Updated: Jan 22
Our smart Off-Plan Guide for buyers and investors.
TIP: we suggest you read this article before buying a New-build or an Off-Plan property in Ibiza Buying off-plan means you get a brand-new home, to your own individual specification, and you pay the property in stages. It is important to us that you understand the protections, limitations and risks in this process. Your rights as an Off-Plan and New-Build buyer in Spain are clearly defined by law. You can be advised by a specialised lawyer to ensure your rights – and investment – are protected. And what happens if, on completion, your off-plan property isn’t what you expected or were promised? How can you get redress? In Spain, you can claim compensation for: delivery delays, construction repairs, repairs you make yourself to the property, stress, and legal fees. In this article we’ll explain how to get knowledgeable and organised. ------------------------------------------------------------------------------------------------------------- Step 1 Reservation Deposit - Signature of a Reservation document. The deposit, or down-payment, is usually a small amount (between 5,000 and 50,000 euros) that is held by the seller’s lawyer or the Real Estate Agency, and which is used to guarantee the purchase and take the property off the market. It guarantees as well the freezing of the purchase price. Set out in the reservation document price, deadlines, fees and expenses, and who is responsible for each of these. It is important to stress that, should the buyer decide not to proceed with the purchase, they will not get the deposit back, except where there is express written agreement otherwise, such as where the purchaser does not obtain the necessary financing or where problems arise of a legal or urban development nature that advise against the purchase. The deposit is normally paid by cash, credit card or bank transfer. Step 2 Signing the private Sales Contract – Down-Payments The signature of a private purchase contract usually entails down-payments between 20% and 40% if the property is a new build or acquired off-plan from a property developer. There is no legal maximum percentage for down-payments. The point is the fact that insurance companies or banks will usually guarantee a maximum of 30 to 40%. The payment terms are an obligation that must be in line with current Spanish law: partial payments are usually made between signing the contract and signing the final deed. These payments coincide with certain phases of the building work (foundations, structure, roof, tiling, etc). An official architect or engineering certification will state that the works have reached each phase. In Spain, property developers and builders that receive down-payments for a property under construction are obliged by law to possess a Guarantee for the amounts received, until the property has been completed, by means of an insurance bond issued by insurance companies duly authorised to operate in Spain, or by means of a bank guarantee issued by a bank or a duly authorised finance entity. This way, in the event that the building works are not completed, the buyers will recover all the money they have invested, plus the statutory interest. All down-payments must be received by means of a traceable Banking System (not cash deposits) and those amounts must be deposited in a Construction Bank Account separate of any other funds belonging to the developer. The down-payments can only be used for the purpose of the construction of the purchased property. In order to open this bank account, the bank will request the Guarantee mentioned above. It can be convenient that a lawyer get the legal representation of the buyer living abroad, and this lawyer manages those payments on behalf of the buyer. At completion, the buyer´s lawyer will have to provide the Notary with a bank certificate showing that all funds invested came through to the bank account of the developer, but also a copy of each and every payment made (transfers, cheques, drafts, etc). The origin of these funds must also be cleared by the bank who received them, by the lawyer and finally by the Notary as it is required by current anti-money-laundry laws. It can be convenient for the buyer to transfer the funds to his lawyer´s “clients account”. The lawyer will prepare the cheques and drafts required for completion, will retain the amounts due to cover potential debts or outstanding amounts on the property. The lawyer will request from the buyer´s bank the required certificates with regard to the foreign source of these funds, and that those came to Spain through the banking system.
Step 3 Signing the deed of purchase - Transfer of possession
The purchasing process ends when the public deed of purchase is signed by the buyer and the developer before the Notary. Prior to the signing, the lawyer will send to the Notary the minutes for the preparation of the deed. The notary will request up-to-date registry information about the property, to verify that there are no last-minute encumbrances or foreclosure entries.
At the moment of signing, the buyer (or his bank in case of a mortgage) hands over the rest of the agreed price to the developer. In turn, the developer grants the buyer the title deed of ownership.
If the developer is a non-resident, the buyer has the obligation to withhold 3% of the agreed price and pay it directly to the Tax Office on account of the potential Capital Gain Tax of the developer. The buyer is responsible for depositing this amount. So it is very important to make sure that this procedure is properly done, otherwise the consequences are borne by the buyer.
When buying a brand new property from a developer, the buyer´s lawyer will recommend that his customer does not sign the title deed until - the developer has obtained the Licencia de primera ocupación (First Occupation License) from the Town Hall - that the buyer has accessed the property with developer - that the buyer has agreed with the developer the faults list - that the buyer has agreed with the developer in writing the remediation measures to solve all faults points and a reasonable time frame.
However, if there are signs that the developer might be in a serious financial situation, it may be advisable to sign the title deeds for the property before the Licencia de primera ocupación is issued, or the faults list is agreed, given the risk that might exist for the investment. This is considering the guarantees provided by law and the ability to execute them at that point.
Immediately after the deed is signed, the notary sends an electronic copy of the title deed to Property Register, so that the Register has a record of the new owners straight away.
Note about the investment Purchase for Re-sell When a buyer signs a contract with a developer, he is undertaking to complete the deal: to pay the whole price once the property is completed. Transferring these rights to a third-party prior to completion is legal and it may be allowed by the developer. When a buyer purchases a property off plan for investment, with intent to re-sell, he must prepare the required economical resources to fully complete the property even if the buyer intends to sell before the completion of the property. Also it has to be mentioned that the resale transaction is subject to taxation.
Delays in Delivery
Everything about your building must be defined in writing from the beginning. For example: the Memory of Qualities, copy of the building license, agreed delivery date, penalties if delays, etc... In some cases, the buyer can change the layout of the future property and make improvements. These have to be agreed in quality, time and costs.
There could be also a delay in delivery not imputable on the builder. For example in the event that the City Council delays in issuing the first occupancy license. In such case, the builder can be exonerated to compensate the buyer. TIP - Along with the defects in the finishes, the delays in the deliveries historically dominate the majority of the New-Build complaints. For this reason, make sure these two points are well explained, covered, and understood. TIP - Also, you need to know what your deadlines are for exposing building faults, and who will be repairing them, within what deadlines.
Buiyng From A Developer After the Building Completion As buying a property is a consumer-seller relationship, the user protection rules will apply, such as the Spanish Consumer Protection Law and the regional regulations that are in force in each region.
In addition, according to the Building Law, there is a one-year guarantee on the finishes, three years in relation to the facilities and 10 years for hidden defects or defects that affect the stability and safety of the building, that is, that present significant work defects in the structure. TIP - Note that these guarantees begin to count from the date of the Works Completion Certificate (Final de Obras). So in the case a brand-new home is sold one or two years after it was finished, the Legal guarantee on finishes might already have expired... So our tip is to ask the builder a copy of the Final de Obras document to assess if you still enjoy this important guarantee. -------------------------------------------------------------------------------------------------------------
Key Takeaways Your rights and obligations as an Off-Plan or New-Build buyer in Spain are clearly defined by law. You should now be ready to confidently go about buying a New-Build or Off-Plan property in Ibiza. Feel free to contact us. We are happy to answer your questions.
Disclaimer - No Investment Advice
Please make sure that you note the following important information: PURE Real Estate Ibiza is not an investment advisor. We are not regulated by the Financial Services Authority. Our articles and content are a discussion forum about real estate. We access, publish and discuss public information. This is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. No content in our articles constitutes - or should be understood as constituting - a recommendation to enter in any financial transactions or to engage in any of the investment strategies presented in our content. For more information about Real Estate in Ibiza please visit our website: www.pureibiza.com