Property

Investment

Buying Off Plan Property

Buying 'off plan' property in Spain can benefit you in three ways. First, it is entirely possible to achieve returns in excess of 100% of your initial investment within 24 months. Second, your profit can legally be free of capital gains tax. Third, holding on to the property for a longer term means you can benefit from the fastest growing property market in Europe (and have a great holiday destination while your investment is appreciating).

The developer of a building project is always keen to sell as many properties as early as possible to improve cash flow, minimize development loans from banks and give the project some forward momentum. In order to sell before construction has started, the developer sells 'off plan' at extremely competitive prices because investors only have plans, computer simulations and a plot to view at this stage.

Apart from the fact that the developer will be selling at less than current market value to attract investors, the real key when buying 'off plan' is that you only have to pay 35% of the purchase price as a deposit. Thereafter, no further payments are required until the project is completed, at which point it can be financed with a 65% mortgage or sold.

As an example, lets say that the current purchase price for an apartment is €100,000 and that the project is scheduled for completion in 24 months. Initially you'll pay a 35% deposit of €35,000. The project proceeds according to schedule and you sell the 'almost' completed apartment for €135,000. You pay the developer the balance owed of €65,000 and pocket €70,000 - a 100% return on your initial investment of €35,000 in 24 months. And because you sold before the project was completed, you have zero liability for capital gains tax.

This is a conservative estimate of the potential gains available. With property prices increasing annually at a steady 15% in Spain, imagine the possibilities if you also 'buy low' in such a market. Additionally, many purchasers finance the 35% deposit by re mortgaging their UK property and so are able to achieve higher than average capital returns, with zero tax liability, and no cash liquidity.

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