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Off-plan risks make investors reconsider resale

25 April 2008

Security has always been a major factor in deciding whether or not to commit to an international investment. In the past, political uncertainty, questionable business practices and even tempestuous weather conditions have stopped investments taking off, regardless of the returns that are promised. Today, the uncertainty of financial markets is making investors more apprehensive than ever to part with their hard-earned cash, especially for unstable off-plan developments.

Off-plan developments are usually financed by a combination of investor cash and bank loans. In return for the risk associated with pre-construction financing, the investors can earn capital appreciation while the development is being constructed.

Claudio Rois, movewithus investor director, said: “This is the traditional model in a buoyant market but, due to the effects of the credit crunch, many banks are tightening their belts and withdrawing funding from off-plan projects. This is increasing fall-through rates, meaning investors simply get their funds returned with no capital appreciation, often after months of legal wrangling.”

In response, many investors are looking at pre-built resale property as a secure alternative. Although there is no construction capital appreciation, there is also no risk of a bank withdrawing financing and a sale falling through.

Claudio Rois commented: “With resale property, investors can still receive great rental returns and steady capital appreciation throughout the tenure of their ownership without the risk of fall through.”

An added advantage of resale properties is their detailed history. We sell many on behalf of investors who have owned them since construction. This means that we can pass on detailed information to new owners about seasonal demand changes, fluctuations in rental income and the capital appreciation that the property has acquired.

Claudio Rois added: “There are still plenty of lucrative investments out there but investors have to be realistic. It’s our job to present our investors with a fair view of the market and the investments that strike a balance between returns and security.”