Advice on Off-plan Disaster Please

Hi,

We bought an off-plan apartment a couple of years ago - due to complete anytime now. However, due to unforeseen circumstances we cannot get a mortgage to complete the purchase.

We've been told that it is not only difficult to sell off-plan but also now illegal - not allowed under spanish law.

Anyone know if this is true?

So we are stuck with a property on which we have put a deposit (£63000) which we will lose as we can neither sell it or buy it.

Any advice would be appreciated.

Regards

Sue

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Hi Suzie

Sorry to hear about your predicament. Could you possibly organise an extension mortgage on your Uk Property, I have heard this is one way to raise enough money, and it works out cheaper to arrange. Once you have got the propery over here you could then arrange a mortgage against it if you think its viable. Best of luck

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You can still sell off plan usually providing you have authorization from the developer. The main difference is you have to declare any profit for tax and there is a 7% transfer tax to the new owner but there is no problem with it

Double check you have the authorization in your private purchase contract and run it by your lawyer

Good luck!

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1. You must get agreement/authorisation from the developer to sell the ‘right to buy’ (since there is not a property to sell yet, you are selling the ‘right’).
2. In our case the sellers sold to us at their purchasing price, so there is no CGT implication.
3. There is 7% transfer tax. Now here it is the silly part. As you know that in Spain you pay 7% tax if you buy newly-build property and you also pay 7% transfer tax if you buy second hand property. So, in our case, since it is new-build we have to pay 7% purchasing tax and since we are buying from another seller so the 7%t transfer tax is applied to us as well even though there is not a property to transfer yet (due to completion Jan/Feb 2008). Do not tell Gordon Brown the Spanish taxman’s trick. In summary, a double tax at 14% in total is applied if you sell off-plan before the completion. We did suggest we buy off the sellers after completion to avoid the transfer tax, but seller would not have any of it. I guess they may have similar situation i.e. cannot complete for various reason. As a way to success this purchasing the seller offered to bare half of the transfer tax. That is what we did. Now we own the ‘right to buy’ and paid 30% which is the amount seller had paid to the developer to the seller. At completion we will be the sole buyer of that apartment and complete accordingly
4. If you really have to sell it i.e cannot complete for sure, you have to start it ASAP. The whole process cost us near 4 months (you know Spain – lawyer is on holiday, developer is on holiday, agent is on holiday……then public holidays when everyone is on holiday). If you cannot find a buyer quick enough before the completion. Then it is the problem between you and developer and what you have termed in you purchasing contract i.e. if the contract says that you do not complete in X and Y date you lose you deposit etc… then that is it.  

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Thanks for the replies.

Anyone suggest a good estate agent - we've been telling Andalucian Dream Homes (the people we bought it off) we need to sell and they have had it on their books as a resale for nearly a year.

Maybe they mean they can't sell it rather than it can't be sold.

As for the price - anything over total loss of deposit sounds good at the moment -

Help anyone??? 

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Hi Suzie, I would suggest moving to another agent as ADH has probably got some remaining units that they will receive higher commissions on, thus not wanting to push yours. Whereabouts is the property and maybe somebody on the forum will be able to recommend an agent for you Good Luck and I hope you sell soon.

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Our apartment is on El Patio, Dona Julia Golf Resort, Casares.

Any recommendations for good estate agent would be great.

Thanx

Suz

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Hi Suzie,

We are potentially heading in a similar direction with our ADH off-plan purchase, due to both personal circumstances and the ever worsening exchange rate.

Which development is your property on ?. Ours is on Vista Hermosa, overlooking Gibraltar.

I still remember almost 2 years ago how the ADH rep explained that by completion time the property would have gained at least £50k, and if we needed to sell, it would be no problem, and we would have gained a hefty profit too !! Not much chance of that at the moment. Whist we were not naive enough to believe the figures, we definately didn't expect to be in this situation. We were never trying to make a quick profit (we hoped to keep the property for up to 10 years, prior to a move to Las Alpujarras), but we thought there would at least be a small amount of equity security.

We are currently looking at a range of options, but the only one that looks like allowing us to keep the property is to take out an interest only mortgage, then get a long term letter into into it at a low rental (to try and ensure we get someone in!!). Even this doesn't look too good as we expect to have to pay up to £1000 per month for the mortgage. I plan to contact Smiley (a really useful source of sensible mortgage advice on this forum) over the next month or so to get a better idea of where we stand.

Hope everything works out for you, I know how stressfull it can be. If you get any bright ideas, let me know !!

Good Luck

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Do you have any chance to back out from the contract?

