Off-plan properties were relatively unknown 20 years ago, but they’re becoming increasingly popular for people who want to invest in property.
They fell out of favour after the financial crash in 2008 but lately they’ve had something of a resurgence.
Just be aware that there are risks involved with investing in this type of property: even if it seems like a sound investment, a fair few things can go wrong so it's vital that you know what you're taking on before you sign anything.
Adrienne Rea tells loveMONEY about her off-plan property horror — but first, a little bit of background.
What is an off-plan property?
The basic idea is that you invest in a property that hasn’t been fully built yet. Once they’re finished, investors can rent the properties out as holiday homes, let family members stay in them for part of the year or they can simply live in them as a first or second home.
You’ll usually need to stump up a deposit of 10%-20%, but some developers allow contracts to be sold on so you can make a profit on the property before it's even built.
As the build is brand-new, investors can chime in with ideas for lighting, fixtures and colour schemes. They also get a choice of the type of property they want and the location.
However, as properties are new they tend to cost more than homes that are already on the market. It’s also more difficult to secure a mortgage as the value of the property is harder to pinpoint.
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Our holiday home nightmare
Adrienne and Irvine Rea first decided they wanted to invest in an off-plan Spanish property back in 2006 as a way of landing their dream holiday home.
To set their plan in motion, they went to a property day in Templepatrick, Northern Ireland.
The property company whisked them away to Blgastro, near the Spanish city of Torrevieja, all expenses paid.
Blgastro
They were shown around several different properties but none of them seemed to be the right fit. Finally, they were taken to a show house and were sold on the spot. The company told them that their house would be built within a year.
Irvine
They returned in November, expecting to see a foundation, but nothing had materialised.
“The site we bought was a quarry,” Adrienne told loveMONEY.
A second home, a second chance
The company brought them back once again, all expenses paid, to look at another site. They ended up buying a different house altogether and agreed the terms and conditions.
They paid the first deposit in cash, and by the time they’d paid the next two deposits, the total came to €229,000, a third of the total price of the house.
The house was slowly coming together between 2006-2011, with the couple adding various bits of furniture to the house along the way.
But in 2011, the builders disappeared from the site: they’d gone bankrupt.
In the end, the couple was essentially left with a fully furnished show house which couldn’t be finalised, all because the pool wasn’t quite finished.
The annoying thing was that the couple wasn’t able to own the property until they had a certificate of habitation, which they would have received on completion.
“We were left with nothing,” said Adrienne.
After waiting an entire year for another company to pick up the project and finish it, Adrienne and Irvine decided to abandon the house altogether.
“It was an awful state inside – wiring was lying around, things around the balcony had been stolen. It was a bombsite of a place”.
The house was a mess
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How we took on the bank
The chase for the Reas money began in 2012 when they got off-plan specialists Costaluz Lawyers on side.
As the builders had declared bankruptcy, there wasn’t much they could do on that front. They couldn’t find what had happened to buyers of the other 13 properties on the site either.
But a huge mistake determined that it was best to take the bank, LA Caixa, to court.
It turns out that LA Caixa didn’t honour Spanish law LEY 57/68, which safeguards investors' deposits should the company they're working with go bust.
The bank didn’t supply the Reas with a guarantee on their deposit, so they had a solid case to reclaim their cash.
Maria Luisa de Castro of Costaluz Lawyers highlights another key point: “This case is particularly interesting because the house had no first occupation license, an illegal house. In September 2016 Spain’s Supreme Court extended the use of the Law 57/68 (a law which condemns banks when an off-plan fails) to cases of urban illegalities.
“This is against the real promoters of the whole disaster: financial institutions.”
As legal procedures were so slow in Spain, the Reas spent a year and a half going back and forth to give evidence in court. But in January 2017, they finally got their money back as well as 10 years’ worth of interest from LA Caixa.
The original show house
Despite being unaware of their financial situation, Adrienne isn’t angry with the builders: “They got caught up in the financial crash. They made such promises but they were building on rubbish land. They thought they could build 13 houses but [the houses] looked like they’d been built on stilts,” she says.
Though the experience has soured them on off-plan, they wouldn’t discount it completely in the future. Irvine is nearing retirement and the couple still hope that a holiday home in the sun could be a possibility.
“It hurt but we learned a lot,” reflects Adrienne.
Tips for investing in off-plan
If you're still interested in off-plan properties, follow these top tips to make sure it goes as smoothly as possible.
The first is to take your time and not be intimidated by salespeople. “We decided too quickly,” said Adrienne. “The company were quite pushy.”
She advises having a look around the neighbourhood and doing a lot of background research on the area you’re considering.
Don’t be lured in by glossy brochures and the notion of an affluent lifestyle either. If you don’t look at the original specs the developer can just change the appearance of the house at the last minute without your knowledge.
Maria also has some advice for the legal side of buying off-plan: “The system of guarantees is now very safe in Spain as the whole regulation inherently protects buyers. That being said, a professional legal check by an independent lawyer is always necessary from the very beginning, even before signing the deposit contract.
“Other matters such as fair distribution of expenses between buyer and seller, a penalty clause for breach of contract by buyer, choice of notary, details of the property included in the private contract, way of setting completion deadline and possible modification of the initial project should be verified by a legal expert at the right time.”
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Many thanks to Adrienne Rea for her help with this piece. Photos belong to Adrienne and Irvine Rea.