Investing in Off-Plan Real Estate: Is It Worth It?

Investing in real estate is one of the most popular tools for preserving and growing capital. By purchasing a property at the construction stage, investors can achieve returns of 20% or more upon completion. However, recent media reports have been flooded with news of various developers going bankrupt. As a result, tens or even hundreds of thousands of people have lost their money without receiving anything in return. Many have been forced into debt or taken out loans that they will have to pay back over many years. What should one do? Is it better to avoid investing in properties under construction altogether? Sergey Tereshkin, the founder of "RESURS," aims to shed light on this investment instrument and discuss essential strategies that can help minimize risks and avoid unwarranted financial losses. The entrepreneur has extensive experience in this field. More information about him can be found on his personal internet project: resurs.ru.

Investment Features

Investing in properties under construction is available to both individuals and commercial companies. Contributions can be made in the form of cash or materials. Often, developers settle payments to suppliers with real estate, such as apartments for employees or office spaces. This arrangement benefits both parties: builders save on material costs, while suppliers acquire properties that they can sell profitably or transfer to their employees. This scheme is preferred by large corporations that care about their personnel. Individual investors can invest money at various stages of construction. The earlier the transaction is made, the lower the property price. Once the property is put into operation, the price typically jumps by 15-20%, and in some cases even more. The real estate market exhibits relative stability, with minimal fluctuations. This significantly reduces the likelihood of losses. Even with slight price declines, properties generally regain their former valuation within a few years. According to Sergey Tereshkin, investing in properties under construction is a reliable tool for capital growth. Achieving such returns on the secondary market is virtually impossible. Many investors purchase real estate for subsequent rental. However, in this case, the payback period is significantly extended, potentially stretching beyond 10 years, depending on the area, its infrastructure, and other parameters. If the square meter price of the property under construction is significantly lower than the market price, it will likely attract demand. However, it is crucial to understand that such price reductions by developers may be driven by questionable motives. There is a risk that they might disappear with the invested funds, leaving the project unfinished.

How to Choose the Right Property

When selecting a property for investment, certain factors and characteristics should be considered:

The potential profit for the investor directly depends on the property and the developer. Therefore, a responsible approach to selection is essential.
Smaller units, especially one-bedroom apartments, tend to be more sought after by experienced investors. Larger three- or four-bedroom apartments see less demand, as they are mainly purchased for personal use.
Properties located outside the Moscow Ring Road (MKAD) are typically priced lower. However, it is essential to understand that greater distance often correlates with worse infrastructure, negatively impacting property demand, especially for those planning to rent. Few people want to live where there are no schools, healthcare facilities, or stores. If resale is intended, substantial profits are unlikely; these properties have low liquidity.
The property’s location also affects its price. An undesirable location can complicate selling or leasing, for example, if it is near a landfill or industrial area.
If a property's price seems anomalously low, it warrants serious contemplation regarding the investment’s viability. Statistical data show that such scenarios carry a high risk of fraud or lengthy construction delays, meaning completion may be significantly postponed or not occur at all.
Properties with good views are much easier to sell or lease than those facing a landfill, main road, etc.

For investment, one should select only promising properties capable of yielding a minimum of 30% profit upon completion. These should be in desirable neighborhoods and offer all necessary amenities for comfortable living.

This includes not just schools, shops, and restaurants, but also adequate parking facilities where residents can leave their vehicles. An ideal option is a secure parking lot, which protects vehicles from weather, temperature fluctuations, and other external factors, saving owners from the hassle of digging out their cars each winter.

Before investing, it is crucial to carefully examine information about the developer. They should possess documentation confirming ownership rights to the land or a long-term rental agreement with municipal authorities.

Additionally, the developer needs a construction permit and project documentation. Otherwise, the building process could be halted at any moment, and the construction declared illegal.

A knowledgeable approach to this investment tool is vital to avoid numerous problems and minimize the risk of losses.

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