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Buying an Off-Plan Property on the Costa del Sol

This guide was written by Manzanares Abogados S.L. (info@manzanaresinternational.com) in collaboration with Guides.Global (office@guides.global).

It was written on 15 June 2016. The law and practice in Spain change all the time. Our guides are updated as frequently as possible - typically every three years - but may be out of date.

Our guides are prepared by professionals from many countries. They are, of necessity, both brief and general and can take no account of your personal circumstances. They are intended to be a good introduction to the subject BUT ARE NO SUBSTITUTE FOR PROPER PROFESSIONAL ADVICE, which our contributors will usually be happy to provide upon request.

The advice and opinions contained in the guides are those of the author and are not necessarily those of Guides.Global.

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The scope of this guide

This guide is about buying off-plan property in Spain. In particular, it's about buying off-plan property in the area of Andalusia/Andalucía – which contains the Costa del Sol. See a map here. Please note that certain aspects of the law in Spain vary from one "autonomous community" (comunidad autónoma) lightbulb image - click here for more information on this subject to another.

By 'off-plan', we mean any property which you buy before it has been physically completed and where you pay more than 10% of the price before you take delivery of the keys and legal title.

Property in the course of construction but where you pay no more than a 10% deposit until it is delivered to you is treated as 'new' property. See our Guide to Buying a New Property on the Costa del Sol.

For more in-depth information about the process of buying a property on the Costa del Sol, please read our Guide to Buying a Property on the Costa del Sol.

Introduction

In the boom years of the property industry - roughly from 2002 to 2007 - buying property 'off-plan' was extremely fashionable and extremely common.

This is because people were persuaded that there was money to be made by doing so. They were told that prices were rising so quickly that, by the time the property was finished, it would be 20% more expensive than it was today and - in any case - you probably wouldn't be able to find a newly built property to the exact specification that you wanted.

Some people were even told that rather than reserve one off-plan property in an area where they wanted to buy they should reserve (and pay deposits on) four or five. By the time the properties were bulit they would (they were told) have risen so much in value that you could sell four of them and the profit you would make would pay completely for the one you were keeping. Needless to say, this falls into the category of, "If it sounds to good to be true, it probably is," and - whilst a few people managed to pull of this miracle - most didn't.

All of this was (often but not always) true whilst the market rose sharply but, when the ride stopped, a lot of the people who had bought off-plan properties found they were in trouble as the developers went bust in droves.

The benefits of buying an off-plan property

From the buyer's point of view, there are three main benefits to buying an off-plan property.

The first is the potential to benefit from rising prices in the way described above.

The second is that you can often negotiate changes to the standard specification with the builder. For example, you may want your bedroom to be a little smaller and your bathroom to be bigger or to convert one of the bedrooms into a dressing room or to have a separate dining room rather than a large kitchen-diner.

The third is that you should have a better range of properties available to you, in a sellers' marketlightbulb image - hover here for more information on this subject lightbulb Sellers' Market
When the property market is skewed in favour of the seller - i.e. when demand is higher than supply. This means it is easier to sell a property, and to do so at a higher price.
, than you would if you waited for the properties to be finished. By that stage all of the ones in the best locations or with the best views could well have been sold.

From the seller's point of view, there is one massive advantage. He can use your money to build the property. That saves him a lot in project finance costs - typically, perhaps, 20% per annum in many cases.

The disadvantages of buying off-plan

There are few disadvantages from the seller's point of view, but from the buyer's point of view there are several:

Financial guarantees in Spain

The law gives considerable protection to people buying off-plan property in Spain.

If the builder takes a deposit and/or stage payments, they must be guaranteed by an insurance company and they must be received into a designated account.

The builder is entitled to take additional payments from you as 'stage payments'. These payments are usually made as the building work progresses. This is the usual process in the case of off-plan properties on the Costa del Sol.

A typical schedule for payment would be:

Normally these funds can be released to the builder on the strength of an insurance guarantee. If the builder doesn't deliver the property by the agreed completion date, the insurance company must either finish the project and deliver it to you within 90 days or it must return to you all of the stage payments that you have made.

Mortgages

If you want to take out a mortgage on an off-plan property, you will have a cash-flow problem.

No bank will lend you money to pay for the stage payments. This is because you don't own anything over which they can take a mortgage at this stage. You only have the benefit of a contract under which the builder has agreed to sell you the property when it's finished. They will insist on waiting until you get the legal title to the property and then, at the same time as you get that title, they will release the mortgage money to you and take the protection of a registered mortgage (legal charge) over the property.

Expats' Tips

Have you got experience buying a property in Spain? Tell us about it by emailing office@guides.global.

Conclusion

Buying property off-plan was incredibly popular. It is now less so but it is creeping back into the system.

There is nothing wrong with that and buying off-plan does allow you to choose exactly the property you want in exactly the place you want - but you do need to make sure that your lawyer is protecting you by putting all of the necessary clauses into the contract and that all of your payments are guaranteed by an insurance policy.

Other guides of interest

 Description Link 
Buying a Resale Property on the Costa del Sol
This guide is mainly about buying a resale residential property on the Costa del Sol. It covers everything from finding a property to closing the deal and looks at the legal framework that operates when you buy a property in Spain.
Buying a Resale Property in the Costa del Sol
Buying a Commercial Property on the Costa del Sol
This guide deals with the extra things that you will need to take into account when buying commercial property in Spain. By commercial property, we mean things such as offices, shops, bars, restaurants and warehouses.
Buying a Commercial Property in the Costa del Sol
Buying a New Property on the Costa del Sol
This guide is about buying a new house or apartment in Spain. By a 'new' property, we mean one that has already been finished but which has not yet been lived in.
Buying a new Property in the Costa del Sol
Buying an Investment Property on the Costa del Sol
This guide is about buying property on the Costa del Sol for investment. It looks at different methods of buying property for investment, the risks involved and some factors to consider when deciding whether and what to buy.
Buying an investment Property in the Costa del Sol

You may also want to read:

 Description Link 
Buying Off-Plan Property
A short guide from Landlord Blog
Buying Off-Plan Property

Readers' Comments

 

Further information?

We hope you have found this guide useful. If you need any further help, please contact us.

Manzanares Abogados S.L.

15 June 2016


 

This guide was co-authored by John Howell (Email: John.Howell@Guides.Global or John@jhco.org. Web: www.jhco.org or www.Guides.Global)

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