In a global economy where investors expect to be punished rather than rewarded, and consumers are wary of overseas home purchases because the developer may go bust, are we witnessing the death of off-plan?
“It is nearly deceased,” claims Mark Jeffery, founder of Landscope Capital. “Many developments will fall by the wayside, particularly in secondary locations. Developers will have to have outstanding locations, areas that people really want to live in or holiday in and which can genuinely stack up as a capital and/or rental investment”.
Time to get creative
Proving that it’s not impossible to fund projects, Urban Exposure has been exploring alternative sources of funding. “It’s no secret that the lack of bank funding has crippled the construction market in recent months, with many developers unable to start projects even in countries where the sales market may still be strong,” said Urban Exposure’s MD Randeesh Sandhu. “We had to think of new ways to spread the risk between all stakeholders – including contractors, landowners and equity providers.”
The structure, which the company is currently using in Turkey, works by a developer paying a landowner a small deposit (20%) for their land, with a contract promising further sales-based stage payments from the developer to the landowner in the future. The developer is then free to inject more money into the project only if it is successful and pays out from the sales revenue – not its profit.
So there are options for funding, but what about demand from buyers? Buyer protection is close the hearts of many agents but, to put it bluntly, not as important as the commissions that allow them to keep trading. As more agents introduce new payment structures – like the payment of fees upfront from the buyer, escrow systems or trustee accounts – reassurances about the solvency of the developer are more important than ever.
Craig Anderson, commercial director of the International Development Registry – which also helps developers to source funding – believes title insurance is now one of the most important sales tools in the industry for creating confidence. “Those who include title insurance as standard have realised that investors are more conscious than ever of the risks involved with purchasing overseas property,” he says. “Developers who are open about what they have and haven’t got in terms of clean title, planning permission or construction permits can differentiate themselves in an overcrowded development market.”