Buying Off Plan Property in Spain | Spanish Off Plan Property

Buying an off-plan property in Spain

Buying an Off-Plan Property in Spain from a reputable developer is simple provided the relevant planning and building permissions are in order (see below).

You may be asked to pay a small holding deposit, followed by payment of between 20% and 50% in a relatively short period (via a Private Purchase Contract) and the balance on completion. Completion involves signing an Escritura de Compraventa (Exchange of Title Deeds) at the Notary.

However, since the property has not been completed, the process and documentation required are different from buying a re-sale property.

Documentation

Firstly, the Private Purchase Contract should have a firm completion date and, ideally, penalties if the developer does not deliver to schedule (not a legal requirement).

It should NOT oblige you to take the Developer's mortgage on the property and you should NOT be required to pay the mortgage cancellation fee if you do not take the mortgage offered by the developer.

The developer must provide a bank guarantee to cover the refund of any monies paid in the event they are in material breach of the contract or go into liquidation.

Although not usually stated in such contracts, you should only be obliged to complete the purchase once the First Occupation Licence (Licencia de Primer Ocupacion) has been granted. Without this the property is illegal and cannot be supplied with utilities.

The Private Purchase Contract may have a clause enabling you to assign the contract to a third party, with or without the consent of the developer, but these are increasingly rare so you may NOT be able to sell on the property before completion.

Completion

All new Developments in Spain must have a 10 year insurance policy to cover any problems with the construction. This must provided by an independent insurance company and not the developer. You will not be able to get a mortgage without it.

The developer will usually register the property, and hence get a Nota Simple (Land Registry Certificate), within a few months of completion (it varies by developer) but you must have this in order to complete.

Finally, as noted above, the developer must obtain the Licence of First Occupation (Licencia de Primer Ocupacion) in order for the property to be recognised by the Local Authority and for utilities to be supplied.

Developer's Mortgage

Most developers offer a mortgage with the property (usually subject to status). These can be attractive in terms of interest rate, however:

they are often for 70% of the purchase price (ex VAT) and not the value of the property when completed;
rarely offer interest only periods; and
are usually available for a maximum of 20 years.

Mortgage Solutions 4 Spain can source mortgages for up to 80% of the valuation on completion and also mortgages with an interest only period for off-plan properties. This can be a very good way of releasing funds already tied up in the property via the deposit payments or of covering some expenses.