BRAND NEW PROPERTIES
We offer a number of off plan properties - here we offer a guide to purchasing off plan properties.
Off Plan Property ~ How does it Work?
We find that clients fall into two categories; those whose priority is to make a return on their investment and those whose main aim is to own a holiday home. Either way "off-plan" is a great way to join the overseas property market. Investors will probably be looking to sell before completion while the 2nd home owners may well consider renting out their new property.
Hundreds of investors have seen spectacular returns over the past couple of years. Spain, and in particular the Costa del Sol have always produced healthy results. Now other markets are proving to be attractive; Spains Costa Tropical and Costa de la Luz, Morocco, Hungary & Poland.
Mediterranean Management are always searching for new markets and we will shortly be releasing details of developments in Hungary and Poland
Buying Off-Plan means reserving a property on a new development before the property is completed, often before construction has started and on some occasions even before the 'Licencia de obra' (licence to build) has been granted.
The developer is obviously very keen to sell as many properties as early as possible to minimise the risk to themselves and to obtain better interest rates on their development loans from banks and investors.
To help sell the properties at this early stage the prices are normally extremely competitive, for the reasons above and also because there is often nothing to show potential purchasers except a floor plan and an artists impression of the finished development.
The real key as to why buying Off-Plan can be such a good investment lies in the fact that normally you only have to pay approximately 30% of the purchase price as a deposit and then often nothing until completion of the property, when the rest can be financed on a 70% mortgage.
For example :
Purchase Price: 100,000 euros (Jan 2005)
Deposit payable: 30,000 euros Completion Dec 2006
Let us assume that you sell the property just before completion and that you sell for 130,000 euros (this is a much lower return than has been achieved in recent years)
Your profit is 30,000 euros which is obviously a 30% return on the 100,000 euro asking price. However, since you have only had to pay 30,000 euros in deposit, your actual return on the funds invested is 100%.
Many people finance the 30% deposit by releasing equity for their existing UK property and so do not actually have to have any liquid cash to take advantage of this profitable investment opportunity. If you would like advice on releasing equity or have any other finance related questions please contact us and we will recommend you to a financial advisor in the UK
How is such a high return possible?
The following factors all help to increase the value of a development during construction;
1) Lower than 'market' prices offered by the developer initially: as discussed above, the developer is keen to sell the properties as quickly as possible so prices are normally very competitive.
2) Best properties get sold first: normally when a development is released, a pattern emerges. i.e. penthouses, corner units and ground floor with private gardens tend to sell first which in turn leads to price rises.
3) Show home available/building commences: as soon as the main structure of the development starts to take shape and/or a show home is opened prices normally increase substantially as prospective purchasers can see much more easily what the finished development and individual homes will look like.
4) More units sold: as the developer starts to sell more and more properties the original prices will continue to increase, which obviously means that if you wish to sell your property it will be worth more.
5) Final Completion achieved: once the development is finished you will be the owner of a brand new apartment/house in a new development with beautiful gardens and a pool. The person who wants to buy at this stage will be prepared to pay significantly more for a property they can move into or rent out immediately than they would have paid for just a plan on an a piece of paper and a plot of land.
The reasons listed above explain why prices should normally increase as a development is built. It is not uncommon for a property to be bought and sold again before a single brick has been laid, and even sold again several times before final completion.
One of the advantages of selling before official completion of the construction is that you can drastically reduce your capital gains tax liability. Taxation is a specialist field, Mediterranean Management would be happy to advise or put you in touch with a Spanish financial adviser.
At Mediterranean Management we deal with numerous new developments on the Coast, from the cheapest one bedroom apartment to multi million pound luxury villas, and we are able to offer professional friendly advice on all aspects of buying Off-Plan.
I hope that the above guide has been of help to you. Please don't hesitate to contact us if you have any further questions or if you would like further details on any of our developments.
Managing Director
