Advice Pool - Real Estate

Buying Off plan – Get rich quick no risk or Fools Gold?

It seems to be the hot topic - many agents in the area are pushing off plan as the investment vehicle for get rich quick. Is buying off plan the key to quick money or can it leave you with egg on your face and no dinero?.

The basics

Buying off plan

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

means buying a property before construction starts. The developers need to finance the project and typically use bank mortgages to finance the project. Increasingly however they sell an amount of the properties off plan to investors who hope to increase their investment many fold.

They put down an initia

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

l deposit of say 30% and if the property increases in value by say 20% in the time it takes to build then because you are staking a smaller amount your money grows faster. The purchaser then sells on their contract before completion, and the new purchaser pays all IVA and taxes paid to date, so in effect t

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

he only taxes you pay are capital gains tax.

Sounds perfect – where do I get in?

Before we go rushing in to buy off plan lets look at it a little closely.

What has happened recently is that many amateur investors rush in without doing their homework and buy off plan, fuelled in part by the many agents o

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ut there who are pushing off plan developments as THE way to make money.

The developers are aware that investors are buying and therefore price accordingly. We often receive calls from developers offering new developments to off plan investors, buy 99% we refuse as they don’t offer any sort of real invest

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

ment. An off plan development should be under priced by 10-20% compared to other constructions nearing completion, or indeed complete. It stands to reason that if you are effectively funding the project you should gain something out of it.

However very rarely these days to developers offer any sort of dis

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

count at all of buying off plan. There argument is that the market is moving so fast that in two years time it will be worth much more.

Add to this that if a development is being sold to off plan investors – what happens nearer the time of completion. Yes everyone wants to cash in their chips before going

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

to the notary and having to pay purchase taxes. So guess what lots of property go on the market at the same time – over priced of course because they were told that it would be easy to sell at a much higher price. Lots of product in a flat market means prices drop and the price you expect isn’t going to b

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

e achieved.

The Risks

1. Prices may not rise as expected

2. You will need to finance the property if you cannot sell it – can you afford another mortgage payment?

3. Too many investors (more than 15%) means more people selling at the same time – less likelihood of selling at a good price

4. Too much c

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

onstruction in the same area

5. Poor location

Off plan investing is a serious business. There is money to be made at it but you have to follow guidelines. The art of selling a property is to buy the property less than market value, but many investors have lost money by buying without thought so how do yo

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

u avoid becoming one of them . Here are a few simple rules to lessen the risk

1. Make sure that the price you are buying at is genuinely below market value – at least 10% but better 20%. You will be told time and again that the value will increase. That may be the case but unless you are clairvoyant how

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

can you possibly predict what will happen in 2 years time. Did you envisage Sept 11th or March 13th?

2. Do your homework. Will the property be easy to sell afterwards. Find out what people are buying in the area and why. Adosados/Terraced houses, and town houses are difficult to resell because they are i

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

n vogue or out of vogue – apartments and villas are easier. The Spanish love apartments so you have a ready market for good quality apartments. They just don’t like buying something that they cant see (or generally so)

3. Research who will be likely to buy the property afterwards

4. Is the location prime

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

. If not forget about it – you will have difficulty selling later unless the price is very much below market value.

5. Are there many other investors buying here. If so be wary because they will all be selling at the same time.

6. Do not become emotionally attached. Do your figures. Will it stack up on p

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

aper. Will you make a profit when you come to sell. If not walk away. People who are emotionally attached to a property make incorrect decisions. Remember it doesn’t matter if you want the building sky blue pink – the potential buyers are the ones you should be worried about. What do they want.

7. Is it c

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

lose to amenities? If not your market will be reduced

8. Are there many new buildings around or being planned. How many of them do you think will be selling at the same time as you.

9. Do not sign for anything on site (this is an emotional purchase see point 6). In a flat market as today there will alway

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

s be units available – no matter what the agent tells you. Always think about it and do your sums. If it all stacks up buy it, if not - don’t.

So how do you make money from off plan?

Generally if you are buying off plan you are too late. Once the first few units have been sold the prices will rise. The b

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

est time to buy into a development is when the land is being bought. But this is more difficult because you need to be close to developers or land purchasers– how do you find when land is being bought. It comes down to homework and this is my little secret, but there are plots around being bought now that

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

will make very attractive investments.

In fact one I know of will hopefully have apartments for sale at half the value of surrounding property. Now that’s what I call a sound investment because you can make a profit and sell it on at below market value – so you will win., the buyer will win and the develo

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

per will win.

So when it comes to investing off plan the main point is do your homework. There are very few real bargains about these days but a little digging will soon turn up a gem because most people don’t bother looking hard enough. If you want any advice of course you are welcome to drop me an email

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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