4 Considerations To Consider Before Buying An Off-Plan Property In Spain
Buying off-plan property means committing yourself to buy a property before it is finished being built but never to forget that there are many expensive and cheap properties in Spain. Often, you buy or invest in the very early developmental phase of the property in this scenario, and off-plan purchases are made before the property is even built. Still, if you commit to buy at any point before the construction, it is considered as an off-plan purchase or investment.
Spanish-property resale is very inactive today, and the trend of off-plan property sales and purchases has exponentially grown. Each year, property in Spain increases the average value of 10% of its initial price, And each year, a 26% increase in sales of property is recorded (Spain’s National Statistics Bureau (INE)).
Today British investors and other foreign investors also show a keen interest in Spain's property. The rental prices of the property in Spain are becoming beyond standard increment patterns. This has generated a hype in the off-plan property purchase. Furthermore, the Tourism Industry attracts more investors in buying and investing in property in Spain.
The main reason investors entertain off-plan property is their potential to get a discount and to make profits before even having the keys to the property. Off-plan property purchase is highly profitable, and the margin of profits ranges from 108% to above even before the development of the property is completed.
This gives more leverage to the buyer or investor than to the developer. Here are 4 essential considerations not to skip before buying an off-plan property in Spain, whether you are a local or a foreign investor.
Compare the local availability of other properties:
Protecting yourself from any risks involving off-plan purchases is the key and crucial step to be taken by the investor or the buyer. Compare the off-plan property options with each other; this can be done by locally searching other off-plan sales by different developers.
This way, you will be at a lower risk of investing in small leverage investments in off-plan property. Frequently, each developer has more than one project at a time that is under development or in post developmental phases. This is an opportunity for you to investigate other projects of the same developer. By doing this, you get a better idea and information about the options there are around in the off-plan property sales and purchase market.
Make sure that the discounts and leverages of buying an off-plan property are genuine. If the developer has just inflated the price before the development and after that brought it down to the initial price, you will not benefit from this type of off-plan purchase. So all you have to do is compare to what else there is locally in Spain and make sure that you are at leverage during buying or investing in an off-plan property.
Make sure your deposits are Protected:
A bank guarantee should protect installments paid during the developmental phase along with the initial deposits made to buy the off-plan property. In other words, the developer must have a building license, and the necessary documentation should be complete and secured by a Bank. This way, the risk of scam and fraud is nullified, and you, as an investor or a buyer is confident and leveraged in the off-plan property option.
This bank guarantee is of enormous importance, and it secures your investment at all stages of development. The building license will ensure that the property is being developed in a proper region and in a legal way.
You will have to check whether the deposits you have made are either held in escrow or protected by a warranty. This means that if your property is not completed in a given time by the developer for any reason or the worst case, your developer goes bust, you will not lose any money invested. Your money is returned to you by the bank or the insurance.
This way, the property you have invested in regardless of the developmental plans and hindrances is secured and assured.
Make sure the property is Buy-to-let or has a license of renting:
In Spain, in most regions, you are not allowed to rent a property bought in an off-plan purchase, and you need to pay extra for getting permission to rent such property. These regions, such as Balearic islands, have strict regulations on letting a property, and you might need a license to let property rent.
Otherwise, a hefty amount of fine shall be paid by you by not being able to comply with that regulation. Buying an off-plan property short term or long term, you should check that either the letting license is included in the purchase or there is no regulation to comply with, in the first place.
Pay the lowest possible amount of the initial deposit.
Often, the initial deposit is 10% or more, but you will try to pay the lowest possible amount of the initial deposit. There is more than one reason to do this. Firstly, is the leverage reason; the lower initial deposit you will be paying the higher will be the ratio of profit to your initial investments.
This maximizes the leverage towards the buyer and also attracts other potential investors as well because this option gives an extra advantage to the investor for his future assessments of the property. Hence, the investor remains convinced and confident in his investment made.
Secondly, it isn't easy to protect the deposit once the initial deposit goes above the 10% range. You might see off-plan properties in Spain with 25, 30, and even 55 percent of initial deposits over the lifetime of the development of the property, you most certainly should avoid those because by leaving such large initial deposits you put yourself at risk and your ability to take advantage due to the leverage highly decreases.
However, if you have researched your developer and compared them to others, you will be less likely to be losing your leverage to this factor. So make sure you spend a lot of time researching and comparing the options available in Spain.