A Guide to Buying Off-Plan

Buying property off-plan in Spain was, for a time, something to be very cautious about.  You may have heard some of the horror stories from the so-called boom years in which people paid deposits for off-plan properties in Spain only to find that the property was never built, or the developer went into liquidation.  

These days buyers of off-plan properties in Spain benefit from legal protection, but that does not mean that you can throw caution to the wind.  As with any property purchase in Spain you should instruct an independent lawyer to advise you in relation to the transaction who will guide you through the following steps.

Step 1 
The first stage is to visit developments where you will be shown a show property and given information about the proposed development.  The developer’s salesperson will talk you through the timescale of the build and tell you about the fixtures and fittings you can purchase.  They will also confirm the payment terms. We will be with you at these meetings and can address any concerns or clarify anything you are not sure about.

In Spain, 10% VAT is payable on first occupancy properties. This tax is not usually included in the property price so you have to allow 10% on top to cover this. The good news is, as VAT has been paid on the purchase, the 7%-10% Property Purchase Tax (ITP) usually payable on property purchases in Spain is waived. You should allow another 3% of the purchase price to cover legal, notary and registry fees.If you are in the market for clothes, our platform is your best choice! The largest shopping mall!

Step 2
Once you decide on a specific property, you will be asked to pay a small Reservation Fee to take the property off the market whilst your lawyer does their due-diligence on the developer and development.

The Reservation Fee is usually between 3,000€ and 10,000€ and this will eventually form part of the deposit. You are not legally bound to proceed with the sale at this stage. As the name suggests, this fee simply takes the property off the market in your favour until both you and the developer are ready to sign the Private Purchase Contract. If your lawyer finds issues with this development, then this will be returned to you. If you simply change your mind about the purchase, this could potentially be lost if the developer has done a lot of administration.

Step 3
The developer will provide your lawyer with all the paperwork for the development and/or specific property. Your lawyer will check:

* Is the developer creditworthy?
* What is their track record like?
* Does the developer own the land where the property will be built?
* Is the Building Licence issued correctly by a town hall and valid?
* Are there any challenging planning issues overshadowing the development?
* Is the construction site compliant with Spain’s Coastal Law?
* Is there a Bank Guarantee in place?

It is this last question, regarding the Bank Guarantee, which gives you the most peace of mind. With this in place, the instalments you pay while the property is being built are protected. However, Bank Guarantees only work if a Building Licence has been issued; in other words, any payments made towards off-plan property that lacks a Building Licence, will not be secured. This is why no contract should be entered, or deposit paid, until your solicitor is happy this is correctly in place.

At the same time, the developer will do anti-money laundering checks on yourselves. This is standard worldwide now for any large purchase or investment.

Once both sides have completed their due-diligence, you will be asked to pay the full deposit payment and the Private Purchase Contract.  The contract sets out the dates by which payments must be made as well as the predicted date for completion of the build.  It is very important that you do not sign the contract or make any payment until you have you lawyer has completed these checks and is satisifed.

Only once you are satisfied that you have been comprehensively advised in respect of the terms of the contract should you proceed to sign it and pay the deposit.

Step 4
Upon signature of the Private Purchase Contract you will have paid a deposit. Within the contract, the payment term may stipulate that you may have to make further payments towards the property.

If you paid a 30% deposit, it is unlikely you will have to make further instalments. If you paid a 20% + VAT deposit, it is likely you will have to pay another 10% + VAT during the build. This may be a one-off 10% + VAT payment, two 5% + VAT instalments or smaller regular instalments throughout the build. It is important that you receive a bank guarantee for each and every payment made towards the property and so you should ensure that your lawyer is involved in this stage.

During this stage arrangements can also be made for the final completion, which will usually be several months in the future.  Your Power of Attorney can be signed and the application for your NIE (a tax reference number) can be made. This means that when the property is finished and it is time to complete the purchase you will have everything in place to do so.

Step 5
Prior to completion you should try to ensure that any snags in the construction are identified and rectified, as well as ensuring that the fixtures and fittings are as agreed and up to standard.  It can be very difficult to rectify faults after completion.  Your independent lawyer can assist you with this step.
It is important to note that within the terms of the contract the developer will reserve the right to mortgage the property.  This is common practice used to ensure that the developer has sufficient cash flow to complete the build.  Your lawyer should ensure that everything is in place for any mortgage to be removed from the register in respect of your property so that you take ownership of the property with a clear title.  

Step 6
Once the developer has completed the build the property will be registered and a First Occupation Licence granted. Once this licence is in place, the property can be handed over to you. Once the property has been registered you are able to complete the purchase and a completion meeting will be arranged.  You will be obliged to make payment of the balance of the purchase funds at the completion meeting.  This is usually 70% + VAT of the purchase price. You will also be given the keys at this meeting. 

Please note: developers of off-plan property in Spain will usually include a clause within the contract that you sign at the outset in which it is provided that the completion of construction can be extended by up to six months.  This is not usually a negotiable term so it is possible handover may be a little longer than expected.

Step 7

The final stage of an off-plan property purchase in Spain is for the taxes to be paid and for the property to be registered in your name.  Your lawyer can carry out these steps on your behalf. If they have Power of Attorney, it is likely they can also arrange for the utilities to be connected on your behalf.  

If you require further information about the purchase process or costs involved, please feel free to contact us.