Buying off-plan in Spain: the perks and perils

A Spanish law firm recently estimated that as many as 100,000 UK investors who lost money when the Spanish property market collapsed could be entitled to payouts. In this article, Keystone’s Spanish property expert, Susana Lajusticia, examines the pros and cons of taking a leap of faith and buying off-plan.

Following on from a Supreme Court ruling in Spain last year, a number of Spanish banks have been ordered to pay investors back for the deposits they put down on homes sold off-plan. The ruling, dated 21 December 2015, declares that the banks were responsible for this off-plan deposit payment that was made to the developer via accounts with them. As a consequence the Court deemed that they must therefore indemnify the purchaser with the amount of the deposit payment plus legal interest.

The ruling

The ruling states that, in purchases ruled by the 57/1968 Spanish Act, banks are bound by and responsible for the deposit amounts received from purchasers if they have received such deposit payments in a developer’s bank account without the requirement for a special account to be opened and with the necessary guarantees.

The aforementioned 1968 Act states that any deposits paid towards the purchase of an off-plan property must be deposited in a special bank account and separated from any developer’s funds. Therefore, banks are responsible for requesting the appropriate guarantees. As per the ruling, banks are liable for those amounts paid by purchasers to developers if they have failed to open a special and separate bank account to receive those funds in.

Thousands of people who bought properties off-plan before the property market crash in 2008 have been caught up in the turmoil, having discovered that their properties were never finished or even built. Those who have their funds and deposits properly guaranteed by way of a bank guarantee or indemnity policy were lucky to recover their investments, while others were unable to recover them if they lacked the said guarantees.

But for those left unprotected, this ruling brings some hope that they might finally be able to recover those deposits that were paid and never recovered.

Over the years, buying off-plan has been a hugely popular option in Spain, with many investors relishing the opportunity to save money on their purchase. But the above case should serve as a reminder for buyers that there is always a risk that developers and their builders may go out of business or even bankrupt as a result of market instability.

So what are the essential tips for buyers considering buying off-plan in Spain?

Guarantees

• Before investing in any off-plan property, check that the developer has taken out the necessary guarantees to ensure that investors are duly compensated if anything goes wrong. Always consult with representatives of the bank that is behind the guarantee.
• Often, buyers are obligated to make a down payment with further payments due as development progresses. Always look into this payment schedule before agreeing to anything, to ensure that you are able to meet the payment requirements.
• When considering total costs of a property, always take into account whether areas such as the kitchen will be furnished or unfurnished. Developers are usually fully equipped to offer buyers a choice of fixtures and fittings. You may even be able to make choices on the design itself.
• Consult with a specialist lawyer who can advise on a range of pre- and post-purchase issues. In particular, they can help you when signing your contract, ensuring that everything it contains works in your favour. This is also a great way of keeping the developer on schedule.

Payments

Furnishings

Legal advice