Cunning off-plan
Buying your Spanish dream home before it’s even been built can save you thousands of pounds. Here’s how to avoid the pitfalls and get what you paid for
Tumbledown cottages are no longer top of the list for homebuyers looking for their dream property in Spain. People who prefer not to spend their breaks doing DIY and gardening are increasingly attracted to new- build properties, and buying off-plan can be a great way to get a brand-new home. Don’t be put off by scare stories about flats that are never built. That’s not to say that this doesn’t happen - it does - but with research and preparation, off-plan property can still offer some of the best opportunities in Spain.
What does off-plan mean?
The principle is straightforward. It is often necessary for developers to sell around a third of the properties before the development is started in order to obtain finance from the bank. In return for buying a home that cannot even be seen, you get a discount - often as much as 20 per cent of the market value. Whether you intend to use the property as a holiday home, rent it out or sell it upon completion, this means you could make a good profit once the building is completed.
On many smaller developments it is normal for all units to be sold off-plan before a single apartment or villa is built, meaning even holiday home buyers need to know the rules of off-plan buying.
Do your homework
To avoid putting your money at risk, make sure you look at the following things:
Get around the quirks
You should be aware that Spanish law differs from English law, so always read the small print. Even if you are fluent in Spanish, it is sensible to appoint a specialist solicitor to assist you, someone who not only speaks English and Spanish, but who also understands the quirks of the Spanish legal system.
Once you have decided on your property and carried out your due diligence, a payment schedule will be agreed between yourself and the developer, which sets out how much money needs to be paid at each stage of the construction process.
One of the main problems encountered by off-plan investors are time delays. These can be caused by the developer, local authorities or even the weather, so allow some room for error in the expected timescale.
The developer will expect the staged payments to be made from a Spanish bank account, so set one up when the buying process begins. You’ll pay a deposit, usually around a few thousand euros, to secure your interest in the property. This is normally followed 30 days later by a payment of 30 per cent of the purchase price, less the initial payment, along with the signing of a private purchase contract. Stage payments are made throughout the building process as agreed, followed by the final payment upon completion. These payments may be made by your bank if you have arranged a mortgage. Expect to pay around 10 per cent of the price in legal and notary fees.
If you change your mind before the property is built, it is often possible to sell the contract on. This is becoming more unusual as lots of finished flats come onto the market, but investors who do manage to ‘flip’ properties can gain financially due to capital growth without ever footing the bill for completion. You must never enter into a contract to buy a property with an intention to ‘flip’ the property before completion if you cannot afford to complete the purchase in the absence of a buyer.
In summary, research is the key to a successful off-plan purchase - you have to have enough faith in the developer and the location to feel confident in an end product you cannot yet see. In addition, you can always take comfort in the fact that the reduced purchase price offers a potential safety net should house prices in the area falter.
Spanish Homes Magazine.
Tumbledown cottages are no longer top of the list for homebuyers looking for their dream property in Spain. People who prefer not to spend their breaks doing DIY and gardening are increasingly attracted to new- build properties, and buying off-plan can be a great way to get a brand-new home. Don’t be put off by scare stories about flats that are never built. That’s not to say that this doesn’t happen - it does - but with research and preparation, off-plan property can still offer some of the best opportunities in Spain.
What does off-plan mean?
The principle is straightforward. It is often necessary for developers to sell around a third of the properties before the development is started in order to obtain finance from the bank. In return for buying a home that cannot even be seen, you get a discount - often as much as 20 per cent of the market value. Whether you intend to use the property as a holiday home, rent it out or sell it upon completion, this means you could make a good profit once the building is completed.
On many smaller developments it is normal for all units to be sold off-plan before a single apartment or villa is built, meaning even holiday home buyers need to know the rules of off-plan buying.
Do your homework
To avoid putting your money at risk, make sure you look at the following things:
- Bank guarantee: Builders are required to take out a special bank guarantee that will compensate investors should things go wrong. Check this, as its purpose is to protect your money in the event of a problem.
- Reputation: If possible, stick to major developers who have a proven track record in the local area. Reputation is all-important and it is reassuring to know that the company has demonstrated in the past that is it capable of delivering the promised product.
- Planning permission: Ask the developer to prove the status of planning permission/building permit and have this checked by a reputable solicitor. In one recent case, it was claimed that a major developer has taken as many as 2,500 deposits on properties that don’t have planning permission as yet. Not having a permit yet is not necessarily a problem, but you need to know this is the case and it should be reflected in the price. When and if permission is granted, it may not be for the property that you’ve seen plans for. For example, the exact apartment layout and even size and position cannot be guaranteed but plenty of people still buy owing to the greater discount at this phase. Stick to reputable builders!
- Due diligence: Do your own research. Take a drive around the area to visit any new developments being built and ones recently completed. Remember, an agent won’t always have your best interests at heart.
- What’s included: Appliances? Fitted kitchen? Always check exactly what is included in the price.
Get around the quirks
You should be aware that Spanish law differs from English law, so always read the small print. Even if you are fluent in Spanish, it is sensible to appoint a specialist solicitor to assist you, someone who not only speaks English and Spanish, but who also understands the quirks of the Spanish legal system.
Once you have decided on your property and carried out your due diligence, a payment schedule will be agreed between yourself and the developer, which sets out how much money needs to be paid at each stage of the construction process.
One of the main problems encountered by off-plan investors are time delays. These can be caused by the developer, local authorities or even the weather, so allow some room for error in the expected timescale.
The developer will expect the staged payments to be made from a Spanish bank account, so set one up when the buying process begins. You’ll pay a deposit, usually around a few thousand euros, to secure your interest in the property. This is normally followed 30 days later by a payment of 30 per cent of the purchase price, less the initial payment, along with the signing of a private purchase contract. Stage payments are made throughout the building process as agreed, followed by the final payment upon completion. These payments may be made by your bank if you have arranged a mortgage. Expect to pay around 10 per cent of the price in legal and notary fees.
If you change your mind before the property is built, it is often possible to sell the contract on. This is becoming more unusual as lots of finished flats come onto the market, but investors who do manage to ‘flip’ properties can gain financially due to capital growth without ever footing the bill for completion. You must never enter into a contract to buy a property with an intention to ‘flip’ the property before completion if you cannot afford to complete the purchase in the absence of a buyer.
In summary, research is the key to a successful off-plan purchase - you have to have enough faith in the developer and the location to feel confident in an end product you cannot yet see. In addition, you can always take comfort in the fact that the reduced purchase price offers a potential safety net should house prices in the area falter.
Spanish Homes Magazine.
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