CZP Article

Pre and Under-Construction Real Estate – Possibly the most effective investment

It is a commonly held notion that real estate is one of the most stable and lucrative ways to invest your money. Naturally, as the opportunities and ways to invest have evolved over the years, and discretionary income has increased exponentially, investment real estate has become much more accessible to the average investor. The easiest and most cost effective technique for investment that has come to the forefront of real estate investment in the past several years is pre-construction real estate. Pre - construction is a very simple concept that has many investors wishing it was always an available option. Essentially, pre-construction is a natural discount investment strategy that is effective for a few reasons.

First and foremost, by getting the first look, buyers have more choice and the best selection available to them. Options such as east versus west views can translate to sunrise versus sunset exposure. Corner residences can allow for greater ventilation and natural light while centre units tend to benefit from straight undisrupted oceanfront views.

Another very important consideration given that most of these properties will serve as second and third homes, purchasing pre-construction real estate can be very helpful to cash flow. Standard construction payment schedules require only 10% deposits, held in trust, to secure the unit before developers break ground. Further payments are spread over the course of construction (typically 18 – 24 months) allowing buyers more time to come up with funds for the purchase.

Staggered payment schedules not only facilitate purchasing, but buying early usually ensures that buyers are purchasing at the introductory pricing level. Developers have historically raised pricing once significant benchmarks are met including groundbreaking, sale of a certain number of units, and completion of the roof to provide a few examples.

As such, developers reward pre-construction buyers with lower pricing for their early commitment and for buying in to the vision of the property before it is built, and thus contributing to the success of the development program.

Many times, the most effective pre-construction investments are through a condominium-resort property. As a plot of land can only be worth the market value, once ground-breaking has taken place, the property value will start to increase. The earlier that you buy in, the less expensive the property, and thusly, the greater the potential return.

On Providenciales, Grace Bay Club set the stage for effective pre and under-construction investment.  Comprised of two and three bedrooms oceanfront luxury residences, The Villas launched their product to the market in 2003 at an average of $900K for a two bedroom residence and $1.25M for a three bedroom home. Today, these same residences have achieved an average re-sale value of $1.5M for the two bedroom and $2.25M for the three bedroom furnished residence; representing an appreciation of 60 - 80% in less than 4 years. Another prime example of a lucrative investment is Seven Stars. Launched in December 2004, Seven Stars’ first phase sold their signature three bedroom residences at an average of $1.45M, now averaging $2.1M in phase two.

One could therefore speculate that similar upcoming luxury condominium- resort developments such as West Bay Club and The Watermark priced today at a similar level as Grace Bay Club at launch will only follow in the same direction.

So, whether you are a beginner when it comes to the pre and under-construction purchasing, or already have some experience with this real estate concept, the success of pre and under-construction sales programs and the viability of condo-resorts model are here to stay.

Tina Lyra Stevens
published June 2007

Real Life magazine