Buying Off Plan Explained
Spain is one of the fastest growing property markets in the world, with property prices in some areas increasing by over 75% in the last two years alone. Although traditional investments in the property market in Spain have performed exceptionally well, those who purchased property off-plan (pre-construction) at a discounted price have achieved much higher returns. Unlike the UK property market, when buying a property off-plan in Spain you can, in some cases, reserve the property at a price, which is well below the current market value. Reserving a property at around 30% below market value is not uncommon but where do you find these properties and why do they offer these price reductions?

A new development in Spain
The life cycle of a new development in Spain can be thought of as stages that a development goes through from planning to completion. Once the developer secures the land and completes the paperwork for planning, the project is then complete and approval to build is acquired from the relevant authorities. When that approval is granted, the developer arranges the bank guarantees and finance for the project.

Finally, the developer secures the contractual arrangements for the construction of the project and begins to market the properties to the initial investors. In order to begin construction using the bank’s finance, the developer needs to be able to demonstrate that around 50% of the development has already been reserved off-plan. This is where the off-plan investors come into the equation. By making a number of properties in the project available at discounted prices, the developer can quickly secure the sale of the initial properties required for the project to start.

During construction and as soon as the discounted units in the project have been reserved, the developer increases the price of the remaining properties in the project, bringing the price closer to the current market value. The prices of the remaining units are further increased at different stages of the development, gradually bringing the remaining property prices up to the real market value. Additional price increases, reflecting the natural growth of the market during a two-year construction period, further increase your returns.