Honest advice on buying off plan in Spain and Bulgaria
The Spanish property market is cooling in many areas such as the
Costa del Sol so you need to buy sensibly and make sure that you
are buying good value properties in areas that have still to see
the large capital growth over the coming years. I believe that
in Spain such areas as Costa Almeria, Murcia, and parts of the
Costa de la Luz continue to offer great value but you must still
be aware of the factors that will influence your return and your
ability to sell the property on.
In Bulgaria there are some fantastic gains to be made but again
I would exercise a degree of caution. Having just returned from
Bulgaria last week, it concerned me just how many people are
piling into areas like Sunny Beach which, frankly, look to me
massively overdeveloped already. When combined with fairly low
build qualities and a fairly downmarket feel, I wonder to whom
all these investors (many of whom are buying off plan for the
first time) are going to sell to in 18 months or so. The same
applies to Bansko, which I have been told is already at capacity
as far as numbers of people the resort is able to cope with on a
day to day basis.
In my opinion, areas such as Kavarna on the coast offer much
better potential for growth than Sunny Beach. This area is going
to have a brand new marina and two new golf courses very nearby
and traditionally these two factors are excellent for ensuring
capital growth and also a healthy supply of end users who want
to holiday there in the years to come. There are some very
reputable builders constructing high quality but still very
affordable developments such as Kavarna Gardens and Kavarna
Hills and they are proving very popular with investors and end
users alike, which again is encouraging.
For investors wanting a ski resort then Pamporovo looks a good
bet for the future and we hope to be bringing you some
attractive investment opportunities there in the very near
future. At this moment in time we are still researching the area
and the developers to ensure that they meet up to our strict
criteria.
In light of the above, we have put together the following guide
to explain the criteria that we look for before we are happy to
recommend a new development to our investment clients.
Criteria for making a development attractive as an Off Plan
investment.
1) Purchase price.
How does the development compare to similar finished or soon to
be finished developments in the surrounding area. If it's no
cheaper then you are not getting any benefit from buying Off
Plan.
2) Price per square metre.
Again, how does it compare to finished developments of the same
standard in the same location.
3) Payment schedule.
Ideally as low a deposit as possible, normally the lowest is
30/70, in other words 30% down and 70% payable on completion. We
have been able to offer even better payment terms than this
recently, even as low as 15% deposit and 85% on completion at
the excellent Jumilla Golf and Country Club. Any development
worse than 40/60, walk away from.
4) Is there a bank guarantee being offered by the developer?
In Spain a lot of the time yes but in places like Bulgaria at
the moment it is not possible to get a bank guarantee as the
market is still so new that the banks there have not ever had to
offer them before. This again makes it vitally important to know
the financial stability of the developer, if they have only been
around for a few months with no track record can you really be
sure they will deliver the
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product you expect?
5) Can you sell your contract before completion?
Not all developments allow you to do this and obviously of you
only find out after buying then you are in for a shock. We often
hear of clients who have bought through other agents and then
when they come to sell, the contract they signed doesn't allow
them to do so. We never recommend a development to investors
where selling on is not possible.
6) If you can sell before completion are there any restrictions?
Some developers say that you can sell before completion but then
have a clause in the contract that states only when they have
sold all the other apartments or that you cant sell for a lower
price than the remaining apartments or finally that you must
sell through the sale office of the developer who will then
charge massive fees for doing so, reducing your profit. All
developers normally charge 1-2% to change all the paperwork over
from one name to another, but this is normally paid by the buyer.
7) Location, location, location.
Is the development in an area that has high demand now or is
expected to do so by the time of completion? If not then you may
struggle to sell it on as you must remember that the person you
sell it too will probably be using the apartment themselves or
intending to rent it out and if it is not in a desirable area
with good amenities and road network they will probably look
elsewhere.
8) Orientation of specific apartment.
No one wants to wake up on holiday to find the terrace and
garden already in the shade, so almost never buy an east or
north-facing apartment as the demand is very small! If you are
buying a golf course or beach development, always go for
southeast at a minimum but ideally south, southwest or west
because nearly everyone wants afternoon or evening sun.
Obviously if you are buying in a city centre development or in a
ski resort then this is not always practical.
9) Time to completion.
Make sure that there is normally 16 months or more to
completion, the longer the better, as you need to allow 4 months
to sell and 12 months to see an attractive level of capital
growth.
10) Is the development first stage price release or close to it?
Developments in Spain sell very quickly and normally over the
course of construction the developers will increase prices four
or five times. You need to get in as early as possible to
maximize your profit.
We are always amazed at some of the big estate agents who sell
apartments to investors that have had numerous price rises, as
this massively reduces your profit.
Remember that on a development that has a 30% / 70% payment
schedule, if the price of the apartment goes up 10% then that is
actually a 31% gain on capital invested. See the example below;
Purchase price = 200,000 30% deposit = 60,000 7% IVA (VAT) =
4,200 Total capital invested = 64,200
If the developer puts the price up by 10% then the increase is
20,000.
If you bought the apartment immediately when it was released at
200,000, then your gain would be as follows;
20,000.00 / 64,200.00 = 31%
If you had bought after the increase, then you would have thrown
away a 31% gain!!!
About the author:
Michael Knivett has over 17 years experience as an IFA and is
also managing director of Sunseeker Homes
(www.sunseekerhomes.com) which specialises in the sale of Spanish property
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