A guide to buying off plan property in Spain

Another difference between an off plan property in Spain and a resale property is how the price is set. The idea behind off plan property in Spain is that the developers are interested in selling as many properties as possible in a new development before they start the building work. This will help the developer finance part of the project and is a good guarantee for their creditors.

To attract as many early buyers as possible the price level is initially set below the market value, so that both the early buyers and the developer gain from this situation.

During the construction period, which can take from one to three years, the price level of the properties which have not been sold will increase, so at the end of the construction they will be equal to the market value.

Financial issues when buying off plan property in Spain

Mortgage loan

If you need a loan to finance the purchase of an off plan property in Spain you will first have to decide whether you want to finance the purchase with the mortgage provided by the promoter, or you would prefer to look for a mortgage from a Spanish bank or a bank in your own country.

The mortgage offered by the promoter is the easiest way to finance the purchase of an off plan property in Spain, but it is not always the best. A lot of the time, the conditions are not very favourable and the mortgage is set as a percentage (normally between 60-80%) on the initial purchase price, and not on the value of the property at the moment the property is handed over. As the price increases during the construction you will in many cases be able to get a higher percentage by using another bank, which will make the final valuation of the property before the handover.

Mortgages in Spain are long-term loans, normally about twenty to thirty years (this depends on your age, as most banks will lend until you are seventy
i.e. if you are now fifty you can repay your mortgage for twenty years, if you are forty you can repay your mortgage up to thirty years.) To obtain a mortgage the bank will normally ask for copies of your passports, either payslips or proof of savings, sale contracts and copies of the title deeds of your off plan property in Spain. Apart from this the bank (if the mortgage is not offered by the promoter) will need to send a valuator to set the market value of the finished property.

Payment process

The payment process when buying an off plan property in Spain, is similar in most developments. If you buy at least 6 months before the hand over the payment process is like this: When you have found a property you are interested in you will first have to pay a deposit which is normally about 3000-6000 Euros, to take the property off the market. A month after this payment you will have to sign the private contract. During the construction of your off plan property in Spain, you will have to pay monthly or quarterly payments reaching a total of 20-30% of the price (in some cases these payments are due according to the different stages of the construction of the property). The outstanding amount is thereafter due to be paid upon signing the title deed or can be taken over as a mortgage. When buying a property in a development that is nearly finished, it is custom to make only two initial payments: a deposit of about 6000 Euros, 20-30% when signing the private contract and then the outstanding amount or mortgage upon signing the title deed. Other initial costs Apart from the price of the property there are some other initial costs that the buyer has to pay when purchasing an off plan property in Spain. The initial cost of buying a property in Spain is about 10% - 12% of the total price. Below you can find a short description of the different costs involved in a property transaction.

To buy a new property the buyer has to pay V.A.T. (7%) and a stamp duty, which is 1% .

The buyer will also need to pay for the new official title deed stating who is the owner of the property. This is made by a public notary and the price is about 500 Euros, depending on the price of the property. All properties in Spain also have to be registered in the Property Register and the deeds changed into the new buyers’ name, this costs about 400 Euros.

Apart from the above obligatory costs there are other costs which will increase the total amount.

Always seek legal help and advice from an independent lawyer before you sign the final contract. The cost of this assistance is about 1% - 1.5% of the property price.

If you need a mortgage loan to finance the purchase there is normally a 1% application fee charged by the lender (this is 1% of the mortgage, which is about 0.7% of the total price).

Finding the right off plan property in Spain

As with any other property it is important, when looking for an off plan property in Spain, to take into consideration the reasons you wish to purchase the property. This is especially important if you are looking to buy in the early stages of the development as you will not be able to see the property until a long time after you have signed the private contract. In this section we will go through the most important issues you need to take into consideration, depending on your reasons for buying a property in a new development.

To better be able to explain this we have divided the type of buyer, into four categories.

