Property Where to Buy Greek Islands: Pros and Cons Off Plan Property
Greek Islands: Pros and Cons Off Plan Property - Who Benefits
Who benefits from off plan
Developers are often a canny bunch and usually spot the very best plots of land. However, some do not have sufficient funds to start the project, only having enough to get the plans done.
A theoretical example will demonstrate how off plan works for some developers. They find a great plot of land costing, say, 2 million euros. Another 2 million is needed for infrastructure and about 10 million to complete the project.
The first thing the developer has to do is buy the land. Without this the banks will not lend the money for undertaking the infrastructure works which will be required. If he cannot do the infrastructure, he cannot start to build the units.
As a solution to this, the developer promotes the project off plan. From the deposits of the initial investors, the developer can buy the land and the banks will then lend for infrastructure and the build can commence. As the staged payments from buyers come in, the developer can build more and more of the project through to completion.
The danger for this to the buyer is that the developer has not committed any of his own funds. It is for this reason, that purchasers of off plan property must make thorough investigations regarding the developer of any project into which they intend to purchase.
From the other side of the coin, an off plan can work in the following way for buyers. Let us say our purchaser is interested in buying a three bed house with pool on a development on Corfu. The buyer has 88,000 euros in cash and takes 60% of the purchase price via a mortgage which he only has to start paying when drawing down the mortgage on completion of the property. The house is priced at 250,000 euros but the developer is offering a fifteen per cent discount at this off drawings stage. The buyer pays a 10% deposit of 21,250 euros with staged payments during the build.
As the development is constructed, prices increase, meaning that the property, originally worth 250,000 is now worth 275,000 euros. The buyer could sell the contract at this point in time, making an immediate profit of 6,250, which is the difference between the deposit he paid and the 10% deposit on the increased value.
If the buyer decides not to sell the contract but go through to completion which is another year away, the house has increased in value again. Perhaps it is now worth 300,000 euros. The buyer sells on completion, which means he must draw down the mortgage. The sale price is 300,000, after taking off the mortgage, which was 132,000, our buyer is left with 166,000 euros, double what he had in hand at the start.
Choose wisely
Purchasers considering off plan property should be careful on several aspects.
First of all, the old mantra of location, location, location is true. Off plan developments which are front line position are the best bet both for increase in value and resales. The developer is key as to the quality of build and whether the project will be completed.
There are plenty of benefits to off plan purchase but there are some risks and only you can decide for yourself. Whatever your reason to elect for off plan, it is an excellent way onto the property ladder. Buying on the right project, with the right developer and in the best location still works!
Checklist
1. Check out the developer and look at homes he has built
2. Remember, you are investing in the developer not the units
3. Investigate warranties and insurances
4. Get an independent lawyer before signing anything or parting with any money
5. Verify the details regarding the quality of finish / furnishings
6. If you need a mortgage organise this early in the process and get a clause in the contract that the purchase is subject to obtaining finance
7. Before completion, get a snagging report
8. Try to make the final payment as large as possible, in this way if there are problems, the developer has an interest to resolve them
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