Especially for first-time investors, it can be a bit daunting to be asked to put thousands of pounds into a property that hasn’t even had its foundations dug yet. But buying off-plan needn’t be an act of faith; a reputable developer will understand your need for reassurance and will welcome any questions you may have. You need to be completely satisfied about every aspect of their operation, so do ask away.
1. “What experience do you have?”
Everybody has to start somewhere, certainly, but it’s probably not wise to give your precious capital to a start-up. You need to see evidence of building excellence and specific experience of the sector if you’re considering a serviced apartments investment or student property.
Ideally, there’ll be 15 or more operational developments which can be made available for your personal inspection; if the developer is based overseas, it might be worth emailing local real estate agents to check the developer’s reputation for build quality.
2. “Are you accredited with a recognised trade organisation?”
Professional bodies are there to ensure industry standards and thus the reputation of the profession. In the UK, steer clear of anybody who isn’t on the register of the National House Building Council (NHBC).
Most countries have an equivalent organisation; in the USA, for example, look for an affiliation with the National Association of Home Builders (NAHB).
3. “What awards have you won?”
Recognition by your peers or by qualified outside observers is highly prized, and rightly so. An NHBC or NAHB award of any sort is welcome, but as an investor you’re most interested in build quality, so that’s the category to look out for.
4. “How involved will you be in my property after completion?”
If your developer is retaining a long-term interest in the development in order to generate income through rental growth or amenity charges, this is great for investors. Such an alignment of interests means that the highest standard of build will be delivered and then maintained for decades to come. This in turn means consistent yields for you and excellent capital growth prospects.
Beware the developer who is looking to make their profit upfront; this could indicate an inflated initial sale price and mediocrity in construction.
5. “What level of debt do you have on the development?”
Any indications that the developer needs to make quick sales to service a debt should set alarm bells ringing. Corners may be cut during the building process and you’ll probably be asked to pay too much. In the UK, insist on a 10-year warranty which covers construction quality, delays and non-completion.
Your developer should be self-financing or privately backed, not in sway to any lending institution. You should be offered full scrutiny and value details of their portfolio and freehold assets.
Find out how many investors they have around the world, and how much they share between them in annual income.
James Harrington, Business Development Manager at UK and USA specialists Emerging Property firmly believes a successful investment is founded on this special relationship. “If you and your developer share a vested interest in a property, then that means you’ve got a top-quality asset which will stay that way because the developer needs it to perform well as much as you do. This results in a first-rate build, first-rate management, first-rate yields and first-rate capital growth.”