By: D. Hughes and K. Limcharoen
A purchaser or investor in a real estate development, seeking to profit from capital appreciation of the unit and rental income by buying into an early phase of development, may not be aware that it can seek to obtain reasonable additional protections or assurances, some of which can be legally documented, and some of which involve thorough due diligence of not only the target development, but the areas surrounding it and likelihood of neighbouring development activity or use.
Below comprises a summary of key issues for an investor to consider and possibly document when buying in an ‘early’ development phase, such issues applying to a particular set of circumstances typically influenced by project location; strength and available funds of the developer; building restrictions and success of the first phase.
How many phases?
A buyer may wish to assess the potential benefits of buying early into an off the plan development by interpreting the rising values of re-sales of wholly built units of a comparable size, quality and location and calculating rental income less expenses, which is a very basic overview of a ‘novice’ or lay second-home investors approach to investment. It may be true that there will be capital appreciation and some form of rental income, but there are ways that a buyer or group of buyers may look to ensure that there potential income and return is not miscalculated by a failure to take into account the activities and development of the project.
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