Is Off Plan Property Investment Dead?

Is Off Plan Property Investment Dead?


Flipping off-plan property was a mainstay strategy of property speculators over the past few years. With fast rising house prices, the idea was to put a deposit down on a home before building starts and then sell it when construction is completed.

Meanwhile, all the capital at risk is the deposit and the profit comes rolling in at the end as the property value appreciated during the construction time. Now, builders are mothballing their projects or selling them off at a supposed discount to stave off the creditors as off plan speculation has dried up.

Off plan was always a high-risk strategy- and now it’s hit a wall with the recession, according to the International Herald Tribune.

Successful off-plan strategies have several pillars:

1. An Appreciating Market Driven by Property Inflation

With property prices still falling and no one brave enough to announce they have hit rock bottom, this driver is gone.

2. An Exit Strategy in the Form of Cash, a Mortgage or Buyer

These have all but dried up as well. Finding a mortgage is the holy grail of most house hunters and no one with any sense is going to stump up cash to buy a depreciating asset, so this driver is in the bin, too.

The problem is not confined to the UK, all over the world, countries with once thriving off-plan property markets are suffering, but not always for the same reasons.

3. Property Available at a Competitive Price

Granted, plenty of property is available at a competitive, below-market value price, providing you can define the market value.

If I am selling a property for $75,000 that was worth $100,000 a year ago, is it really worth $75,000 or the $50,000 you have offered me?

Most accountants would argue that the market value is the price paid and if you buy at $50,000, that’s open market value and not below-market value.

Anyway, the point is made, so let’s leave that one to the pedants to argue the rights and wrongs.

Off-plan has hit the buffers in Dubai mainly due to the way developers work, meaning they can’t churn out the properties quick enough to turn an off-plan profit.

According to the latest European Property Review published by the Royal Institute of Chartered Surveyors, the outlook for 2009 is:

  • House prices are static or falling across all of Europe.
  • The chances of core European housing markets escaping marked downturns in 2009 are slim
  • House prices fell significantly in 2008 in central and eastern Europe, Ireland, France, UK and among the Nordic countries.
  • All Europe’s housing markets are experiencing rapidly falling demand and too much supply, due to recession in Europe’s major economies.
  • New build markets in the major cities of central and Eastern Europe are at a standstill, with a rising tide of unsold homes.

The jury doesn’t have to stay out any longer – the weight of evidence proves off-plan is dead.

Photo credits: Beauteous via flickr