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Back You are here: Home Property Buying, Selling, Renting Investing in Off Plan Property

Investing in Off Plan Property

Buying property off-plan is still one of the largest segments of the Bulgarian residential real estate market. Many developers offer off-plan payment schemes, which enable investors to buy before or during the construction, when the price is low.

Most off plan payment schemes start with a down-payment of around 10% to 30% of the property value. By the time property is completed prices tend to rise because more investors want to buy a finished product rather than wait two years for a building to be constructed.

 

The greatest benefit in buying off-plan is that it can provide investors with the opportunity to buy whilst prices in an area or in a particular development are still low and then sell at a future date for increased profit.

Once built, during the time that you own the property you can also earn rental income or just use the property for your own holidays. Some investors sell their property on completion of the build and enjoy good profits based on the fact that they never paid the full market price. Annual returns on off plan investment can amount to around 30% depending on the size of the down-payment, the market and the pace of construction.

It is not just apartments that are sold off plan in Bulgaria; villas and townhouses are also on offer – the golf courses on the Black Sea coast all offered high end villas for sale off plan years before the courses were started or completed.

All of the country’s major cities and resort areas have property for sale off plan and many developers offer advantageous stage payment schemes. The International Property Investment Network (IPIN) helps evaluate off plan schemes enabling potential buyers to choose sound and secure development companies operating in the country.

How off plan works

Developers sell property off plan so that they can limit their financial risk, receive a constant flow of revenue and minimise their debts.

They sell such developments at a lower price than the completed product to encourage buyers to buy whilst the development is still in the construction phase.

The deposit funds which are payed by the buyer at this stage are often used to fund the next part of the construction. Those investing in off plan property are taking a risk, having to rely solely on the developer’s reputation, the architect’s impressions of the completed building and its location. To further encourage buyers at this early stage many developers throw in added extras like free furniture packages and mortgage assistance.

Off Plan Investment Strategies

Off plan investors need to exercise caution in their choice of property ensuring that it is located in area guaranteed to bring high rental demand or a quick resale if those are your aims. Some areas of Bulgaria have seen 50% increases in tourism in the last four years, however some tourist areas are more desirable than others; Sunny Beach for example has experienced such high levels of construction that it has seen prices of off plan property fall and those investors that bought three years ago are not experiencing massive and in some case no gains. Currently off plan offers in Sofia are providing the most attractive option because the demand for rental property currently outstrips supply and the shortfall in quality residential property in the capital brings high returns on investment. Although it has been noted that there is a shift towards other cities, such as Varna, Bourgas and Pleven.

Investors also need to consider their investment strategy for buying off plan – generally this is either a buy-to-let strategy, which will bring in annual rental income, or the desire to sell upon completion to make a profit.

The sooner you buy an off plan unit during the build stage the lower the price is likely to be.

Some developers even add in a couple of extremely low priced units in their build in order to use this low price as part of their advertising campaign. Prices tend to rise steadily as the building progresses, so the earliest buyers will always see the biggest returns.

Another point to consider is that buying off plan early allows investors to select a property with the best location within the development. Such properties always command the highest prices once the building is complete and therefore proffer higher growth on capital within the shortest time frame. In terms of location, penthouses are still one of the most popular options.

As construction speeds up and potential buyers get to see more of a tangible product, which seems to present less risk, the value of the property increases. Once a show home is in place, demand increases and this too has another upward effect on prices.

Developers usually plan their stage payment structure based on the property’s value. If you decide to take the off plan route it is worth monitoring prices and sale figures of those properties being sold on the complex you are buying in to on a monthly basis. This should provide some indication of the market value of your investment and enable you to make decisions related to its future sale.

Should you find yourself in a position whereby you are unable to sell your off plan property upon completion of the build, you can approach the developer to buy it back from you or you can choose to rent it out – many developers are offering rental packages as part of their sales plan with some 'guaranteeing' as much as 2 years rental income. Investors need to beware about such schemes and ask to see written contracts regarding such deals.