Off-plan property investment is one of the most controversial investment strategies in Kenya’s real estate market. On one hand, it offers easy entry into the market, especially for first-time investors, thanks to the lower initial purchase price of off-plan projects. On the other hand, it can be a risky affair because you are, essentially, buying into an idea instead of a finished product. In this blog, we explore what off-plan property investment really means, its benefits and risks, as well as how to protect your investment. 

What Is An Off-Plan Property Investment?

Off-plan property refers to real estate that is purchased before completion. The buyer typically invests in the property at the design stage or when it is under construction. The buyer commits based on plans, layouts, and the developer’s track record rather than a tangible, finished product. Off-plan property investment is very common among developments such as apartments, mixed-use projects, commercial property, and gated communities.

The Benefits Of Off-Plan Property Investment

Off-plan property investment carries a lot of benefits. They include:

Lower Initial Purchase Prices: Buying into off-plan property usually means access to lower entry prices. Some developers even offer special discounts during the project’s launch period as a way to entice more investors into the property. Buyers may end up paying 30-50% less for an off-plan property. For first-time investors, off-plan property provides a great entryway into investing, as they are able to secure units below the future market value. 

Flexible Payment Structures: Unlike completed projects that require you to pay the full payment upfront, off-plan property investment offers installment-based payment plans that are spread out (usually two to three years) with some developers even requiring little to no interest. This allows investors to leverage smaller capital for higher-value assets and avoid unnecessary financial strain. 

Unit Selection Advantage: One of the benefits of being an early buyer in off-plan property investment is that you get to pick the better units. You get to select units that are on higher floors with the best views, premium layouts, and strategic positioning within the building, all at a discounted price! These factors directly influence your unit’s resale value and rental returns.

Capital Appreciation: The value of off-plan property increases as the project’s construction progresses towards completion. Additionally, as the location within which your off-plan property is situated continues to grow and expand, so does its capital appreciation. For instance, if today you purchase a studio unit at Pavo Riverside off-plan for $78,000 the value of your unit at completion will have increased to an estimated $100,000, on the lower side. That’s an appreciation of 28%. Hold your unit for a few more years and you have yourself a resale goldmine.

Customization: One of the most underrated benefits of buying off-plan property is that you get to have a say in how your unit will turn out, especially when you purchase at the design or idea phase of the project. You can customize finishes, change the layout, or add a few amenities to your off-plan property if you so wish. 

The Risks Of Off-Plan Property Investment

Despite its many benefits, off-plan property investment has plenty of risks. The risks of off-plan investment include:

Construction Delays & Abandonment: This is the most common risk of off-plan property. Projects may take too long to be completed, or worse, they may be completely abandoned. This usually happens because of factors such as financing issues, delayed regulatory and permit approvals, disruptions within the construction supply chain, or general poor planning by the developer. 

Developer’s Credibility: The completion of off-plan projects and the subsequent success of your investment rest heavily on your developer. Unscrupulous developers will have you dealing with poor-quality projects, unclear documentation, illegal structures and even uncleared tax balances. 

Market Changes: The Kenyan real estate market is ever evolving. What is popular today was a very foreign concept a few years ago. Fluctuation in the property market is a very real and disorienting risk of off-plan property investment. Property values and rental demand can shift during the construction of your off-plan property due to factors such as oversupply, inflation and changes in tenant demand and preference. 

Liquidity Risk: Another risk of off-plan property is reselling it before completion. This can be an uphill task because it can be negatively affected by stagnancy in the market or oversupply of similar units. 

Protecting Your Off-Plan Property Investment

Off-plan property comes with undeniable risks. However, the solution isn’t to run away from them. You simply need to manage your off-plan property investment strategically. Here are a few ways you can protect yourself:

Conducting Thorough Due Dilligence: This is the most crucial step in off-plan property investment. It makes all the difference between a solid investment and an idle asset that soon becomes a burden. Due diligence involves market research, verifying the property’s legal documentation and the developer’s credibility. Look for a developer with: a clean track-record of completed projects and satisfied clients, and transparent communication.

Legal Protection: Before you commit to an off-plan property investment, ensure you have legal protections in place. You should have a legally binding contract that clearly outlines crucial details such as the terms and conditions of the purchase, the payment structure, and the expected completion date. Additionally, include clauses that protect you in case of delays or failure of the developer to deliver what was promised.

Regular Project Check-Ins: Don’t wait until completion to view your off-plan property. Visit the site regularly to monitor progress and stay updated. If you are a dispor investor, you can appoint a trusted party to monitor the off-plan property on your behalf. 

Conclusion: Is Off-Plan Property Investment Worth A Try?

When done right, off-plan property investment is a great strategy to enter the real estate market in Kenya as it offers lower entry, strong capital appreciation, flexible payment options, and some sense of control over the final product through customization. However, you still need to manage risk by conducting thorough due diligence, having legal protection and monitoring the off-plan project’s progress throughout. If you are ready to begin your property investment journey but not sure where to start, we are here to help.

Frequently Asked Questions (FAQs)

What is the biggest risk of real estate investment?

The biggest risk in real estate investment is buying in the wrong location or project, which can lead to low tenant demand, poor rental income, or slow capital appreciation. In the case of off- plan property investment, the key risks include construction delays, developer reliability, and market fluctuations.

How do I invest in off-plan property?

Research the developer, choose a strong location like Nairobi, review approvals, understand the payment plan, and pick high-demand units such as studios and one-bedroom apartments.

Can I sell my off-plan property?

Yes, you can resell your off-plan property before completion.

However, your ability to resell depends on:

• Market demand at the time.
• Popularity of the project.
• Pricing compared to newer projects within your area.