Many purchasers buy property before it has been built. This is known as an off-plan sale. However, you should think well beforehand as regards how you wish to pay for this purchase. Two methods of payment exist and each has advantages and disadvantages. Description.
Why purchase property which does not yet exist?
Whenever the apartment or the house which you wish to purchase has not yet been built, this gives you considerable potential for tailoring the property to your tastes and your needs. And, above all, this lets the owner be first-in-line to choose the apartment they wish in the freehold. Basically, the future owner does not choose from “what is left” but chooses exactly what they want. The future owner may choose kitchen colour scheme and fittings/equipment, floor coverings and even shower type.
The purchaser may go even further and decide to have their say on the property’s interior design. For example, if the project includes three bedrooms and the purchaser needs only two, they may redraft the plan of the dwelling and eliminate one. Likewise, the purchaser may choose to do away with the central kitchen island to gain more space in the living area.
How can you make sure that your choices are respected?
Before building begins, a building description is drawn up and signed at the notary’s office by the project manager and the purchaser. This document details the budget allocated for each job (kitchen, bathroom, electricity, floor coverings, etc.) as well as any choices and/or amendments which the future owner has made. In the event where these changes lead to overshooting the allocated budgets – which are included in the selling price – the purchaser must bear the additional costs.
Which methods of payment are used?
There are two ways to purchase off-plan. The first, known as forward or turnkey purchase involves paying an advance of at least 10 or 20% of the property price when you sign the contract. The balance is due when the property is delivered and is generally paid using a pre-obtained mortgage loan. The second solution, known as freehold share acquisition or shared property acquisition, involves taking out a building loan with a bank to purchase the land plot on which the property will be built. The price of the land is generally between 20 and 30% of the total cost of the real estate project. Once the dwelling has been built, the building loan will be consolidated, which means it will become a normal mortgage loan.
Which method is best for you?
When purchasing as freehold share acquisition, the purchaser partially replaces the property developer and bears the costs for risks specific to such a project. In the event where the company contracted to carry out the building defaults or experiences costly delays and/or contingencies, the future owner will find themselves alone to bear the financial consequences. However, the latter benefits from a reduced rate for transfer rights – the tax which a purchaser must pay on any real estate transaction – as these are calculated on the land value and not on the overall property development. It is worth noting that this tax varies depending on the canton; in Fribourg, for example, the rate is 1.5% whereas in Vaud it is 3.3%. As such, choosing the location of the land can lead to considerable savings.
On the other hand, the purchaser who decides to make a forward or turnkey purchase will be obliged to pay transfer rights on the overall value of their property. They will not, however, have to bear any cost overruns related to building the property. As a general rule, we advise future purchasers to prefer this solution, even if it works out a little more expensive, as it is more reassuring for the purchaser.
Is it possible to change your mind once you’ve initiated the process?
Once the deed of sale has been concluded, then the sale is deemed finalized. It would be a difficult task to forgo the acquisition even if the property still only exists on paper. However, in the event where the purchaser cannot or does not wish to pursue the purchase, because of a serious financial issue or something unexpected such as a death in the family, for example, it is possible to find a solution hand-in-hand with the broker. The solution is often another future purchaser who proposes to take the place of the defaulting purchaser under the same terms and conditions.
What if I am not happy with the final result?
You have just taken ownership of your new dwelling and you discover that the shower cubicle is scratched, the flooring is not the one you chose and the oven does not work. What can you do? Legally-speaking, the purchaser has the right to demand that their property corresponds to what was agreed upon before building work began, when the delivery inventory was drawn up. The company contracted to carry out the building is obliged to make any changes required to be in line with the inventory. Furthermore, the deed of sale generally contains a provision concerning timeframes: which are actually included for this type of alteration work.
Would you like more information on this topic? Have you other real estate-related questions? If so, our expert brokers are on-hand and will be delighted to answer your questions and advise you!