Buying a house before it’s even been built?
Not as ludicrous as it may sound. ‘Off plan’ property purchase is becoming more and more popular as investors seek to maximise their returns.
This method of buying has seen spectacular profits for purchasers over the past couple of years in Tenerife, Fuerteventura and the Costa del Sol. But what does it mean and how does it work?
Basically, buying ‘off plans’ means just that. You reserve a property on a new development before the construction is completed, often before it has even started, and in some cases even before the developer has been granted the Licencia de obra (licence to build).
So what’s in it for me?
Bargain basement prices
Because you’re being asked to buy an architect’s drawing and an empty plot of land, the prices are tagged accordingly. In addition, normally you only have to pay approximately 30 per cent of the purchase price as a deposit and then nothing more until completion of the construction, which can then be financed by a 70 per cent mortgage.
Pick of the crop
Buying off plans affords the purchaser to have the first choice of individual properties on a development. Normally when a development is sold, the penthouses, corner units and ground floor apartments with private gardens go first.
Up, up and away
As construction begins and the development begins to take shape or a show home is completed, the price is increased substantially as other prospective purchases with less imagination than your good selves can see what the homes will look like.
Gift wrapped
Once the development is completely finished, other purchasers are naturally willing to pay more for the finished product decorated with gardens and pool rather than an empty plot of cement and rubble. Would you buy a property that you couldn't use for 18 months? Yes, if you’re a wise investor.
What’s in it for the developer?
At the time of pre-construction the developer is eager to sell as many units as possible to minimise his risk and to negotiate lower interest rates from their investors thus the properties are priced extremely competitively at this stage.
Remember, a 30 per cent deposit is often all you need to invest off plans. Many raise this money by releasing equity in property they already own by re-mortgaging. A case of borrowing money at a relatively low interest rate and investing it into an investment paying a substantially higher rate. You do the maths!
For example:
Off plan asking price: €100,000
Deposit payable: €30,000
Just before the property is completed, you sell it for €109,000
You’ve made €9,000 profit in 18 months, a return of 30% on your investment.
Buying off plans is prudent investment for those who don’t mind waiting before taking possession of their home and those looking for a substantial gain on property purchase, it is a good way to make a profit. However as with all investments there is always the risk element. Horizon Property Group cannot guarantee you that the property will re-sell prior to completion, so you must always be prepared that you may have to complete on the purchase.