In with the new?
New build properties are attractive purchases for overseas buyers. Key drawcards include modern design specifications, facilities, energy efficiency and minimal maintenance required due to the benefit of a new build warranty.
However, buyers should consider the different legal and other matters when purchasing a new build off-plan property, as compared to an existing property.
Reserving the property
Buyers will sign a reservation form with developers and pay a reservation fee which will form part of the deposit payable on exchange. The purchase will not be subject to an onward chain and buyers have less risk of being gazumped or a seller withdrawing from the sale. However, depending on the terms of the reservation form, the reservation fee paid may not always be fully refundable if the property does not exchange by the exchange deadline. By contrast, there is generally no commitment between buyers and sellers before they enter a binding contract for an existing property unless they have entered into an exclusivity agreement.
What you see
The actual property will likely be under construction and buyers may only see showrooms and digital renditions of the property in marketing materials. Standard new build off-plan contracts provide developers with flexibility to vary the specification, material, layout and size of the property as long as the variations do not materially affect the value of the property. This means what buyers see may not be what they buy. Nevertheless, buyers may also have the flexibility to select fixtures and fittings depending on the stage of construction. The possible variation may be less of a concern for buy-to-let investors. Existing properties are usually sold as seen.
Timings
Perhaps the most important consideration is the completion date. The completion date for a new-build off-plan property will not be set in stone in the contract. Construction timelines inherently carry some uncertainties and developers will only be able to provide estimates. Once construction is complete, buyers will receive notice to complete the property purchase within a specified period (usually 10 or 20 working days).
It is prudent for buyers to keep track of the development’s progress. Most developers will issue quarterly construction updates to buyers. The risk of early completion would need to be factored into the buyers’ financial planning and mortgage arrangements, to ensure that sufficient funds are in place to complete the purchase in time.
A delayed construction can pose a problem to buyers who need to coordinate the sale of their current property with the move to their new property. Some contracts may provide a construction completion deadline, after which the developer must return the deposits to the buyer. However, the return of deposits is usually the only remedy available for buyers and other costs might have been lost. Accordingly, developers may have the upper hand and buyers are to some extent reliant on the developer's commercial incentive to complete and their reputation.
For an existing property purchase, a completion date is usually fixed on exchange of contracts.
On balance
Whether you decide to buy a new build off-plan or an existing property will depend on a number of factors. A new build off-plan property can usually be modified to your preferred specifications before you complete and, of course, you will have the benefit of being the first owner of a pristine property that should have guarantees and warranties available. However, that should be balanced against the requirement to pay a reservation fee and deposit months prior to completion, the uncertainty of variations to the build, and the moveable completion date.
Mishcon de Reya regularly acts in property purchases, particularly for overseas clients, including in some of London's most prestigious developments. Our team is available to assist you in navigating the purchase process for whichever property you choose.