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Because it can be cheaper, many expats decide to buy off-plan property in Portugal. That is, to pay for a property that’s not built yet. (Usually, the build will take up to two years.)
Buying off-plan can be financially rewarding. In Portugal, the buyer is required to provide a small percentage upfront — usually circa 20%. In the time between the build starting and completion, the value of the property can increase.
At the same time, buying off-plan can come with its risks. It’s of paramount importance that you do your due diligence beforehand. In this article, we’ll go into some of the perks and some of the risks, along with some things you need to consider before taking the plunge.
The perks
There are a number of benefits to buying off-plan property in Portugal. First and foremost, it allows you to buy property that’s often far below the market rate.
It’s true also that your property can grow in value by the time it’s actually built, giving you the ability to potentially sell at a profit straight away. This can be great if you’re investing and building up a portfolio of properties, with the aim to make a profit.
What’s more, deposits are often smaller, and staged payments are common. It’s often possible to secure a ‘new property’ warranty, which protects against construction defects
The risks
However, buying off-plan also means more risk. It’s vital you do everything you can to minimize that risk: Do your due diligence on the developer or agent. Check that the planning permission and building permits are in place, along with the proper credentials.
In order to help mitigate the risk of late delivery or incompletion, both you and the developer need to have insurance in place. Make sure this is the case.
Make sure you obtain a bank guarantee to cover your payments if the property is not delivered on time. Be sure to get legal help in doing this, as some banks may refuse to honour the guarantee if the wording isn’t correct.
Make sure that the developer has actually registered the land with Portugal’s land registry. (This should be a given, but it’s better to be safe here than very sorry.)
If you’re planning to buy-to-let, or to sell the property for a profit at any point, do your research to make sure there’s actually demand for this kind of property in the right location.
Above all, buying-off plan requires diligence on your part. There are a lot of potential benefits, but you need to do your research to make sure you avoid any (or all) potential pitfalls.
Off-Plan Payments
In terms of payment, off-plan properties require you to make a down payment initially, before paying a deposit of around 20% when you sign the contract.
The final payment will be paid when the build is completed.
Things to consider before making the decision
Research the developer
It’s best to spend some time researching the developer. Look them up — ascertain they’re reputable at what they do and inquire into their previous developments.
It’s also worth checking the company’s online reviews to see what previous buyers have said. Social media can also provide a good resource. Bear in mind, though, it is unfiltered.
Developments can often have teething problems. Look for reviews from expats who have gone through the entire process, start to finish, to get the most accurate idea of the developer’s reputation.
What about haggling?
Unlike standard properties, off-plan real estate is usually more open to negotiation, especially at the start of the development. Off-plan developers always require capital, so the more cash you have, the higher chance you have of haggling a better price.
For instance, your developer may knock off some fixtures and fittings, or cover your stamp duty — yes, the UK’s favourite tax is also required to pay in Portugal.
You’re also more likely to strike a deal if you’re buying more than one property from the developer. It can be cheaper by the dozen, so to speak.
But if that’s not you, and you’re planning to use a mortgage to back your purchase, it’s still worth negotiating. After all, if you don’t ask, you don’t get.
Have you ensured proper protection?
Legal assistance is an extra cost, and it can be a large one. But if you can afford it, it’s usually worth it. They’ll be able to go over the paperwork with a fine-tooth comb.
The main reason for this is to ensure that the developer is insured, and everything is covered. In the event of the developer going bust, you’ll be able to get your money back.
We’re Privalgo — specialists in foreign exchange. We are authorised by the Financial Conduct Authority (FCA) as an Electronic Money Institution.
Through leading exchange rates, zero fees and innovative solutions, we help Brits save money and time when they move to Portugal. Get in touch today to see how we can help you build a rewarding foreign exchange strategy.
