Real estate is a significant investment to consider. Despite the high returns it offers there has to be calculated action involved. In this article specifically, we will look at investment in residential real estate. There are several stages at which one can buy real estate. While some investors need a bit more proof of movement before purchase, those willing to take a bit more risk may choose to buy into these projects off plan.
Purchasing off-plan entails procuring a property before its construction or completion, relying on blueprints, prototypes, and artistic renderings to envision the final product. While initially daunting, this approach presents a host of advantages for savvy investors looking to seize opportunities in the market’s ebb and flow.
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The Early Bird Advantage
One of the most appealing benefits of buying off-plan is gaining access to prime properties at an early stage of development. This often translates to lower prices compared to buying a completed property in the same location. The reason for this is, that as a reward for trusting the developer’s capability of completing the project, they give you the lowest price possible.
Developers typically offer incentives such as discounts or preferential pricing to attract early investors, allowing buyers to secure a valuable asset at a lower cost. Locking in property purchases at an earlier stage also helps you as an investor to take advantage of any other opportunities within the area during the construction period of the development.
Capital Appreciation
Investing in property off-plan can yield substantial capital growth by the time construction is completed. As the development progresses and demand for properties in the area increases, the value of the off-plan property is likely to appreciate.
This potential for capital growth presents an opportunity for investors to build equity even before taking possession of the property.
Say for example the property value is 50,000 Dollars
And the market appreciation rates are 10% per annum
If the project takes 3 years from start to completion
That means its value on completion will be
Year 1
Interest—>10/100*50,000=5,000
Total price —>50,000+5,000=55,000
Year 2
Interest —>10/100*55,000=5,500
Total price —> 55,000+5,500=60,500
Year 3
Interest —>10/100*60,500=6,050
Total price —> 60,500+6,050=66,550
The value will have appreciated from 50,000 to 66,500 Dollars which is at 33.1% profit on the property.
Customization
Buying off plan offers buyers the chance to customize and personalize their property according to their preferences. One can choose from the available floor preferences whether they want a higher floor or a lower floor. They can select the finishes and fixtures and even suggest alternative layout options.
In a scenario where one may prefer a closed kitchen layout when the developer is offering an open plan development, it is much easier for the investor to suggest the layout change for their unit at this early stage to suit their living preferences.
Buyers have greater flexibility to tailor the property to their tastes when the projects are still off-plan. This customization enhances the living experience and adds value to the property, making it more desirable in the resale market.
In addition to that developers are keen to maintain their reputation, and as such, off-plan properties are usually built to high-quality standards. Buyers can review architectural plans, finishes and even visit the construction site to ensure that the finished product meets their expectations.
Locking in Today’s Prices
In a dynamic real estate market where prices tend to rise over time, purchasing off-plan allows buyers to lock in today’s prices for a future asset. This hedge against inflation can be particularly advantageous in markets experiencing rapid appreciation.
Given the increase in the value of the dollar against the local currency, the value of the dollar now versus the value of the dollar in 3 years might be quite different. By securing a property at a fixed price early on, buyers can protect themselves from potential price increases during the construction period due to inflation and any other economic factors.
Potential Tax Benefits
Depending on the jurisdiction, buyers of off-plan properties may be eligible for certain tax incentives or deductions. These can include exemptions on stamp duty, depreciation benefits for new construction, or tax breaks for property investors.
Understanding the tax implications of buying off-plan can further enhance the financial advantages of this investment strategy. In Uganda for example, there is a tax exemption for real estate developers in specific zones to aid in the rapid growth in the country’s infrastructure.
Favorable Payment Plans
Often, at this stage of construction developers are willing to offer great payment plans to their investors. Typically the investor is supposed to put down a deposit to secure the unit and mark it off the market.
After that, depending on the agreement between the developer and the investor the balance can be spread through monthly or quarterly installments. These flexible payment structures make property ownership more accessible to a broader range of buyers.
While investing in real estate always carries some level of risk, buying off-plan can help mitigate certain market risks. By purchasing from reputable developers with a track record of successful projects, buyers can have confidence in the quality and timely completion of the property.
Moreover, buying off-plan allows investors to spread their capital over the construction period, reducing the financial burden compared to purchasing a completed property and having to pay the full price upfront.
Potential for Higher Rental Yields
Off-plan properties often offer higher rental yields compared to established properties, especially in emerging or high-demand areas. As new developments attract tenants seeking more improved modern amenities and better, more convenient locations, landlords can ask for premium rents, resulting in attractive rental yields.
In conclusion, buying residential property off-plan offers a myriad of benefits for investors looking to capitalize on the potential of real estate markets. The most attractive benefit is the potential for capital appreciation.
Customization options and tax advantages are a great argument for investing off-plan. However, investors need to conduct their thorough due diligence, work with reputable real estate developers, and carefully assess the risks and rewards before committing to an off-plan investment. With careful planning and foresight, buying off-plan can be a lucrative strategy for building wealth through real estate.
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If you want to invest in Uganda’s real estate market, check out our selection of high-end developments, and we’ll walk you through your investment options.