Off plan investment in Andalucia
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OFF PLAN INVESTMENTS
Buying off plan is an option suitable for
people who:
1) wish to maximise their capital return
2) and/or do not need to use the property themselves in the short term.
Buying 'Off Plan' means reserving a property on a new development before the property is completed and often before
construction has started.
Developers are keen to sell properties in advance to minimise the risk to themselves and obtain better rates from banks
and investors. To help sell the properties at an early stage the prices are lower than market price - generally 20-30% below
market value of a similar completed property. Another reason for the competitive prices is there is generally nothing to
show potential purchasers except floor plans, elevation plans and artist impressions.
The key to buying off plan is that normally payment terms are a reservation deposit and/or staged payments equivalent to
30% of the purchase price (over an 18 to 24 month period) and nothing more until completion when the remainder can be
financed by a 70% mortgage.
An example
Purchase price: 150,000 euros (February 2006)
Deposit payable: 45,000 euros
Assuming the property is sold just before completion in February 2008 for 200,000 euros (a much lower return than in
recent years), the profit is 50,000 euros - a 33.3% return. The return on the 45,000 euro investment is therefore greater
than 110%.
Many people finance the 30% deposit by releasing equity in their existing property and do not have to utilise liquid cash
to take advantage of this profitable investment opportunity.
Stages
The following factors help to increase the value of a development property during construction:
1) Lower than market prices are initially offered by developers.
2) Penthouses, corner houses and apartments, and ground floor garden apartments tend to sell first which, in turn, leads
to price rises.
3) As building commences and the development begins to take shape and again when show properties become available, prices
increase substantially as prospective purchasers see what the finished development and individual properties will look like.
4) As more properties sell, the prices increase.
5) Once the development is finished with brand new properties, often with gardens and pools, potential purchasers will
pay significantly more for properties that are ready to move into or let out.
Properties can be sold before completion incurring NO CAPITAL GAINS TAX.
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