New Build Investment Property Masterclass: Chapter 1 - Introduction

People all over the world are fascinated by property.

Many people dream of buying their first home or an investment property to provide long-term income, for these people buying new build property will be a serious consideration.

When it comes to buying property off-plan, the deck is stacked against small property buyers. Information and timing are critical to making good decisions, but access to information is out of reach for all but the privileged few. Without this information, small investors and first time buyers can't make fully informed purchasing decisions.

Small investors and first time buyers are often bombarded with fake news about opportunities crafted by those who have the most to gain by selling them. Overwhelmed by inaccurate and misleading information, most buyers make poor property purchasing decisions and ultimately pay far more than they need.

In doing so, they are lining the pockets of property agents and marketing companies who prey on their lack of knowledge. It is not until the property completes that they realise they didn't quite get what they had bargained for.

The current market reality

When buying off-plan, buyers have little choice but to endure an antiquated system. Most new build development is initially sold via high-pressure property exhibitions that regularly take place in the world's capital cities, particularly in Asia and the Middle East.

Property development marketing through property exhibitions was an effective way to generate awareness in the early-2000s, at a time when investors' understanding of property investment was generally low, so international investment experts’ presentations were a necessity. Time has moved on, investors are savvier, but property agents have just kept on running the same property exhibitions.

In the early 2000s there weren't many property exhibitions, but now there are thousands, and as competition has grown so has the cost. Ultimately, someone must pay the bill, and it is always the purchaser. Marketing through property exhibitions adds between £20,000 to £50,000 to the purchase price!

The issue is, is that even if you aren’t an international property investor, these costs are baked into the purchase price, because developers need these initial sales to fund development.

Not only are buyers paying for market access, but they are also making decisions based on highly biased information produced by so-called 'property experts.' These experts generate vast quantities of market information designed to create a frenzied demand for property. Whether or not the buyer gets a good deal does not come into the equation - the sale is all that counts.

A massive industry has grown on the back of the promotion and sale of the off-plan property market. Other industries have seen tremendous technological advancements, which have improved their processes and created tangible benefits for purchasers. However, the property market has remained stagnant and stuck in its old ways. Why is that? It is because there is little incentive for those in the property market to drive change.

A better solution

Buying property off-plan can be highly rewarding. However, there is no magic negotiation tactic or shortcut buyers can use to win. Buyers win by understanding the market, grasping how it works, and by leveraging this knowledge.

With second-hand property, a unique product is for sale to a high number of buyers. Buying off-plan property is different - developers are selling a ubiquitous product to a smaller pool of buyers. Buying off-plan, the shoe is therefore on the other foot!

As a buyer, if you can recognise this market reality and understand the risks and costs associated with developing, promoting, and selling new development property, you can win by reducing risk for developers and leveraging the unique role you play in funding new development to your advantage.

How do I know?

I used to work on the other side. I built one of Asia's largest international sales businesses at Colliers International. I have worked with some of the world's largest residential property developers, promoting property to interested buyers.

During that time, I have been responsible for the sale of billions of pounds of real estate. I have seen both sides of the coin. I have seen savvy buyers make wise investments and build valuable portfolios. However, I have also often seen investors making poor decisions based on insufficient information and ultimately paying the price. Either way, as the agent, we made a lot of money!

The stark reality is that most small buyers get pressured into buying property off-plan at inflated prices. The inflated costs cover the enormous amount of money demanded by the off-plan sales industry to cover the cost of excessive marketing budgets, property company overheads, and the massive fees required to motivate those selling property. It's not personal; those who have the most to gain in the industry don't want to rip buyers off. They want to sell a property at the highest possible price, and get paid their fee!

However, the reality for investors is that there are huge costs involved. The cost of marketing and promotion alone can cost between 10% to 20% of the purchase price. These costs don't include the additional fees and taxes investors must pay to buy the property.

Why am I doing this Masterclass?

After years of working in the chaotic new-build sales business, I saw a better way. I am passionate about the residential development industry. I genuinely believe that off-plan investors make a dramatic difference to the development of communities, and that they provide excellent quality new housing to rent to those who want to make their way in the world. Rather than being to blame for the terrible state of housing markets, buy-to-let investors help solve housing problems by providing developers with the ability to access the funding required to commence construction.

However, the industry is broken and in need of innovation and change. I believe there is a better way. Change must start by empowering buyers with the information and tools they need to make better-informed investment decisions.

Instead of spending millions of dollars trying to convince buyers that our property was better than a property promoted by the agent next door, what if we invested the time and resources in educating people about how the market works?

Increasing knowledge and transparency can reduce market friction and create a market resembling the stock market, where all investors have equal access to information, rather than just a privileged few.

With their new knowledge, buyers would have the confidence to make better, quicker, more fully informed decisions. Better information would change the requirement for marketing gimmicks and reduce the cost of promoting property, and everyone would win:

• First time buyers would have a better understanding of when to buy the risk involved and what that would mean in terms of price;
• Investors would pay a lot less, improving their yield and boosting their ability to meet their objectives more quickly;
• Developers would spend less on promoting property and would be willing to pass part of those savings on to investors; and
• Communities would not suffer from the massive property price inflation driven by excessive market costs, which ends up being blamed on investors.

At Colliers International, I was constantly asked questions by people within our company about how various elements of the new-build market worked. The more I thought about this, the more I realised a significant knowledge gap existed between what investors thought they knew and what they actually knew.

Perhaps surprisingly, with all the resources of a large property agency, even I found it challenging to get the correct information. More concerning was that most of the available information is either biased or covers small market elements.

The objectives of course is to give you industry insights and an understanding of the basics of large-scale residential development; to show you how agents and developers determine marketing values and how marketing campaigns work; and to give you the tools and knowledge to create as much leverage as possible when negotiating to buy off-plan.

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