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“Why do developers need our money to build?” someone once asked. While this question is from a Nigerian, it could originate from anyone curious to know about how some delicate, yet profitable, aspects of real estate investment work.
Not everyone entering the real estate investment ecosystem fully understands what is obtainable – the intricacies, changes, expectations and required preparedness. While a generation had a certain experience and perspective of how real estate should work and worked, other generations are expressing entirely different perspectives.
Off-plan real estate, which is an arrangement to purchase a real estate property before it is built, is meant to increase the money-making options available in the brick and mortar real estate. But does everyone agree with or get easily comfortable with investing in off-plan real estate?
Developers need investors’ money to build, especially in a clime where real estate development loans or funding are expensive and scarce. Because project costs are expensive, the finished projects are also, often expensive. However, the end-user often must bear all these costs. Hence, the cheaper the project cost can be, the better – regardless of the niche market.
Whether people get easily and quickly comfortable with investing in off-plan real estate depends on what I describe as the dynamics, dangers, opportunities and strength of the project as well as the stakeholders. When these four elements are properly captured, explored and communicated, investing in off-plan real estate can be the most profitable option for stakeholders and investors.
The dynamics of a location and all people involved, including the government of the day, must be outlined and carefully considered. Worthy of consideration is the dynamics of the off-plan option itself. Off-plan means you are selling or buying into the conceptual design of the developer. You are buying or selling the project on paper. This can also mean that you are the direct product off-taker, who can also later become the seller.
Being the seller bestows on you the responsibility of marketing your investment by yourself. Therefore, culture, personality and value must be made to align, and expectations clearly defined.
Potential impediments to the successful completion of the project; inability to re-sell stakes or the possibility of suffering loss inherent in poor understanding of the process; and lack of clear communication or likely compromise to any aspect of the business must be brought to the fore and presented to stakeholders. It is unreasonable and impractical to give stakeholders a picture-perfect idea of the investment process.
There are a few money-making options in the real estate value chain. Each option has an exploitable set of circumstances requiring the commitment of resources or knowledge that makes it possible to achieve maximum profit and a win-win situation with little or no risk exposure.
The off-plan investment option presents the opportunity for investors to, sometimes, double their investment. When a developer, on the other hand, delivers on investor’s expectation, the developer earns credibility which results in more patronage.
Each money-making opportunity in real estate has its advantage over others. While it’s okay for stakeholders to be optimistic and expectant of profits, the qualities that guarantee the deliverables on the part of all stakeholders must also be proven.
For instance, the resilience of the project delivery process and the inherent capacity of the developer to deliver, to endure, and to resist delays, compromise in quality or abandonment, must be ascertained. So also, is the investor’s ability to grasp the project concept and commit resources as at when due.
In most off-plan projects, investors appear to be on the receiving end. Therefore, they are expected to be able to scrutinize the developer’s process and make informed demand within limits and agreed on terms.
After an investor has taken all necessary precautions and evaluations as highlighted above, it is still expedient to seek counsel. All documents and contracts must be carefully reviewed. If you are a first-time investor or an investor looking to build a property portfolio, you will find off-plan investment to be quite rewarding once you understand the dynamics of the game and play by the rules.
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