Learn how the payment plan for an off-plan home works. How many payments do I have to make before the home is completed and how much is each payment?
Buying a home off plan has certain advantages over buying a property already built. In addition to offering you many more customization possibilities (distribution, equipment, home automation…) the purchase of an off-plan property also allows a greater flexibility of payments and less financial effort on the part of the buyer at the time of the acquisition.
But how do you pay for an off-plan home? Despite its advantages, paying for an off-plan home often generates a lot of uncertainty because buyers must make a series of payments on something still intangible. What if the home is never built? What if it is not what you expected?
Payment plan for off-plan housing
Before making the purchase, it is essential that you make sure that the payments of the new construction property are guaranteed or insured by the real estate developer. In this way, you will be guaranteed a full refund of the money, plus taxes and interest, if the property does not obtain the necessary licenses to be built or if the delivery deadlines are not met.
The following is an overview of the types of payments that exist when buying an off-plan home.
1st Reserve
The time to reserve an off-plan property is when the development does not yet have a building permit . The buyer can make a reservation to block the property and prevent the property from being sold to another client. The amount to be paid for the reservation varies depending on the developer, but it is usually between 3,000 and 5,000 euros.
The amount paid as a reservation will be deducted from the final price of the property.
2º Purchase and sale contract
At the moment the developer obtains the license for the construction, he calls all the buyers who have made a reservation to sign the purchase contract. At this point, the buyers usually make the first payment for the property, an amount that is usually between 7% and 10% plus taxes of the cost of the property.
We remind you that in the Canary Islands the VAT paid when buying a new property is replaced by the IGIC, Canary Islands General Indirect Tax. This tax is 7% of the final price of the property.
3rd Payment plan
Once the purchase contract is signed, the payment plan agreed between the client and the developer usually begins. This payment plan usually requires the disbursement of another 10% of the value of the property (plus taxes) and is usually divided between the number of months pending from the signing of the contract and the end of the construction work.
In this way, the client will make monthly payments for the duration of the works (normally between 20 and 24 months), ensuring that the contributions are directed to the construction of the house.
4th Mortgage
Once construction has been completed, buyers will have to pay the remaining amount of the property at the time of signing the Public Deed. At this time, the buyer will have already paid between 70% and 80% of the value of the property, depending on the agreement.
If the buyer does not have sufficient liquidity to pay the outstanding value, he may apply for a mortgage from his bank. Mortgages for off-plan homes are not applied for at the time of signing the purchase contract unless the home is already built. Off-plan mortgages are applied for once the completion date is known, specifically 3 to 4 months before it is due to be completed.
Having had more time to save, buyers tend to get better mortgage terms when buying an off-plan home than when applying for a mortgage on a home that is already built.
In addition, in Destiny Home we offer a financial service through which we take care of finding the mortgage with the best conditions for our clients. A way to save on an operation of such magnitude as the purchase of a house.
Example of off-plan housing payments
Let’s imagine that we are going to pay for an off-plan home worth 210,000 euros. In this case, the payment plan would be distributed as follows:
- Reserve: let’s imagine that we have to pay a fixed amount of 5,000 euros.
- Contract of Sale: 10% of the value of the property + 7% IGIC – Reserve = 21.000 + 1.470 – 5.000 = 17.470 euros.
- Payment plan: 10% of the value of the property + 7% IGIC (for an example of 24 monthly payments) = (21,000 + 1,470) / 24 = 936.25 euros/month.
If we buy a newly built house in Fuerteventura for 210,000 euros, we will end up paying 224,700 euros taking into account what we will have to pay for IGIC.
Of those 224,700 euros, at the time of applying for the mortgage we will have already paid 44,940 euros, that is, 20% of the total value of the property. This means that if we need financing, we will only have to do it for 80% of the value of the property.
Looking for new construction in Fuerteventura?
At Destiny Home we are the number 1 company in the sale of new developments in Fuerteventura. With more than 20 years of experience, we offer our clients a wide range of real estate services including: brokerage, consultancy, investment, promotion, construction, decoration…
If you are looking for a new property in Fuerteventura, in Destiny Home you will find the best real estate developments.
In addition, and after the success of Villas de Tamaragua, the first new cooperative housing development that managed to reserve 100% of its homes in just 2 months, at Destiny Home we have created a Cooperative Property Exchange so that you can be the first to know about the new developments of new homes that will come on the market.
Questions and Answers about New Construction in the Canary Islands
Since 2021, the Canary Islands have shown an unusual trend in the real estate market: new construction is cheaper than second-hand housing. According to the Association of Registrars, in the first quarter of 2024, the average price of new construction in the Canary Islands stood at €2,110 per square meter, while used housing reached €2,243 per square meter.
These are some of the reasons why new construction in the Canary Islands is cheaper than second-hand housing:
Peripheral location: New homes tend to be located in less central areas than used homes, which are located in consolidated areas with all services nearby, raising their price.
Less Affected by Inflation: New construction housing transactions reflect prices defined years ago, as they are off-plan purchases, so they are not as affected by current inflation.
Supply Shortage: There is a limited supply of both new and second-hand housing, which increases demand and, consequently, prices.
Longer Delivery Times: Buyers prefer ready-to-move-in homes, which is more common in the second-hand market. Longer delivery times for new construction can be a disincentive for some buyers.
Finding new build developments in the Canary Islands can be difficult due to the scarcity of product. At Destiny Home, we are proud to be the first company to market new developments in Fuerteventura. We currently market Villas Tamaragua, the most ambitious new development on the island, with 110 cooperative housing units.