Don’t panic, not all Spanish developments are suspect. You can buy off-plan safely if you follow Mark Stücklin’s guide.
What with the money-laundering and illegal-building scandals on the Costa del Sol, you could be forgiven for thinking that buying off-plan property in Spain is too risky to contemplate. But the reality is that it is perfectly safe if approached in a sensible way.
However, if you hope to buy off-plan with the objective of selling on for a profit before completion – reconsider. The success of this strategy has been exaggerated, and the present oversupply of property on many of the popular costas means you are much more likely to end up with a property you don’t want and can’t sell than with a healthy tax-free profit. Many amateur speculators now rue the day they bought off-plan, especially those who can’t afford to go through with the purchase and have to sell at any price.
So how do you buy off-plan property in Spain if you don’t fancy taking avoidable risks?
Do your own research
Information is power and when it comes to buying something as expensive as property in a foreign country you need as much independent information as possible. Last week the Sunday Times reported the problems that many buyers were having with a Costa del Sol developer called Aifos. Even the most rudimentary internet search on the developer, using search terms like ‘Aifos problems’, would have your alarm bells ringing. You can find out a lot about a developer before you buy. A good local lawyer is also likely to know which developers have a reputation for problems.
Selecting a property
Buying off-plan means you will have to choose your property from plans and models, or, at best, a showhome mocked up in the developer’s offices. Make sure you fully understand what you will get based on this evidence. Are the room sizes the same in the showhome as on the plans? Confirm with the developer that the specifications and the showhome are a fair representation of what you will get, and that this is all documented in the contract that you sign.
Once you have decided on a property, you need to have adequate legal checks carried out before you sign any contracts or make any payments. This requires a professional understanding of Spanish law, so leave it up to your lawyer, and don’t even think about leaving it out altogether.
Amongst other things, your lawyer will need to review the contracts you are expected to sign (both the reservation contract and subsequent private sale contract), and confirm that the off-plan documentation is adequate, that planning permission has already been granted, and that your stage payments are fully insured.
Don’t buy anything off-plan that doesn’t pass these checks and don’t be rushed into making any payments or signing any contracts before consulting with your lawyer. The market is moving increasingly in favour of buyers so you really do have time to do your due diligence, whatever a estate agent might insinuate about you missing the opportunity of the century.
Planning difficulties in Marbella makes purchasing there more problematic than in other places. As last week’s Sunday Times article pointed out, some Brits have bought on developments that actually had planning permission but are nevertheless illegal. Officials had approved dozens of developments on greenbelt land. If you are buying in Marbella, a good local lawyer can get the town hall to confirm whether building permits are legal or not.
You will usually have to make a series of payments on account, but otherwise there isn’t much for you to do but wait. Bear in mind that many developers in Spain do a poor job of keeping overseas buyers informed of construction progress, which off-plan buyers find highly frustrating. You should put pressure on the developer to agree a procedure for keeping you informed of progress on a regular basis. If enough buyers insist, developers will be forced to improve client service on this issue.
Once the property has been finished you will take possession by signing the public deeds of sale before a Notary. However, before doing this, further checks need to be carried out by your lawyer. You need to confirm that the developer is not passing on any unexpected debts or charges and that all the necessary certificates and permits have been granted – for example, the residential-use permit issued by the local authority.
Only sign the deeds and make the final payment once you get the thumbs up from a trustworthy lawyer and ignore anyone who tells you that the Notary provides you with all the protection you need.
Note that developers often bundle pre-arranged mortgages in with off-plan properties. You are not obliged to take over this mortgage, though you will probably save some arrangement costs if you do. Always get competitive quotes from other providers before making a decision.
Snagging is the process of ironing out the little faults that inevitably arise in a newly built property as it settles down onto its foundations.
During snagging you should also check that the property complies with the plans and specifications. You need to identify these problems within days of taking possession, document them carefully and have the developer put them right.
Don’t leave snagging to the developer. Snagging can be a problem for overseas buyers who don’t have the time and wherewithal to do it themselves. The best solution is to hire a professional, such as a chartered surveyor, to manage the snagging process for you. The benefits far outweigh the cost.
Taxes involved in buying off-plan
At the time of writing, when you buy off-plan you pay VAT of 7% (all stage payments include VAT) and 1% of the property price (excluding VAT) in stamp duty when you sign the deeds. (VAT has subsequently gone up to 10%).
DO NOT ENTER INTO ANY SPANISH PROPERTY TRANSACTION WITHOUT SEEKING THE ADVICE OF A QUALIFIED, INDEPENDENT LAWYER