Off-plan properties pose a problem because they only exist on paper, which makes a physical inspection before committing impossible. In essence, though, the issues you are trying to clarify when visiting new developments are similar to those for resale properties. The difference is that you have to work on the basis of documents provided by the developer rather than by physically inspecting the property. However there are also some additional issues to clarify that are specific to off-plan properties, which we will discuss below. The emphasis, as always, should be on obtaining the maximum amount of useful information from your visits to enable you to take the best decision.
When visiting new developments with the intention of buying off-plan you will likely be shown plans, specification documents, artist’s impressions, models, price lists, and in some cases a show home. In the majority of cases you can also visit the site where the property will be built, though it may depend upon the progress of the works. If you visit a development that you like the look of, and the properties on offer match your requirements, then you need to pay careful attention to all the documentation and material you are shown.
This material serves two purposes. On the one hand it should provide all the key property information (size, quality, interior finish, price, delivery, etc.) along with helping you visualise the finished property and its surroundings; the better it does this the easier it is for you to make a decision. On the other hand it also tells you something about the developer’s professionalism. If you are given detailed and thorough information on a visit this is a good sign. Some developers lack professionalism and it usually shows through in the information they provide and they way the handle client visits.
Never forget that the documentation and information you gather by the end of your visit are your only guide to what the finished property will be like. If the material you are shown when buying off-plan is vague or patchy, the chances are you will end up with a property quite different to what you were expecting, usually for the worse. Only consider buying on developments where you are given sufficiently clear and detailed information.
The developer’s reputation
If you end up buying on a new development then the promoter’s professionalism and approach to business will play a big part in how successful your purchase turns out to be. You will be relying on the promoter to deliver what you are expecting in the time frame agreed, so the importance of the developer’s reputation cannot be exaggerated. It is a sad fact that there are some poorly-run and unscrupulous promoters operating in Spain – British as well as Spanish – whose only objective it would seem is to get as much money from the client in return for as little as possible.
Use you visit to find out what you can about the developers of the projects you visit, though you only need to go depth if you decide to buy. This can be done before, during and after the visit. Try and talk to previous clients of the developer. Do some internet searches on the developer using terms that include the developer’s name, the development name, and terms like ‘problems’. Every detail of contact with the developer (the way staff are presented and behave, brochure presentation, etc.) says something about the way the organisation is run. It doesn’t matter if the developer is big or small, what matters is their business philosophy and professionalism. You can find more information to help you research specific promoters and developments at my showcase of Spanish new developments.
You will need to see plans and layouts that indicate scale, provide room dimensions (metric scale in Spain), and show the precise location of fixtures. Plans should also indicate what the total built and usable surface areas will be, including those of porches and terraces. When looking at plans think about functionality, practicality, utility (living spaces in which it will be a pleasure to be), privacy, natural light sources, and orientation towards wind and sun. When looking at plans people often fail to appreciate the reality of room sizes that correspond to measurements on the plans – usually on the side of disappointment at how small they turn out. If necessary measure out important rooms like the master bedroom and living room outside on an open space to get a better idea of proportions. Also compare room dimensions in relation to known sizes of things like beds – will it all fit comfortably?
When looking at apartments off-plan make sure that you shown a plan of the overall building that identifies the exact location of each apartment. Many people buying apartments off-plan have complained that what they were led to believe was a corner apartment, or sea-view apartment, turned out to be located elsewhere in the building come completion day. Cynical developers do this on purpose, calculating that once it is too late to change most buyers will just accept the new situation. The only way to avoid this is to see a plan of the building, and not just a plan of the apartment you choose.
You will need to be show specifications that list exactly what is included with the property (fixtures & fittings in kitchens, bathrooms, alarm systems, etc., providing brand names where appropriate), the quality of materials to be used, surfaces, colour schemes, and so on.
When buying a detached property with pool and garden pay just as much attention to how exteriors are covered in the plans. On delivery will the drive, garden and other exteriors look like an abandoned building site or will they be landscaped? The spec should detail to what extent landscaping will take place. When buying a property with communal gardens and pool ask for plans and a description for these areas as well.
A note on show homes
If a show home is used in the visit then clarify the relationship between the quality of the show home and the property you are being offered. Clients are often show exquisite show homes, finished to a high quality, tastefully decorated and kitted out with the latest home technology. Clients are then sorely disappointed when the property they are delivered bares no resemblance to the show home. In some cases developers are not trying to deceive clients, just impress, but in the process expectations are raised and disappointment is inevitable. On the other hand there are also those cynical developers who intentionally mislead clients by using show homes of a higher quality than they intend to deliver. Therefore if you are shown a show home you have to clarify how representative it is of the property you are considering, and confirm this by checking the specifications you are given.
You need to have the payment terms made very clear. How much are you expected to pay, when, and corresponding to what on-site build progress? The following table gives a typical breakdown of stage payments:
|Reserve||3,000 – 6,000 Euros|
|Private contract||20% to 30% of the price (plus VAT @ and less the reserve payment already made)|
|Other stage payments||It all depends upon the promoter and the type of property you are buying. Many promoters do not ask for any other payment beyond the initial one of say 25% until completion, when the remaining 75% plus VAT becomes due. Other promoters may ask for up to 50 % or 75% to be paid in stages whilst construction progress, with the remainder settled at the end.|
|Final payment at signing public deeds||Whatever outstanding amounts (including VAT) are paid at the time of signing the public deeds of sale before Notary.|
A common payment structure for an apartment purchased off plan with a price of 300,000 Euros plus VAT would be as follows:
|Private sale contract||25% + VAT less reserve payment:
75,000 + 12,000 – 3,000 = 84,000 Euros.
|Other stage payments||None|
|Final payment at signing public deeds||75% + VAT
225,000 + 36,000 = 261,000 Euros
|Total Payments||348,000 Euros|
Stage payment protection
Developers are obliged by Spanish law to insure your stage payments and keep them in a separate account from working capital. This is to ensure that, should the developer fail before completing your property, you will not lose the money you have already paid. Though it is mandatory there are developers who do not comply with this law as it represents an extra financial burden for them. You want to clarify the stage payment protection arranged by the developer during your visit. However this will also be something that your lawyer should check during due diligence. You should never buy off-plan from a developer who cannot demonstrate that your individual stage payments are guaranteed.
