Property Developers often sell some or all of their properties before they have finished building them. This is known as selling “Off Plan”.
The main attraction for members of the public to buy “Off Plan” is to save money. Property in Portugal is still growing in value and, by paying a deposit to secure today’s prices rather than paying a higher price at completion, profits can appear to be certain. But beware.
The risks
Buying property in a foreign country can be very exciting and profitable but there are risks. All developers require a deposit at the time of signing their Promissory Contract (this document simply states that “You” agree to buy and the “Developer” agrees to sell the property). Deposits (20% - 30%) are usually paid from hard earned savings. That’s as much as 75,000 euros on a typical 250,000 euros purchase.
Many buyers, in the past, have paid substantial deposits to buy their dream home, only to find out later the property was over valued. This has often made it impossible to secure a mortgage to pay the balance. Under Portuguese law, a developer is entitled to keep your deposit if you do not pay the balance when the property is completed. If you need a mortgage and your bank values the property at a lower price than you are expecting or, for any other reason, are not prepared to lend you the money necessary, you will lose your deposit.
How it’s sold
Very few developers in Portugal sell direct to the public. Instead, they tend to engage Property Marketing Companies to sell their properties for them. Property Marketing Companies earn high commissions – sometimes as much as 12 per cent based on the price you pay! Moreover, some even sell property on behalf of other estate agents and inflate their listed prices to increase their own commission.
So beware. Buying a property in Portugal can indeed be very exciting and profitable but consider this: would you dream of buying a property in the UK without first getting mortgage approval from your bank and having the property valued?
Is there a better way?
The simple answer is yes. Before you commit to buying a property:
Request a bank valuation of your chosen property.
Get your chosen bank to offer you (in writing) a mortgage budget to spend. This way you know in advance that you can afford to complete on the property.
Don’t be pressured into signing up on the day. There are thousands of properties in Portugal. If the Property Marketing Company is pressurising you to pay a deposit before you have verified your financial position, they are looking after their interests not yours.
Five companies have joined forces to provide property buyers with a safe low cost solution.
• Helena Dias
Estate Agents
Offer advice on quality
Off Plan Developments
• Portutax
Fiscal Representatives
Provide full Fiscal
Representation Services
• HLB Gibro
Mortgage Brokers
Arrange pre-approval of your mortgage
• Veronica Pisco
Lawyers
English speaking
comprehensive legal services
• BPI Bank
Financial Services
Provide funding for your purchase
Clients introduced by Off Plan Properties Limited can enjoy free professional services from these companies and can secure their chosen Off Plan Property without paying a penny. Properties sold are pre-valued by the bank and a mortgage offer is made in writing so that you know how much you can spend before you sign. All professional fees are paid, from the commissions earned, when you buy your chosen property.
The bank can also provide a loan on an interest only basis to pay for your deposit at an effective zero per cent rate. This is because part of the commissions earned is used to pay all of your interest charges until completion.
No legal fees to pay
No valuation fees to pay
No mortgage broker fees to pay
No fiscal representation fees to pay
No deposit payment required
The bank can provide a mortgage upon completion of up to 100 per cent of the purchase price. They can also provide a further advance to cover any property taxes (IMT and Stamp Duty) due.
The Future
Now that such services exist in the market, it is hoped that the days of “hard sale” unethical property sales are coming to an end in the Algarve. Many buyers have been stung by over valued properties in the past, however, there is no need for you to be caught out. Just stick to the fundamentals and you can enjoy a profitable, enjoyable Algarve property experience. You have been warned.
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