Pros and Cons of buying a property off-plan with a mortgage in Portugal
More and more buyers are using real estate loans to become owners of a new property in Portugal.
In order to deal with the lack of housing supply in the real estate market, buying a new property off-plan is the best alternative for buyers and investors in Portugal.
This situation is not new, but it has been growing in recent years, and is resulting in the launch of new residential housing developments in many cities to meet this supply shortage.
The scarcity of offers is one of the main levers of this trend, which attracts more and more buyers to new properties.
TAGUS NOVO explains the advantages and disadvantages of investing in real estate through a mortgage.
The sale of a new development begins before its construction: it is when a certain minimum percentage of reservations is reached that the developer begins the operation. The sale in the future state of completion extends during the work and allows buyers to reserve the last available properties before their delivery. In both cases, it is a purchase based on a plan: a 3D model of the new residence and the apartment or house are used to represent the final rendering, as well as the plans of the rooms describing the volumes and equipment. Other information provided by the developer helps the buyer to plan ahead, such as materials and floor and wall coverings.
Buying off-plan means buying a property from a developer before it is built. The property is reserved for you, but you will have to wait until it is built to enjoy it.
A legitimate question! Buying off-plan has several advantages.
First of all, buying off-plan means buying a new-build home.
Therefore, no renovation is required for several years. The buyer has no work to do, nor any maintenance work in the short term. Moreover, the newly built home meets current standards, particularly in terms of energy performance and safety.
But the advantages of buying off-plan don’t stop there!
Indeed, buying an apartment or a house under construction has another important advantage, the price! These properties are generally sold at a lower price at the start of the development.
In Portugal, it is not uncommon to see prices increase as the work progresses. The longer you wait, the more expensive the prices and consequently the lower your return on investment.
One of the key moments in the marketing phase of a new home that allows you to reduce the bill is the first few days of the program launch. Indeed, on the first day of the marketing of new housing, many developers make a gesture intended for the very first purchasers.
So keep an eye out if you want to buy a new home, and keep up to date with all the upcoming programs that will be launched soon, you could make a good deal by reserving your new home the first day of the launch.
In some developments, it is also possible to customize the home and choose finishes, fixtures and materials. Some developers even allow small modifications to the plan itself, to meet the needs of the buyer. All of these details must always be validated and put in writing in the purchase contract.
Finally, for those who do not have full financing up front for this type of project, they may have some flexibility in the payment schedule. Most developers are often willing to negotiate the payment schedule, as they are used to their clients needing to use credit to finalize payment.
When you buy a new apartment or a new house off-plan, you are buying a property that is delivered turnkey. You have to be patient and wait until the property is built and delivered. There is also always the risk that the work will be delayed and that the initially planned delivery date will be postponed.
If the builder does not respect the deadlines fixed in the contract, this can have consequences on the conditions of the real estate loan that you wish to contract to buy your property.
Compared to the purchase of an existing new home, the off-plan purchase project may also have other disadvantages.
On the other hand, it is not always easy to project yourself in your future home or to estimate the space and luminosity of the rooms, the height under the ceiling, the vis-à-vis, or potential nuisances (sound or visual). Moreover, beware of unpleasant surprises when you move in, such as certain defects, which are often difficult to report, even though you are partly protected by the guarantee against hidden defects and the builder’s warranty (5 years in Portugal).
For an existing new property, the buyer also takes the risk of finally obtaining a home that does not suit him. Hence the importance of clearly detailing their needs in the reservation contract!
However, you can visit the property and its environment before buying it and thus more easily project yourself and be sure of its qualities and defects.
Many banks are rather reticent on this subject, which can call into question the feasibility of your project.
In Portugal, few banks offer to finance the purchase of an off-plan property. As a general rule, banks are more willing to finance this type of project when the property is already built or delivered.
Financing a purchase on plan, involves more risks for the banks, because at the beginning the land and the project are in the name of the construction company, and it is therefore impossible for the banks to issue a mortgage on the property in the name of the client requesting the mortgage.
In this case, you will need to have enough equity to commit to the purchase process, and then take out a home loan to finalize the purchase amount of the property.
For banks that accept to finance the purchase on plan, the borrowed capital will be released as the construction progresses. During the first few years, you can therefore only repay the corresponding interest.
To summarize, it is important to contact several banks to compare the conditions of this type of credit before committing yourself to the purchase of a property on plan.
Be sure to analyze the rates charged, the amount you will have to pay and the amount you will have to finance.
The seller undertakes to sell you his property and you undertake to buy it from him if all the conditions are met. Indeed, if your purchase depends on a loan from the bank and if the bank grants you a loan, you will not be able to reconsider your decision to buy.