Many developers arrange a mortgage that you have the option of taking over. If this is the case you will need full details as to the terms and conditions of the mortgage. Note that you are not obliged to take over the mortgage, though doing so will probably save you some arrangement fees. However this potential saving needs to be evaluated in terms of the overall mortgage. Saving a few hundred Euros in arrangement fees but paying dearly over the rest of the mortgage’s lifetime is a raw deal. You should always compare the developer’s mortgage with other offers before taking a decision, which means you need to gather information on the mortgage during your visit. If you don’t take over the developer’s mortgage, the developer will probably have to pay some cancellation fees, so you may be put under pressure to do so.
During your visit you will need to find out about delivery dates and penalties should dates not be met. This information will also need to be included in the private contract that you sign if you proceed to buy. Also ask the developer what procedures will be used to keep you informed of construction progress. This question will probably be met with a look of astonishment but that doesn’t mean to say you shouldn’t ask. After all how hard is it for a developer to email a monthly progress report (with milestones signed off by an architect) plus photos to buyers? The more demanding buyers become, the quicker developers will have to improve to meet these demands.
Be sure you understand exactly what communal facilities will be available to you should you proceed to buy one of the properties you are being offered off-plan, and the terms and conditions of using those facilities.
Ask the developer to demonstrate the status of planning permission of the project you are visiting. Your lawyer will have to confirm this during the due diligence but it helps if you clarify it at this stage. You don’t want to waste time with projects that do not yet have planning permission. Many people have bought into projects that don’t have planning permission and many of them have come to regret it.
Example contracts & contractual documentation
If you visit a new development that gets you seriously interested then use the visit to ask for the example contracts that you will be expect to sign if you proceed. You will need your lawyer to check over these contracts, along with all the rest of the contractual documentation (plans, specifications, payment terms, payment guarantees, licences and so on – all explained in the chapter on buying) before you pay or sign anything. Therefore the earlier you are given this documentation the better.
In all likelihood you will be expected to sign 2 private contracts when you buy a property off plan from a developer. First of all a reserve contract to accompany the reserve payment, followed 30 days or so later by a private sale contract and the corresponding payments you have agreed with the developer. You should always try and avoid having to sign the first of these contracts, and certainly resist any temptation – or pressure – to do so on the spot when you visit. The contracts you sign are explained in detail in the section on buying.
Before you buy on a new development it helps to have an idea of the community and social life that the development is likely to offer. After all the people you are surrounded by once you have bought can make a significant contribution to your enjoyment of life, especially so when spending time abroad. Try and find out a bit about the breakdown of buyers by nationality, age, family status and so on with a view to deciding if this is the sort of community you are looking for. Try to establish if it is predominantly a holiday development that will be deserted out of season. If possible talk to other buyers on this development.
Security on new developments
New developments with a common security policy can offer better protection to owners than can other types of property. Find out from the developer what provisions will be made for security, if any, though many developers will leave this decision up to the community of owners once it has bee established. A new development with a year-round residential community will offer better protection than a holiday development, for obvious reasons. The ideal solution is a gated community with 24-hour security.
Services and facilities
Some new developments have a golf course, health & fitness club, clubhouse, hotel, shops and restaurants on site, whilst others have no facilities whatsoever. The more facilities you have access to greater your chances of enjoying the property, and the easier it will be to sell your property when you need to. Social facilities also create an environment for social interaction and making friends, especially important for people with children.
Other less obvious facilities include provisions for access to broadband connections, cable and satellite TV. These can all be arranged on an individual basis but developers can facilitate access in many instances.
Some developers make arrangements to help buyers with property management, for instance house and garden cleaning, maintenance and rental. Generally speaking these kinds of services are only provided on larger developments. These issues represent an important part of owning property in Spain, and should be clarified during your visits.
Bear in mind that some developments may have bylaws regulating certain aspects of property ownership and other issues, though more often than not the community of owners, of which you will form a part, decides these issues. It is always worthwhile checking on any bylaws during a visit.
Developer sales material
Make sure you keep a copy of all the sales and marketing material you are given when visiting developments. Developers use this material to encourage you to buy, and if you do proceed to buy you need to keep the brochures, leaflets, etc. that you have been given until after you have successfully purchased. This material needs to be kept just in case the developer doesn’t deliver on the plans or promises contained in this material, in which case you may be able to use it to win compensation. Do not throw away this material until months after you have successfully completed.
Conclusions on visiting properties
It should be clear by now that property visits are an opportunity to gather much more information than many people typically do. The more information you obtain from visits the better placed you are to select the right property for the right reasons. Doing so also enables you to make more accurate estimates of the buying, refurbishing and maintenance costs, and puts you in a better negotiating position if you decide to make an offer.
If you do see a property that you want to buy then just bear in mind one question that tends to slip people’s minds at this stage, and that is how easy will the property be to sell when you need to move on? Well built, modern properties in good locations have the biggest pool of demand over time and are the easiest and quickest to sell when you need to.