that their deposits are either held in escrow or as stakeholder, or they’re covered by a warranty or some sort of bond or insurance policy. This means that the investor’s money is safe against the risk of the developer becoming insolvent or not delivering the property as promised which was the issue raised in the above-mentioned BBC TV episode. With the schemes that failed in the North, and where people lost money, client funds were being used to actually fund the development without protection in place, which means that the investors were taking the vast majority of the risk. When the developments didn’t work, it’s the investors that have lost their funds which is a risk that should be avoided.

Now, you might ask, “Well, why invest off-plan if there is potentially extra risk?” The answer is that the risk is able to be mitigated through due diligence on the developer and the development, selecting the right properties with the right deposit protections in place. Further, a lot of our clients have done extremely well from buying off plan with prices increasing over the build period and then performing well thereafter. Firstly, by utilising our buying power and getting in early, we get access to the best properties within prime developments, in prime locations, at the best prices and with strong incentives. Therefore, we position our clients in the best possible way to do well not just over the initial build period, but also over the long term by buying in strong growth areas. This ability to buy desirable properties at the right price results in stronger demand in both the rental and resale market.

Nova Financial

If you have any questions about buying off plan, developer due diligence or how Nova Financial Group might be able to assist you, then please get in touch on 0203 8000 600, www.nova.financial or [email protected].

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