Mon, 24 Sep 07
Off-plan purchase in Spain used to be a surefire way to make short term profit, and lap up 18 months or so of capital appreciation without so much as applying for a mortgage...
In the heady days of the early 2000s when capital appreciation was 15 or 20% per annum, investors were parting with a few grand reservation fee and then collecting their spoils a year and a half later re-selling their yet-to-be-completed property at vast profit. Today it's a buyers' market so is there still any point in buying off-plan?
Off-plan, a self-explanatory phrase, carries its advantages and disadvantages in its name. As you are buying from the plans you have to wait anything from 18 months to two years for the property to be finished, a good thing if you are unrushed and have finance to raise, a bad thing if you want a holiday home and you want it now. But, as sure as the best things come to those who wait, an off-plan purchase carries a wealth of advantages, not least price.
Iain Crozier, Sales Manager for Costa del Sol agent Duchy Estates comments, The developer likes early-bird purchasers as their deposits not only provide a bit of cash to get the heavy plant digging but also reassure the bank manager that his financial stake is safe.
In return for your ‘support’, patience and willingness to take a ‘risk’ in buying something you cannot physically see, the developer will discount maybe 10% or so from the market value.
This of course means at completion stage you have a minimum 10% profit already built in, yours for the taking upon resale.
Iain continues, Price aside, off-plan purchase gives you the chance to ‘cherry pick’ the best unit. Precedent confirms that penthouses, corners and those with the best views sell faster and resale better, as a pioneer you can take your pick. Additionally, an off-plan property should display the latest in building techniques and materials from sound-insulation to durable flooring.
Spain has been accused of being behind northern Europe in terms of build-quality in the past, but it’s fast catching up and possibly overtaking, so a new build is a pretty impressive product. And, that ten-year construction guarantee, compulsory under Spanish law for structural defects, is yours for the full decade, which can’t be said for a resale.
Lastly, many developers allow you to get involved in the closing stages of build and stamp your personality on the product. Whether that may be choosing tiles, paint colour or appliances, it is a luxury only afforded by off-plan purchasers.
Of course it would be unfair to gloss over disadvantages, as off-plan purchase certainly attracts a few. ‘Completion date’ should never be taken as gospel, do not plan your first holiday or rental until the keys are in your hand.
Factors from the developer over-promising to the project manager under-delivering and then the Town Hall dragging their Spanish heels in granting license of occupation, and therefore the ‘nod’ for utilities to be connected, can all play a part. Check to see if your contract has penalties in place for late delivery, these always help to incentivise the developer by hitting any lateness where it hurts, in his profit margin.
Knowing what you’re getting is another disadvantage. The glossy brochure and artists’ impressions never quite look the same as the real thing (hence the use of the word ‘impressions’) and certain features or qualities may have to be modified along the way.
Do your homework
This is the nature of the beast and seasoned off-plan purchasers will be well-used to modifications, whereas newcomers may find them hard to accept. Do your homework, look at examples of the developer’s previous work and make sure you, and your lawyer, are clear on which features or qualities were promised contractually, including square metre build sizes, so you have some recourse in the unusual circumstance of the developer cutting corners, or worse, floorspace.
So is off-plan still worth it? On price and qualities alone, a resounding ‘yes’. Provided you’re not seeing off-plan as a route to short-term investment success, it is still the most lucrative manner of getting what you want, at the right price and with the right guarantees, provided you have a good imagination of the finished product, and of course, you’re prepared to wait...
For more information, please visit www.duchyestates.co.uk
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