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Buying a house before its even been built is not as ludicrous as it may sound. This particular method of buying has seen spectacular profits for purchasers over the past few years in the Canary Islands and beyond. BUYING ''OFF PLAN'' means just that. You reserve a property on a new development before the construction is completed - often before it even has begun.
As you are being asked to buy an architect's drawing and an empty plot of land, the prices are set accordingly, i.e. lower than purchasing the property once completed. Additionally, as a norm you will only need to pay between 20% & 30% of the purchase price as a deposit and a further 10% to 20% (this varies with developer) spread over a period of 12-15 months with the balance on completion of the construction that can then be financed by a local mortgage.
As the construction starts and the development begins to take shape, or a show home is completed, the sales price is increased substantially as other buyers can see what the homes will look like. Once the development is finished, other buyers are naturally willing to pay more for the finished product rather than a flat plot of cement and rubble. The question is, would you buy a property that you could not use for 18-24 months? And the right answer is 'Yes', if you are a wise investor.
As an additional bonus, if you sell the property you purchased off plan prior to its completion, i.e. before you take the possession of the title deeds (Escritura), there is no Capital Gains Tax to be paid, no matter how big a profit you make. Also, you do not incur any legal fees as you have not yet taken ownership of the property.
You may ask yourself why the developer allows you to do this and what is in it for them. At the time of pre-construction the developer is eager to sell as many units as possible to minimize his risk and to negotiate lower interest rates from their investors, thus the properties are priced at extremely competitively at this stage.
Remember that only a 20 to30% deposit is often all you need to invest to buy off plan. Many raise this money by releasing equity in property they already own by re-mortgaging. It is a case of borrowing money at a relative low interest rate and investing it into an investment, this way only paying a substantially lower rate. You do the maths!