Buying Off-Plan

Courageous Property Buying that Might Save You Money

Last week I wrote about changes to Portugal’s Golden Visa program. Today we look at real estate options for those that are planning a move in two-three years. It’s called buying off-plan, and it goes like this.

Coming soon to Vila Real de Santo Antonio

Lots of Buildings

There are a lot of buildings like this in nearly every city, town, and village in Portugal. We pass this one, about 2 blocks from our apartment, whenever we walk into the center of town. I noticed the sign the first time I passed by. It piqued my interest. If you have been with us for a while you know that I am convinced that in a former life I was an architect or property developer so I was curious.

I had had a similar interest in a very large, very deep hole across the street from CUF Hospital in Cascais. As I had physical therapy there three times a week for 6 weeks after my elbow surgery, I had lots of opportunities to visit the upscale sales trailer parked nearby. A sunny salesperson was happy to walk me through the available floor plans for the future Link. All units in the first building were already reserved. Only one T2 was still available in building #2. The salesperson offered that about 75% of the buyers were Portuguese speculators, who did not plan to live in the units. They would likely sell their interest before the building was completed in 18 to 24 months.

Courage and Precautions

Of course, if you aren’t a Portuguese real estate speculator buying off-plan takes courage! It also takes vision. While some Portuguese developers and real estate agents are now including “virtual tours” on their websites, some people just need to walk in the front door. And, as we wrote before, the process of buying any property in Portugal is likely a bit different than what you are used to. It requires legal advice. In addition to the protections required to purchase a building you can see, consider the following:

• First, the area. How familiar are you with the area? If you have only visited for short periods of time or done a single exploratory visit…buying off-plan is probably not for you. If you are purchasing to live in it in the future, you want to be certain you will be happy with your new locale.

• Second, the builder. Builders sell properties off-plan so they can use your money rather than their own. What is their experience? Will they deliver on time? What is the quality of workmanship you can expect? etc, etc.

• Third, resale. While the housing market in Portugal has gone up … be cautious. Housing prices have gone up across Europe. And Portugal seems a bargain when compared to the rest of Europe. However, all markets have “corrections”.

During the year to October 2021, the median price of dwellings in Portugal surged 10.61% (8.63% in real terms) … Property prices in Portugal started to recover in 2014 and have been rising since. House prices rose by 4.9% in 2015, 5.7% in 2016, 7% in 2017, 9.7% in 2018, 11.7% in 2019 and 6% in 2020. … As of October 2021, Portugal’s nationwide house prices were about 40% above their previous nominal peak, seen in 2010. The housing market began to recover in Q4 2014, after 13 consecutive quarters of y-o-y house price declines. — Global Property Guide

• Finally, the process. Typically a buyer will Reserve a property with a modest refundable deposit. Once the builder has a license to build (Licença de Construção), the buyer signs the Promissory Note. (You may recall we purchased our property in November and are still waiting for a building license. Our hope is that we have it by the end of March.) The Promissory Note typically requires a 20% deposit. However, in real estate, there are always negotiations. The balance is due only when you sign the deed and can move in. To protect your deposit, work with your attorney to register any payments and/or consider purchasing insurance to protect your deposit should the builder not deliver.

Benefits

However, if you are brave, have the vision, and take advantage of all available legal protections there are benefits to buying off-plan. The most obvious is paying a lower price. The builder will be willing to sell pre-construction units at a discount and if the market continues to increase in value you may earn 20% on your money over 2 years. Early buyers also can snag the best locations in the building … ocean rather than alley views. Finally, if you aren’t able to move for a few years and are 100% certain this is where you want to land…then the timing may be perfect.

However, all real estate speculation requires caution and due diligence. So you will want to do your homework! And just to be clear, even then, there may be snags along the way. Denise and I looked at a beautiful T3, river view apartment built by an established, well-regarded property developer in VRSA. The apartment was done to a very high standard! It was immaculate and 100% complete! However, the seller/builder had not yet received the “occupancy license” (Licença de Utilização) and could not give us a definitive move-in date. That was in July 2021. Today, the building remains unoccupied. Not because there isn’t interest or reservations. It is because he is still waiting for the license … it seems an exterior wall is not exactly where it should be. I’m told this is the first time in over 20 years that this developer has ever had such a problem. Will he pay a fine? Will he receive a waiver? Who knows? And who knows when?