Guaranteed Buy-Back Pros and Cons

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Having faced its fair share of ups and downs over recent years, the international real estate market appears set to mature. Following excessive amounts of speculative buying from first time investors, buyers are becoming increasingly aware of realistic growth opportunities. Due to this, guaranteed buy-back offers on new developments have become harder to encounter, mostly due to the volatility of many emerging and established markets in recent times.

The idea of a guaranteed buy-back scheme is generally based on a contractual offer from a development company. The developers agree to re-purchase the property for a set percentage of the price, after a set period of time.

Guaranteed buy-back offers are most likely to be featured in strong emerging markets, where the chance for capital growth over the short to medium term is very high. If a developer is guaranteeing to re-purchase a property for a specific percentage within a certain time period, serious analysis of the market will have been carried out to ensure strong potential profitability for the developer.

 Due to this market analysis, it is almost certain that higher gains could be obtained by savvy investors, willing to dedicate time and energy into studying the market. However, buyers expecting a fast return by selling on their own, without taking into account capital gains taxes and agent fees, often receive a much small return than initially expected.

Benefits of investing in real estate offering guaranteed buy-back options include a readily established exit strategy, with no need for owners to search for potential re-sale buyers in a foreign market. Also, the value of a unit is protected and there is no need to consider any long term maintenance on the property, only the general upkeep during the term of ownership.

Entering into a guaranteed buy-back scheme is akin to purchasing a low risk investment, ideal for those with limited experience in overseas markets. Buyers often have greater confidence in a product and market featuring a guaranteed buy-back, as their investment growth will not be affected by market fluctuations.

Decisions into entering a guaranteed buy-back scheme include realistic considerations as to the buyer’s personal commitment. Accepting the buy-back option will enable the buyer to hold onto their investment, knowing they will make a strong return. Opting out of a guaranteed buy-back with the aim of generating a greater return will require a close eye on the market, knowing when the best moment to sell has arrived. This also requires finding buyers for the property, along with understanding the optimum exit strategies for that particular market and investment.

The ease of a guaranteed buy-back works on many levels, ideal for buyers wishing to invest their funds into a highly secure option. Further considerations that should be made prior to accepting a guaranteed buy-back offer include the security. Ensuring the developer has a strong track record is essential to avoiding potential losses. Leading names associated with the development or management company provide increased buyer confidence and backing.

All of the benefits relating to a region featuring guaranteed buy-back options are likely to be found in the strongest markets, showing economic growth, stability and a positive future outlook.

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