Investing off-plan
The idea behind this type of investment is that a deposit is placed on a property which is to be developed. By providing capital to the developer, he will be able to offer a discount on the completion price;
The completion price will be reserved when the deposit is paid and this will be attractive in a rising market (and is a ‘hedge’ against a falling market);
The developer may offer a guaranteed occupancy return for a limited period after completion (e.g. one year), but this may replace some or all of the discount;
Many investors who buy off-plan sell immediately after completion on the assumption that over the short term they have benefited from the discount and a rise in the market;
The market may go down, especially if there are many other off-plan investors. The same risk applies to the end of a guaranteed occupancy period. This can be very risky;
Pension funds are particularly attractive for off plan investment. They can provide the deposit without the cost of borrowing (although there may be a loss of alternative investment yield) and the eventual completion amount. On sale there is no liability to capital gains tax which could be severe if the investment was held outside the fund for a short period;