It is difficult to write a definitive buying guide which covers the buying process
in all countries. However, there are some basis rules and terms which the first
time purchasers will need to know.
Most purchasers buy off-plan property
OFF PLAN PROPERTY
This means that the property is not completely built. When a development is at the
pre launch stage generally property investors will be buying at the lowest price.
The earlier the reservation the better choice of position within the development
or phase of the development, but the either no construction or very little construction
will have proceeded.
Advantages of purchasing an Off Plan Property - The earlier your investment the
greater choice of units, therefore enabling the best pick of the bunch, for example
a sea view or beach front property. This will then enable you a better chance of
resale at a higher price in the future, especially if the type of unit you choose
Risks of purchasing an Off Plan Property - The cheapest price can sometimes come
with a risk that if the developer does not have a good track record, or is new to
developing and doesn’t have the finance in place to complete the build, would therefore
have to rely on a certain number of sales to complete the build.
This will be variable on each development. There will be a reservation fee when
you reserve and it is crucial to ascertain whether it is refundable. The payment
plan will give you the details of the stage payments so that you can budget for
After reservation the contracts are normally issued and the client has a number
of days (usually about 28/30 days) to sign and pay their next payment**. The figure
could be between 20%-40% if the development is at the ground clearing stage, or
the build is just starting. If the build is further advanced the payment could be
Before signing and forwarding on a deposit it is advisable to take legal advice.
There are International Lawyers based in the UK, they do tend to be more expensive
than the Lawyers based in the country of the development. But they are regulated
by the UK Law Society. If you are living outside the UK, contact an International
Lawyer in your own country or take advice on a reputable lawyer in the same country
as your purchase.
This is usually an approximate date, but should be written in to the contract which
the developer must adhere to – note if there are any penalty clauses if the build
is later than scheduled.
FUNDING AND MORTGAGES
LTV – Loan to value. This will be a percentage of the purchase price. E.g. 70% LTV
on a property price of £100,000 this would be a deposit of £30,000 and mortgage
Purchasers should ascertain whether the developer will require draw downs to cover
the stage payments or the 70% upon completion.
These are accounts where deposits, reservation fees, stage payments are paid into
an Independent bank account other than the developers. These are normally Clients
accounts held by Lawyers who are responsible for the safe keeping of the money and
the transfer of any funds to the developer at the appropriate time.
Please be aware that not all payments plan funds are paid into Escrow accounts.
Most developments are launched in phases. Units are released in small sections especially
if the development has a large number of properties. Smaller developments may launch
all the properties simultaneously.
Prices tend to rise as each phase is launched.
Most developments will have a pre-launch stage; this enables investor to purchase
the best properties at the best prices. When developments are in the pre-launch
stage some of the final information maybe subject to change, when this is the case
the purchasers deposit is usually refundable for a certain amount of time or until
further information is released.
Purchasers can request to see copies of planning permission and build permits. However
they are usually not in English.
This is a chicken and egg situation. Agents and Brokers can be loathed to divulge
who the developer is just in case a prospective purchaser goes directly to the developer
to try and obtain a better price. Prices should be the same either from the Developer
or the Agent. Agents have to sign a contract to sell units in developments and there
is always a stipulation that the Agent is not allowed to offer discounts unless
these have been agreed by the Developer. Therefore, shopping around for a better
price doesn’t necessarily work.
A purchaser will want to know the name of the development company so that they can
check out a track record. If the Agent has a good relationship with the purchaser
and the developer then they will be happy to issue this information.
Will there be a market to sell your property on to? There are certain factors which
allow for a better exit strategy:-
- A developer’s buy back scheme
- If the agent/developer will offer to re-sell the property
- If the property is an emerging market and there is a lot of capital growth, therefore
when you come to sell you can be competitive with the price. Because if the property
has increased by a large amount you have more scope to play with the figures and
take offers and still make a great return.
- Purchase at the off plan pre-launch stage so to get the best choice of units which
will be most desirable to new purchaser when you come to resale. For example beach
front properties, properties within a Marina as there will only be a limited number
of properties that can be built there due to space constraints, golf front etc.
- Ask advice from International Horizons who have their finger on the pulse of the
overseas property market.
These will be for a specified period of time, a percentage of the price a purchaser
paid for their property. The guaranteed percentage will either be net or gross.
Net will be the amount the purchaser will receive. Gross will have deductions for
maintenance and any other charges. An INDEX LINKED rental return means that your
return will be a percentage of the value of the property; the property will be re-valued
at certain points in time. For example if a property was purchased at £100,000 and
the following year it was valued at £110,000 the percentage would be on £110,000
the following year and so on.
LEASEBACKS – FRANCE
These are usually for a longer period of time and client receives their VAT back
approximately 6 months after completion. At the present time this is 19.6% of the
purchase price. There is a law in France that if the developer wants to renew the
leaseback for a further period of time they are allowed to do this. Therefore, if
you are requiring a property for personal usage after an initial leaseback contract
please bear this in mind.
This will vary but could include lawyer’s fees, notary fees, stamp duty and any
other local taxes, it is important to find out exactly how much the closing costs
will be so you can work them in to your budget.
Brokers/Agents are not tax experts it is therefore the responsibility of purchaser
to do their own due diligence on Capital Gains Tax, Rental Tax etc. Of course we
can usually give a rough guide.