Buying a property that is currently under construction requires a different approach than buying a resale property:
Signing a private sale contract with developer
After your estate agent has carried out the relevant due diligence and helped you with the contract negotiations, you can proceed to make the first payment. The payment is somewhere between 10% and 25% (plus VAT) of the price. Once you sign the contract, you cannot back out and should you do so, you will have financial penalties which can include the loss of the money paid as per the agreement.
You necessarily do not have to be physically present in Spain to sign the contract. It can be signed by the developer and faxed for you to sign and send it back. Any signed originals will have to be exchanged by post as it is important for both you and the developer to have a copy of the signed originals. Ensure that the developer send you the originals via post.
Stage payments and construction
After the signing of the private sale contract and making the first payment, you now have to wait for the completion of the project which can take anything up to 2 years. In that time, construction of the property will be on-going and based on your agreement with the developer, you can make a series of stage payments.
Ensure that you receive a detailed official receipt from the developer for any payment that you make for your records. Your real estate agency will push the developer to send you regular progress reports and let you know of any delays that could impact expected completion date.
Final legal checks and signing deeds.
Once the construction is complete, you will take possession by signing a public deed in the presence of a notary. Before the signing, you and your estate agent will need to do the following:
- Verify that the property is certified as being complete by a registered architect (Certificado de final de obras). Never make the final payments to the developer without this information.
- Verify that the property has been or will be given the first occupancy licence by the local government (Licencia de primera ocupación). An agent from the planning department of the municipal authority will carry out an inspection to ascertain that it conforms to the regulations for newly constructed residential properties. Once it’s confirmed, the property will be granted the appropriate licence that will allow you to get a mortgage or have utilities connected to it.
- Ask for a land registry filing for your property to check whether there are any unexpected debts or embargoes on it. During the construction, the developer should have signed deeds before a Notary (escritura de obra nueva y división horizontal) that register the division of the original land into all the separate properties resulting from the construction and the common areas. This will inscribe the property in the land registry, and you can be able to check its status. Only sign the deeds after your real estate agent or lawyer checks the land registry filing (nota simple).
- Verify with the town hall that the property you’re acquiring has no unsettled debts such as unpaid taxes or any other issues that might cause problems.
- Verify that all the necessary insurance has been arranged by the developer to cover any build defects as is required by the building regulations law (ley de ordenación de la edificación). The developer is required to insure the property for minor defects for 1 year, substantial defects for 3 years and 10 years for structural defects. The property manual (libro del edificio) that the developer gives to the community managers should have the insurance.
- If possible, have a professional such as a chartered surveyor check the property before you complete. This helps to identify any problems that would be sufficient cause to delay completion.
Once all the checks have been carried out with satisfactory results, and your solicitor has checked all the draft deeds, you are free to proceed to sign the deeds before a Notary. The process of signing the deeds is describe in this blog.
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