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A guide to buying off plan

These days it seems everyone is out to make a ‘quick buck’, and foreign property investment has become big business, particularly on new developments, where returns are significantly higher than on existing property. But investing your hard earned cash into a project in its early stages can be a daunting prospect.

Here we guide you through the ins and outs of property investment in Spain...

We all want it – a second home in the sun to escape to when the British weather turns nasty, or a nest egg for the future we know will give good returns. The secret to good investment is knowing your market. The more research you do the less likely you are to get stung.

In previous years, there was a general feeling that buying property in Spain was a ‘dead cert’ and almost guaranteed to be a good investment. But now property prices are rising, particularly on the Costa del Sol and so investors would be well advised to consider all aspects of the purchase carefully.

What is buying off plan?

Buying off Plan’ (before a property has been built) has a distinct advantage over buying an already established property, particularly for those wishing to buy a property as an investment.

Firstly, the price of an off plan property will be significantly lower than a property that has already been built and is initially set well below market value to attract buyers and investors to help finance the cost of the construction. The price of the property will then rise during the construction period, giving you good returns on your money even if you decide to sell before the property has been been completed. If you do sell before completion you will also avoid having to pay Capital Gains Tax, so many wise investors buy off plan as early as possible in the development process and sell just before completion to make the most amount of money and incur the least amount of cost.

For those wishing to buy an off plan apartment or villa for their own use or to rent out for an income, buying off plan is still by far the best way. Buying a property up to 2 years before it is even built means that you will only have to pay a relatively small amount in the early stages (around 30 - 50%) and will have extra time to save up for the outstanding amount. In the meantime, the value of your property is rising without you having to do anything at all! Developers can even change the layout and specifications to meet your requirements if negotiated at an early stage. By law your property will also include a 10 year guarantee, which can alleviate worries of any problems with your property at a later stage. And remember, at the end of it all you will have a brand new property that requires no work, yet at a significantly reduced cost.

Unlike the usual method of buying a property, when it is expected for the buyer to haggle with the price, it is not normally possible to negotiate the price of off plan developments and the best way of securing a low price is to buy at an early stage.

The time scale of buying off plan is also likely to differ significantly from the usual buying process and so you will need to have patience when buying in this way. The time-scale will obviously depend on the length of the construction phases and for early purchases this can be up to 2-3 years.

Be prepared for lengthy waits as constructions rarely complete on time.

Beginning your search

Buying property ‘off plan’ is likely to significantly increase the return on your investment, so don’t be put off by doubts about how to go about the whole process. Off plan properties are often sold directly to the public by the construction company or through an agent, which is often preferable as they will guide through the whole process.

There are currently a huge number of new developments taking place all over Spain. Agents will offer you a selection of available developments that meet your criteria and will provide you with brochures, technical drawings and plans for each property to enable you to make an informed decision.

Community charges

Community charges are something to consider when buying an off plan property, as around 90% of property sold in Spain is part of an ‘urbanization’, which is usually an enclosed complex often with a communal pool, garden and underground parking.

Once constructed, a new property is then handed over to the ‘community’ and all the owners of properties within that complex form part of the community, usually electing a management committee who oversee the formation of the rules and regulations concerning the urbanization and also agree on annual community charges, although all members of the community have equal rights.

Costs usually cover pool and garden maintenance and general upkeep of the development and as a rough guide cost in the region of £800 - £1000 per year. It is important to consider all these extra costs before entering into any contract.

The buying process

Initially you will need to pay a deposit to reserve your chosen property after which you can instruct your solicitor to carry out various checks and searches on the project. He will ensure that all relevant licences are granted and will seek to obtain a Bank Guarantee in connection with any monies you pay in respect of the development. It is advisable to open a Spanish bank account at this stage and also apply for a NIE number – your solicitor will advise on all such aspects. Once your solicitor is satisfied that all is in order, private contracts will be drafted which will detail the amounts and dates of any further payments to be made. Upon signing the contract you will have to pay between 5% to 20% of the purchase price and there may also be further running payments to be made during the building process, which will be required on fixed dates or at different stages of the build ie. On finishing the main structure or upon finishing the roof etc. Each developer will have different schedules and all of these dates and amounts will be outlined in the contract. As a general guide, the payment amounts for a development are set out as follows:

  • 2-4% of property price to be paid as an initial deposit
  • Around 10% due upon signing of the contract
  • 30% divided into running payments made over the construction period
  • 60% payable on completion or option to take on mortgage (many developers offer you the option of taking on their prearranged mortgage, although you will usually have the option to arrange your own

As soon as the title deeds of purchase-sale are signed before a notary public and the agreed price has been paid, you will be the proud owner of the property.

Buying off plan is by far the best way to reap long term rewards from your money, so invest now and watch your money grow!

Also within this section:
how to invest  -  legal and financial  -  retiring to spain  -  buying off plan - mortgages

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