Whilst some investors consider engaging in off plan buying of real estate properties, only a fraction of them actually make profit from it.
Off plan real estate investment is where investors commit capital to a project that is yet to be completed. Investors buy the properties at attractive prices with hope that the value of the property will increase.
Cytonn Investment is one of the companies that allows investors to buy houses through the off plan investment scheme. According to Cytonn’s Chief Executive Officer Edwin Dande, however, there is a probability that you can fail to make profit from off-plan buying of properties.
Speaking to Business Today, Dande said that off-plan buying is only beneficial to the investor if the developer of the properties delivers. He was sure to mention the success his company made through off plan buying of its newly developed Amara Ridge in Karen, Nairobi.
“Off plan buying is good because an investor gets to buy a property at an attractive price and sell it later when the its value appreciates. The investment lands into trouble if the developer does not deliver,” Mr Dande said. “Investors who put their money into Amara Ridge were happy because the first unit was going for Sh85 million but by the time it was done, a unit was going for Sh110 million.”
The Cytonn boss also said that his company is not putting as much money into the plan as it did before because the market has softened.
“The market has softened so as Cytonn, we are not putting the same amount as we used to put out before,” he added.
In the recent past, a growing number of real estate investors have off-plan buying of properties with the hope of gaining huge profits. In Kenya, however, off plan investments have on several occasions turned out not to be as profitable as the investor would have anticipated.
Others who invested in off plans championed by properties such as Suraya Properties are on the verge of losing millions of shillings as the projects have stalled.
The developers’ failure to deliver is not just the only thing that has led to real estate off plan investors losing their investments. Many have experienced other challenges such as changes to tax relief.
According to Section 24 of the Finance Act, by April 2020, landlords will no longer be able to claim a reduction on their tax payments by offsetting their mortgage interest costs, meaning tax bills will generally increase.
Off-plan buying of properties is a risky venture but if it pays off, both the developer and the investor benefit greatly from it. The developer gets money to help finish the project while the investor makes profit once the project is done. If successful, it is a win-win situation for both the developer and the investor.