Reply To: What’s going on in the off-plan investor market?


Okay, no surprises there.

So did anyone ever make money out of off-plan investing in Spain? Did anyone in this forum, or does anyone know of anyone who did? Obviously the people trying to get out now are in trouble, but what about those who were exiting their investments in the late 90’s and early 2000?

There’s another problem with off-plan investing that you don’t find out about until you manage to sell on – the agent’s commission.

Time for an example.

You invest in a 200,000 Euro property off-plan.
You pay 50,000 plus VAT = 53,500 Euros to the developer as a 25% stage payment, the remainder to pay at completion / escritura.
You then try and find a buyer prepared to pay 250,000 plus VAT for the property. That would mean them paying the remaining 150,000 plus VAT = 160,500 to the developer, and 100,000 to you in cash, total cost to new buyer 260,500 Euros.
Lovely for you to get 100,000 in cash, equivalent to your 53,500 investment plus a tax-free profit of 46,500.
Problem is that you won’t find an agent prepared to get out of bed for anything less that the commissions paid by developers, i.e. anything from about 7.5% upwards, but more like 10% of the value of the property. In this case that means a commission to the agent of 25,000 Euros plus VAT = 29,000 Euros, which reduces your tax free profit to 17,500 Euros, somewhat less than what the agent takes out, despite that fact that you took all the risk. Agent’s commissions can quickly turn a small profit into a big loss for you. It won’t make you feel better, but don’t forget that the agent also made 10% when you bought from the developer.

There are all sorts of other problems, like having to deal with large amounts of cash, and the need to find buyers who are prepared to pay in cash, and therefore take on a CGT risk. Of course few people realise this when going into the investment, and estate agents are not the sorts to enlighten them.

But I’d still like to know, has anyone ever made a success of it?

Another very important question. Where do you all see the market going? Is it time for the bottom-fishers to start snapping up properties on the cheap, or does the market still have some way to fall?