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What is an off plan property?Firstly buying off plan either in the UK or in Spain is not a new concept! The developer of a building project is always keen to sell a percentage of the properties as early as possible in order to improve cash flow, minimize development loans from banks and to give the project some forward momentum. At this stage, prospective investors only have plans, computer simulations possibly, or site and building models, as well as of course a plot to view. Therefore a certain amount of vision and imagination is required. To compensate for this the developer sells “off plan” at extremely competitive prices, often as much as 30% below current market value. There may be further incentives for the earliest investors, usually in the form of reduced deposits that may be payable in stages, over a longer period. These terms will not be available to purchasers later on. The developer does not want to sell too many early on however, as their greater rewards are made on those properties sold when the project is nearing completion and prices are at their highest. As many IPS clients are long term property investors, developers often allow us further flexibility as they favour our clients at this phase in the project. If the project is in the very earliest stages and the final licence has not yet been issued, a reservation fee is all that is required to secure the property until their building licence is granted. Failure to obtain the licence would be unlikely, although reservation fees would of course be returned in this instance. Once a reservation fee is paid on a chosen unit the purchase price is then locked by contract for the period of construction, even if the final licence has not yet been received your purchase price will be fixed in an option to purchase contract. The delivery date could be in 2 or 3 years time, during which the property will experience capital growth. Additionally, it is standard practice in Spain for developers to re-evaluate the market value of a new project periodically throughout construction and increase prices when prudent. This is dependent upon the unit rate of sale within the project together with seasonal buying patterns. A project can easily see 3 price increases during the construction period. Clearly, maximum return on investment will be achieved if investment occurs following the projects initial release. Typically, you only have to invest 20% to 30% of the purchase price as a deposit with the remainder due at project completion. This is where the true value as an investor is contained, as your potential profit will be based on the total value of the property and not just the deposit invested. This is referred to as a geared investment. For a more in depth look see our example. NB: It should be noted when buying into a project at this early stage that even the plans may be subject to change, therefore buying off plan does not necessarily suit everybody. Don’t expect to see floor samples, or choose the kitchen worktop colour, it is much too soon. IPS 2007 Index Page - IPS Guide Index page Page 4
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