Off Plan Property in Spain

Off plan property is a term used in the Spanish real estate market to describe properties that can be invested in before their completion.

These projects are usually initiated by a developer who purchases the land, gets building permissions and, in order to arrange financing, begins attracting investors before actual construction of the development is initiated.

This investment opportunity is attractive to investors because the off plan properties are sold at a lower price than they will be valued at once construction is finished.

Once the discounted units are sold, construction of the development begins and the developer raises the price of the remaining properties, ultimately reaching the current market value.

Investors can then sell their properties, making quick and easy returns on investment. Further returns are made possible by the appreciation of property prices after a typical two-year construction period.

If invested in at an early stage, profits from the resale of off plan properties in Spain can be lucrative. This is because investors only have to put down a certain percentage (usually between 20% and 25%) of the property's total cost pre-construction.

This means that the best returns are achieved by selling before the off plan project is completed, thereby avoiding the remaining payment of the property that must be paid once construction is finished and increasing profits. This way the investor will also avoid taxes and other fees that have to be paid upon the signing of title deeds.

As an example, let's say you decide to invest in an off plan property:

At this point, construction hasn't been initiated; the developer is in the process of attracting investors like you to the project. If the total cost of the property is of 275,000Eur, you as an investor will pay 55,000Eur (20%) pre-construction. The rest of the cost will have to be paid once construction is finished.

It typically takes around 2 years for a development to come to completion. Given current market conditions in Spain the value of your property will appreciate during this time, in this case we'll say to 340,000Eur.

If you sell your property at this point, after the value of your property has gone up but before construction finishes (and the rest of the payment must be made), you'll make a profit of 65,000Eur having only invested 55,000Eur; a 120% return on investment.

If you don't sell your property before construction finishes, you'll have to pay the rest of the cost of the property (in this case 220,000Eur).

At this point you can sell your property at the current market value 340,000Eur), but your return on investment will only be of 25%. Another option would be to hold on to your property and profit from it by renting it out.