1. Investors - People that are looking to buy a property to sell it again with a profit.
2. Buy to Rent - People that are looking to buy a property to rent it out.
3. Buy to Settle Down - People that are looking for a property to settle down in.
4. Buy a Holiday Home - People that are looking for a holiday home.

It is of course possible that the purpose for buying the property is a mixture of more than one of the above.

Investors

As an investor there are two important things to take into consideration to make sure that you get the highest return as possible in an off plan investment.

1. As explained in the previous section the prices of properties in a new development will increase during the construction period, and are initially set below market value to attract early buyers. It is therefore important to buy as early as possible after the launch in the market of a new promotion, but this is not the only factor to be aware of.

2. Apart from focusing on the initial price it is also very important to take into consideration who is going to buy the property and what they are looking for. Although you might be able to buy a cheap property, if you are not able to sell it again before the completion of the development, a big part of your possible profit might be lost.

People buying resale properties are normally private people looking for a holiday home or a place to settle down and as an investor you will need to take their preferences into consideration. Some investors wrongly think that the cheaper the development is, the more money they will earn. As most potential buyers of resale property are looking for a good quality property with certain characteristics, the investor will have to take this into consideration before investing in a development.

Rental property

If the main purpose of buying an off plan property in Spain is to rent it out as a holiday home and gain the highest yearly return possible, there are a number of things to take into consideration. First of all the price of the property is more important than the quality of the development. Rental properties are damaged much faster than private properties and the qualities do therefore not have to be so luxurious, although there will have to be a good relation between quality of the property and the rental price. As a buyer you therefore do not have to focus as much on the quality of the promotion (i.e. like an investor) and to get the cheapest prices available we recommend that you buy as early in the development stage as possible.

Another thing to take into consideration is the location and nearby utilities available. People renting a holiday home will like to have services such as a supermarket, restaurants and bars nearby and if it is close to a golf course, a town centre or the beach it will also attract clients.

For the highest yearly return a golf course is a good option as golfers play throughout the year and therefore it will be possible to rent out the property for more weeks.

For more information on golf property in Spain, click here.

Settling down in Spain

If you are looking to buy an off plan property in Spain to settle down here there are mainly two things to look after.

1. As the property is going to be used for private use and assumingly for a longer period, the quality and the look of the finished property is very important. Most people that buy an off plan property in Spain to live in, prefer to see what it will look like, before signing a contract and paying part of the property price. Although there are many plans and descriptions of the property available, your idea of how the finished property is going to look will not always be identical to the reality. Therefore we recommend that you buy an off plan property in Spain that is not in the initial phase and where it is possible to see a finished show flat or at least the main structure of the property. Another option in some developments is to purchase a second or later phase of the same development so that you can see what the first phase really looks like.

2. It is important to take into consideration that you will be living there all year round, and will therefore need certain utilities like shopping, doctors, schools, work and free-time activities, which are different from what a holiday maker is looking for. You might like the area from previous holidays, but to live all year in the area you will most likely be looking for other things.

Holiday home

Most people that buy an off plan property in Spain as a holiday home in a new development have further intentions than just holidaying in it! You could rent it out whilst not holidaying in it, perhaps settle down within a few years when you retire or use it as a long term investment.

If the main purpose is to use the property as a personal holiday home, the finished property has to be of a minimum, desired quality. The quality will of course have an important influence on the price and the buyer therefore has to set some realistic goals depending on the money he is ready to spend. Sometimes you can find the perfect property a little further inland or in another province where the prices are lower. In any case with this type of purchase we recommend that you buy a little later in the construction phase, although the prices will not be as cheap as at the very beginning. This way you can see what the finished property will look like before deciding to buy it.

As the main use of the property is for holidaying, you will have to think about the utilities available at the location. On holiday most people want to relax and have fun. If you have some special free time activities you would like to practise it is a good idea to make sure they are near by so you do not have to spend a lot of time in the car.