Why seven years matters more than 7%

When I look at an off-plan property, I ask whether I would be comfortable holding it for seven years. That question makes me examine the completed home, its rental prospects and the community around it. A quick resale before handover may work, but it is a different proposition.

Construction takes part of the holding period

Construction can take two, three or four years. During that time, the investment consists of a contract and payment commitments. There is no tenant or rental history to examine.

Handover brings further work. The home may need snagging, the building needs to settle and tenants need to move in. Shops, landscaping and surrounding infrastructure may still be developing. Owning the contract for four years is different from receiving rent for four years.

Give the completed property time

By years five, six and seven, there may be evidence of rent, occupancy and resale demand. A buyer can inspect the home and judge the community as it stands. That evidence gives me a better basis for valuation than a launch presentation.

A longer hold also gives rental income and any capital growth more time to offset acquisition, registration, financing and selling costs. Vacancy and service charges still need to be included.

Waiting does not make every purchase sound

Seven years is a planning horizon, not a rule or a promise. The entry price, developer, location, layout and competing supply still determine whether the property deserves consideration. Some units will remain difficult to rent or sell regardless of how long they are held.

I would rather test whether I want to own the finished property through a slower market than depend on someone paying me more next year.

For me, the question is whether the home can justify its price once the building is complete and the community has had time to develop. That is why, when I underwrite off-plan property, seven years is where I start.

RadheyShyamRealtor.com

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