Living in Spain Property's
Guide how to buy a property
'Off Plan' in Spain.

Many of our clients who are looking to make a capital return their main priority, to maximise their investment returns or who are interested in buying a property for themselves but are not worried about having use of it in the short term buy 'Off Plan'.

'Off plan' purchases have seen some spectacular returns for hundreds of people over the last couple of years here in Spain.

Buying 'Off Plan' means reserving a property on a new development before the property is completed, often before construction has started and on some occasions before the 'Licencia de obra' (licence to build) has been granted.

The developer is obviously very keen to sell as many properties as early as possible to minimise the risk to themselves and to obtain better interest rates on their development loans from banks and investors.

To help sell the properties at this early stage the prices are normally extremely competitive for the reason above and also because there is nothing to show potential purchasers except a floor plan and artists impressions of the finished development.

The real key to why buying 'Off Plan' can be such a good investment lies in the fact that normally you only have to pay approximately 30% of the purchase price as a deposit and then often nothing until completion of the property when the rest can be financed on a 70% mortgage.

For example:
Purchase Price: 100,000 euros (Jan 2004).
Deposit payable: 30,000 euros
Let us assume that you sell the property in Jan 2006 just before completion and that you sell for 130,000 euros (this is a much lower return than has been achieved in recent years)

Your profit is 30,000 euros which is obviously on the 100,000 euros asking price is a 30% return but remember all you have had to pay is a 30,000 euros deposit so your actual return on cash invested is 100%.
Many people finance the 30% deposit by releasing equity for their existing UK property and so do not actually have to have any liquid cash to take advantage of this profitable investment opportunity.
If you would like advice on releasing equity or have any other finance related questions please contact us and we will recommend you to a financial advisor in the UK.

How is such a high return possible?
The following factors all help increase the value of a development during construction.

1) Lower than 'market' prices offered by the developer initially.
As discussed above, the developer is keen to sell the properties as quickly as possible so prices are normally very competitive.

2) Best properties get sold first.
Normally when a development is released a pattern emerges, i.e. penthouses, corner units and ground floor with private gardens tend to sell first which then in leads to price rises.

3) Show home available/building commences.
As soon as the main structure of the development starts to take shape and/or a show home is opened prices normally increase substantially as prospective purchasers can see much more easily what the finished development and individual homes will look like.

4) More units sold.
As the developer starts to sell more and more properties the original prices will continue to increase which obviously means that if you wish to sell your property it is obviously going to be worth more.

5) Final Completion achieved.
Once the development is finished you will be the owner of a brand new apartment/house in a new development with beautiful gardens and a pool. The person who wants to buy at this stage will be prepared to pay significantly more for somewhere they can move into or rent out immediately rather than when the development was just a plan on a piece of paper and a plot of land.

The reasons listed above explain why prices should normally increase as a development is built. It is not uncommon for a property to be bought and sold again before a brick has been laid and even sold again several times before final completion.

One of the final reasons for the popularity of selling before official completion of the construction is that you can drastically mitigate your capital gains tax liability. For more details on taxation please speak to us and we will be happy to help you resolve your questions, either ourselves or by recommending a local Spanish lawyer.

At Spanish Mortgage/property we deal with numerous new developments on the Coast from the cheapest one bedroom apartment to multi million pound luxury villas and we are able to offer professional friendly advice on all aspects of buying 'Off Plan'.

We hope that the above guide has been of help to you, please don't hesitate to contact us if you have any further questions or would like to arrange to view some of the stunning properties on offer on the Costa Del Sol.