I.e. delay in completion date, wrong qualities, too many snagging items, etc...

It may be another option to consider as long as you can hold on to some reason.

Good luck

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"delay in completion date, wrong qualities, too many snagging items, etc"

Is it possible to back out of the contract for these reasons?

The completion should have been December - only a little late at the moment - but?????  

No snagging done yet - but??????

Any advice on this or a suitable agent would be great.

 

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Have you checked if there is existing finance on the site?

I say this because many people dont know that as long as the developer agrees, they can take over the existing finance even without the bank's consent.

Or maybe the contract includes the fact that the client can take over the finance. It would help if we could see the contract.

Cheers

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Have sent contract to your email address.

Thanks

Suzanne

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Does developer offer 'builder's mortgage', if so, go for that since bank already financied project and will be keen to finished transaction buy financing the buyer.

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Be careful Suzie before committing to any legal costs! You can in theory apply to have your contract cancelled for a delay of more than 3 months. However, If the licence of Occupation has been issued and the delay hasn,t been that long then I feel it woul be very difficult to cancel your contract and have your deposit returned without instigating court action? Maria De Castro is a very experienced solicitor who appears to be a great source of FREE advice on this site. I have to say that I'm not in favour of memebers (particularly new ones) who include their Commercial Logo in their Avatar!!!

What are your thoughts Justin?

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Some good advice from Mike there.

Regarding new members and avatar logos, I don't really have a problem with it as long as members are actually giving help and advice to questions on the forum and not asking people to contact them for the advice.  Any advice given should be used for the advantage of ALL members.

Justin

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I have to agree that the builders mortgage would be the way to go if you could afford to take it on. In our case, the builders mortgage was about 20,000€ short of what we wanted to borrow. Taking on a new mortgage meant paying stamp duty on the mortgage as well as the purchase, duplicate notary fees, valuation, mortgage set up fee, broker fee, etc. The building society you get your mortgage from will probably also insist on you paying the cancellation fee for the builder's mortgage (about 1000€), although this is technically illegal. You will finally get the money back, providing the developer pays this charge and the debt is removed from your deeds/ escritura/ whatever it is called. We got ours back after one week after a lot of screaming and shouting. We could probably have saved about 3000- 4000€ in fees had we used their mortgage, but it isn't practical in every case. Noreen found out at the last minute she could complete on Al Andalus Thalassa with the builder's mortgage and I believe it saved a considerable amount of money too!

It is worth making enquiry's if possible.

Mark

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Also know that penalty clauses for non completion are frequently abusive and therefore you can also cancel and challenge the penalty clause for a higher refund. Our opinion, backed by Consumers Law specialist is that just 20% can be kept by developer. What is the penalty clause of your contract?

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We've been through a similar loop to some extent and with our apartment nearing completion finally settled on taking over the developers mortgage which turned out to be the cheaper option although we will still need to find some funds from the Uk to cover the shortfall. The Spanish Bank were very helpful and although there is a lot more paperwork/evidence involved than we are used to in the UK, the process was really quite trouble free.

We too considered selling on prior to completion but ended up not doing so for two reasons. The state of the market isn't good and with the amount of property available this just isn't a good time and not being desparate sell it seems sensible to hang on for better times. Interesting though the other reason relates to Andalucian Dream Homes who we purchased through and therefore approached regarding the potential resale - despite having the apartment on their books for over 6 months, they did absolutely nothing...............they can't be blamedfor the general market conditions but the earlier comments in this message thread suggest that this is a common issue with them !

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Hi,

Flying Cat is right. If the developer allows contract re-sales, which should be stated in your contract, selling prior to completion is legal, but not cost effective because of the new tax codes.
Real estate companies who sold lots of off plan properties on the basis of an investment with loads of returns, obviously had to do something about their ever increasing client base. So they marketed the contracts for a nominal commission rate of around 3 or 4 %, plus maybe a bonus. Of course these would not sell, as the same rep would earn anywhere between 8 to 10% on the same development, selling off plan directly from the developer. They would not be interested doing the same work for half the money. Who would?
The financial story would always have been the same: Why buy a re-sale property, with maybe some B money involved, when you can afford a few off plan properties for the same budget, as long as you sell them on before completion? You keep one virtually for free that way. Now, of course, there are many people facing multiple mortgages.
And they can not do anything about it, as far as the developer is concerned. You bought them, so complete on them. However, there are some lucky people who are being paid back by developers, or their new owners, usually banks, when the original developers went bust. Arenal 2000 is a good example.

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