When you purchase property in a new development directly from the plans there are normally very good terms for payment. A pre-arranged mortgage of around 70% is usually available and the purchaser will need to pay only 30% of the purchase price in stage payments over the 2 year construction period. During this construction period the following factors may cause the value of the property to increase.
| INFLATION |
General property values should increase with inflation and 5% per per annum would be a reasonable expectation, although in recent years this has been much higher.
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| BEST UNITS SOLD |
The best units such as penthouses, corner units, etc. usually sell out quickly, then prices of these units start to increase.
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| INCREASE IN CONFIDENCE |
Similarly as sales progress and very few units remain, the promoter increases his original prices and everything else follows.
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| CONSTRUCTION PROGRESSES |
Once the main structure is up or a show flat is ready, prospective buyers can envisage the finished product, this makes the project more attractive and values continue to increase.
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| COMPLETION |
On completion of the project you will have a brand new apartment in a new block with beautiful gardens and pool. This will obviously be worth much more than when it was only a plan and a plot of land.
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The above explains why values increase during the various stages of development and so it would not be unreasonable in a normal market to expect a property to increase in value by a modest 30% during the construction period. In that case if you purchased for € 200,000 off plan you would sell for € 260,000 on completion giving a profit of € 60,000. But as your stage payments have been only 30% i.e. € 60,000 you have in simple terms doubled your money over the 2 years and don't forget that the € 60,000 euros which you invested in stage payments was paid gradually during the two year construction period so the whole was not invested for the whole time. Even after legal fees and taxes you should still have a very healthy profit.
The key factor which makes this possible is the low deposit of 30% required by the promoter which in effect enables you to buy a € 200,000 property for only € 60,000 and hold it for 2 years before taking the deeds and arranging a mortgage. During this time you are receiving the benefit of price increases on the € 200,000 not on your € 60,000.
Some developers may even offer properties requiring only 20% in stage payments in this of course is an even more attractive proposition. In countries such as France or Cyprus for example the deposit required can often be as low as 15%.
Y ou do not need to be rich to invest in off-plan properties or buy your own holiday home overseas. You need from as little as around £20,000 which is paid in small instalments over the 2 year construction period. These payments can be protected by a bank guarantee.
At the end of the two-year period you will own a beautiful brand new apartment in a private development with tropical gardens and pools. This will obviously be worth more than when it was on the drawing board and may have increased in value by as much as 50% of the original promoters price.
You have the choice of selling and taking your profit, or keeping the apartment to enjoy.
There will be a pre-arranged mortgage, but if you keep the apartment, the monthly repayments can be normally covered from letting income.
In this way, many small investors have made large profits in recent years.
| 2 bed apartment |
€ 140,000 |
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| Purchase costs and taxes |
€ 10,000 |
(includes 7 ½ % VAT) |
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€ 150,000 |
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| Assume 70% mortgage |
€ 98,000 |
(pre arranged) |
| Investment required |
€ 52,000 |
(over 2 yrs constuction period) |
Typically the € 52,000 investment is paid in stage payments over the two year construction period starting with a deposit of € 3,000.
If you sell on completion, it would be reasonable to expect the original investment of € 52.000 to increase by 50% - 100%.
After completion, mortgage repayments on € 98,000 could normally be covered by letting income.
The information and figures above are for explanatory purposes only. Obviously no guarantee can be given of income or profit achievable and you should always consult your financial advisor before entering into any contract.
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