Off Plan Purchases

Buying "Off Plan" property on the Costa del Sol can be a great investment with outstanding returns in a relatively short period of time.

However care is needed when making a property selection. With over 900 new developments to choose from local knowledge and good advice is vital.

Spanish Off plan Investments specialises in the analysis of all these developments and rejecting all but the very best investment possibilities.

Property on the Costa del Sol has been increasing in price for many years and last year for all of Spain was 15.6% (Valuation for loans by Banco España 2003). Costal areas have been higher and hot spots on the Costa del Sol have been higher still.

Spain's largest mortgage lender, Banco Bilbao Vizcaya Argentaria, is predicting price rises of 10 percent in 2004.

This figure is down from the pervious year but stills shows that there is strong growth in the Spanish market and there are some great opportunities to be had for UK investors.

How Off-Plan Investment Works - A Typical Example: An apartment sold by the developer as soon as planning permission is granted. The completion date is in 2 years time. Purchase price 360,000€   30% for private contract 108,000€ Due 1 in month 70% non-status mortgage     252,000€ Due on completion Sales value by completion 480,000€ Increase @ 15.6% PA Nominal profit 120,000€   Sales costs @5% 18,000€   Profit before taxation 102,000€   Return on investment   47% p.a. Cost to complete +10% 36,000€ Includes I.V.A .and legal fees Total on completion 396,000€   Sales value on completion 516,000€   Cost of mortgage (approx) 735€ per month Typical short term rental 1200€ per week high season Typical short term rental 600€ per week low season Typical long term rental 1500€ per month Note: The 15.6% pa increase is conservative for off-plan sales; the most important consideration is the re-saleability factor. This is why we do so much analysis. The 10% pa increase is very conservative for off-plan sales; the most important consideration is the re-saleability factor. This is why we do so much analysis. The suggested rental figures are at today’s prices and increase with inflation. The mortgage calculations are based on 1% over Euribor base rate @2.404%. This example is for 2 Yrs Interest only and 23 yrs Cap & Interest, to be completed before the main borrower is 65. Children over 18 may be added to the application to increase the term.

The increases in prices of high quality off-plan investments (the time between reservation and completion) have been in excess of 30%+. Combined with the gearing (only using cash for 25-30% of the purchase price) it has been giving extraordinary returns on the capital employed.

The key words in the last sentence are ‘high quality’. Cherry picking from the best apartments on the best developments means that resale's will be much more attractive to future potential buyers. Even in the event of the market slowing buyers will always choose quality, which is not only the build quality but the position. The views and the position relative to beaches, golf courses and other amenities are so important. The size of the development is also an important factor; too many resale's at the same time can depress the prices locally.

Spanish Off-Plan Investments guides its clients through all these and many other buying decisions.

We always make sure for our clients that a builder’s non-status mortgage is available so in the event of not being able to sell the property before completion the purchase can be completed and the property rented until such time as it is sold.

This in itself is an excellent way of creating an "all year round rentals" property portfolio.

Enjoying a holiday in your investment is not something you can do with stocks and shares!

Spanish law demands that all down payments made before the completion of the property have to be secured either by bank guarantees or insurance policies. It is important to check with your lawyer to ensure that these assurances have been provided for. We have a panel of lawyers from which our clients can choose, if they wish. They are the best on the Costa del Sol. It is most important for our clients’ protection they only use good lawyers that are highly recommended.

Pre-Release Prices

There are many opportunities to improve returns from off-plan investments by buying as early in the process as possible. The developer wants to sell at least half of his development before work is started. He does this by making the initial prices very attractive and then during the course of the build increasing the prices so as to recoup his discounts. (Hence the price increase during the build period being greater than the national average last year of 15.6%).

Spanish Off-Plan Investments are well known by developers and they ask us to register our investor clients interest in developments which are barely past the concept stage.

This usually involves a 6000 € deposit which is fully refundable on demand. The advantage of this is not only a discount on the price of 5% to 8% but also the pick of the best apartments (i.e. the ones with the best views, corner apartments or penthouses) before the official launch. This is an important consideration for re-saleability. It is also why the best ones are sold before they are on offer to the public.

Taking all this things into consideration our clients are into an investment ‘comfort zone’ well before completion.

Syndications and Joint Ventures

For larger investors and investment companies Spanish Off-Plan Investments provides a finding and negotiating service. For those looking to buy land or whole blocks of apartments even whole developments we have a network of contacts who can find anything and everything that is for sale. We can put together groups of investors to form syndicates for specific projects.

Example:

A group of investors bought 30 townhouses in a development of 48 with a 12% discount. They paid the developer 10% of the purchase price at the private contract stage.

During the build they sold them under their own name at exhibitions in their own country having added a further 20% on top. All the properties were sold before completion and before any further payments to the developer became due.