Liverpool is currently a city in demand for accommodation which means there’s been a significant increase in developments taking place in the city. Kevin Ross, director at Brown Turner Ross, explains some of the drawbacks of buying an off plan property.
If you were to walk around Liverpool city centre you would see dozens of new developments taking place, many of which will offer accommodation featuring contemporary architecture and state of the art facilities. If you are to purchase a property that is not yet built, however, there remains the question about if there is risk involved as opposed to finished properties.
In simple terms, yes there are risks involved. There are several off plan developments which are funded by the buyers of the units with the development. These type of developments required a highly geared deposit payment structure which means that the buyer will be required to pay up to 80% of the purchase price before construction has even finished. In this situation, the buyer is effectively funding the development and this should lead to an appropriate level of discount. The standard deposit to be paid is 10% of the purchase price. The higher the deposit requested by the developer, the greater the risk.
A solicitor will usually be able to ensure that appropriate protections are in place, but it can be impossible to cover every eventuality and the mechanisms required by the developer may make buyers more vulnerable to insolvency. It is often the case that developers build the property under a Special Purpose Vehicle. Should they become insolvent, then the company would be able to fold without any comeback to the company’s directors. There is recent history in Liverpool of developers under performing. When this has happened, the deposit money has not been properly spent and buyers have been left with a broken contract and few options.
Buying an off plan property can be a worthy purchase. There are several developers who build wonderful homes, but you should always look at the company’s history to get an idea of their track record. Before you make a decision, it’s important to seek proper legal advice so that you understand the complete terms and risks that are associated.