By Noel Meredith – Executive Director, United Trust Bank
Prior to the economic downturn of 2008, it was not unusual for developers to achieve a significant number of off plan sales, particularly on large apartment schemes. Often banks would demand a proportion of ‘pre-sales’ to give them confidence that the development would sell in due course and they would recoup their loan. In a number of cases the off plan buyer was an investor or investor club hoping to buy early at a discount, paying only a small deposit and then selling into a rising market as the property neared completion, never having to put up more than their deposit.
When the market fell many investors/purchasers walked away from the contracts leaving developers and banks with what they had feared from the outset – a glut of apartments, often in poor locations and in numbers well in excess of existing demand.
Selling off plan is advantageous to the developer in that it provides certainty and helps to create a sales ‘buzz’ which will hopefully increase demand still further. However, this usually comes at the cost of a discount. Recently we have seen large schemes such as the Battersea Power Station redevelopment selling quickly off plan, mainly to overseas buyers. Many will be investors looking for a safe haven for their money as well, no doubt, as capital growth and this market is once again well established.
However at UTB we have also noticed that several of our customers have managed to sell their entire developments ‘off-plan’ in the sense that construction has been well advanced but far from being finished. In one sense it reflects the characteristics of the pre 2008 market – demand for the resulting units and a shortage of new build supply which encourages purchasers towards that “January Sales” mentality where you have to buy before someone else beats you to the punch.
This is not a market wide phenomenon however. The rather slow pick up in development activity has led to both pockets of intense supply shortage as well as in some cases rather surprisingly local oversupply. It emphasises the need for developers to look carefully at the supply and demand characteristics of their proposed site location. We have seen customers sell both apartments and houses (often quite expensive ones) off plan. The thing they all have in common has been strong design, good quality finishes, excellent locations and an attention to detail.
Developers hoping to achieve a good number of off plan sales are likely to find most success by employing some imaginative marketing, carefully considering the right time to release their units for sale and striving to deliver a top quality and distinctive end product. At United Trust Bank we’re always happy to work with developers aiming for the best.