Today, Portugal is experiencing a peak of new construction: trust and reliability have returned to the national market, and the client making this kind of transaction has every guarantee that his investment will not be compromised.
If you are looking for a liquid property, but are in no hurry to move, buying a property in the planning or construction phase is an opportunity worth considering. Obviously, this is beneficial for the developer: they guarantee themselves buyers even at an early stage of construction, and the payments they receive allow them, in most cases, to finance part of the project. And what about the buyers? Of course, this option can provide more affordable prices, although it requires some caution, so it is important to know its advantages and disadvantages before deciding. Now for the details.
Buying real estate under construction is becoming an increasingly popular option among large and small investors in the context of the shortage of affordable housing. This trend is not new, but it has gained momentum recently due to the emergence of new residential projects on the market. The shortage of housing is one of the main drivers of this "fashion": the opinions on the strengthening of the trend among industry professionals are unanimous, all of them pointing to the lack of supply as a major driving force behind this market movement. Against this backdrop, recently introduced residential projects, more oriented towards Portuguese middle-class families and located on the outskirts of major cities, stand out on the market. This happened after the investment trend began to manifest itself primarily in the high and middle-income segments, which have been more active in the market recently and have more financial capacity to move into this type of solution.
The purchase of real estate that is in the planning phase or in the initial phase of construction is the largest financial investment you can make. Making a conscious decision to purchase such a property, after weighing the pros and cons, will make the whole process much easier. Let's not deny that buying something that is not yet complete carries with it increased risks, the most obvious of which is that the property will not be completed on time or, in the worst-case scenario, will not be completed at all. We are also concerned about making an upfront payment for something that does not yet exist, especially if you will be dependent on bank financing. Considering these 2 factors, buying a property under construction can be characterized as a risky transaction. Given this, you should try to learn as much as possible about the developer from whom you plan to buy real estate, and even more carefully study all the documentation.
5 advantages of buying a property under construction:
- Savings. Buying at the planning stage or initial construction, you can save a significant amount of money. Such real estate is usually cheaper than already completed, moreover, at this stage you have more opportunities to negotiate the price and can count on a greater potential growth in the value of your property in the future (capitalization).
- You are buying a 100% new property. Your new home will certainly be built with the latest materials and technology, for example in terms of soundproofing or air conditioning. And if any construction defects are discovered, they are legally covered by the builder's warranty, which should also be stipulated in the contract of sale.
- Your preferences in terms of comfort will be considered. When you buy a property under construction, you will in principle have the opportunity to take advantage of certain bonuses: it is easier, for example, to get an apartment with a good sunny orientation, on the floor you want, or with the most convenient parking space. At this stage, you can also choose the finish, such as the color of the walls or floor. And of the pleasant things for the future - you will also have plenty of time to draw up a design project, search for furnishings and decorative items, and do not miss the opportunity to take advantage of sales and promotions.
- Staggered payments are a time saver, so you don't have to use the bank financing all at once. Payments are staggered, allowing you to plan for the funds to pay off your obligations. At the very beginning, you must pay a down payment to reserve the property, the amount of which varies depending on the developer and the type of property being purchased. Then, when you sign the preliminary contract of sale - contrato promessa de compra e venda, abbreviated CPCV (the bank Caixa Geral de Depositos has even written a memo about what points must be in it must be spelled out), subsequent payments are made as the construction work progresses.
- Time to plan for life in your new home. Moving is always an ordeal, and it often involves a change of habits. Buying a property under construction gives you more time to prepare for the move and reorganize certain aspects of your life. For example, if you have children, you will have more time to find a school or daycare near your new home.
The advantages are more or less clear. Let's move on to the main topic of concern - what are the disadvantages of this purchase scheme, and what are the risks?
A common disappointment when buying at the construction stage - the property after delivery may not meet your expectations (in the picture and on paper, everything is beautiful, but in fact, it may not be quite so). But mostly buyers are concerned, of course, about financial risks, for example:
- The likelihood that the construction work will not be completed. The biggest fear of those who buy real estate under construction is that the work will not be completed due to financial difficulties of the builder. However, this situation is the exception, not the rule. One way to avoid this risk is to learn about the solidity of the construction company with which you would like to do business, and try to understand the history of its work (thanks to an experienced real estate agent). The main risk for developers is related to the possibility of failure to meet deadlines (that is, the work will not be completed due to lack of funding or insolvency), while for the buyer the risks are the postponement of the object or perform the work at a lower quality than expected. In the most extreme case, the developer's failure to complete the project could lead to a default situation and litigation with risk to the buyer's capital paid to date. But, all risks are spelled out in the contract, including compensation and penalties, both from the builder and your forfeitures, in case of late payment. Court proceedings may last for several years, knowing the Portuguese sluggishness and slowness, it certainly threatens to freeze your money for some time, but you are unlikely to lose them completely - the court stands on the side of the buyer.
- Delayed delivery of the object. Another possible pitfall when buying a property under construction in Portugal are possible delays in the completion and delivery of the object, especially important if you need the home by a certain date. To ensure that your rights are taken care of, the preliminary contract of sale should provide for such situations and compensation for missed deadlines. The risk is relatively low, but the timing of the project may differ from what was originally planned, which could lead to a change, including in lending (if you need to borrow money from the bank to purchase the object) - may increase the interest rate or in principle the very conditions of the mortgage.
- Well, as I said before, the final result will not meet expectations. Disappointment in the result is another risk. It may be that what you initially liked when you saw the plan may turn out to be less appealing after construction is complete. To avoid this, it's important to make sure that you understand all the information on the plan, including, for example, the square footage or the location of doors and windows. If you have any doubts, they should be clarified before you commit to a purchase.
Experienced real estate experts have formed 4 tips that should be kept in mind when making a deal to buy a property under construction because this option always requires more attention to certain aspects, both legal and technical, compared to buying a ready-made property. By the way, one of the priority tasks of an experienced real estate agent is to determine the potential appreciation or possible depreciation of the future property based on a number of factors to assess the liquidity of the transaction in advance.
- Do not neglect the services of a real estate agent. Saving on the services of professionals can play a bad joke because in addition to their advice on choosing the object and a reliable developer (they know the market well and can be useful in gathering accurate information about the developer and his biography), you can always count on the support of the legal services agency in the preparation of preliminary agreement, the sales contract and other fundamental documents to protect your rights. It is better to contact a specialist who speaks the same language as the subtleties of translation in such an important matter can be crucial, and in case of misinterpretation, may result in financial losses.
- Be sure to visit a showroom or an already completed model property similar in features to the one you are purchasing. Although it is not an exact replica, you can get a better idea of the size, layout, or quality of construction. You can also get some ideas on how to decorate or make the best use of the space available.
- Anticipate every detail for the future. Firstly, it is the location, then the price/quality ratio of the product, the reliability of the developer combined with the anticipated completion date, the typology of the object and other characteristics of the product. When buying an apartment in a house under construction, even if it is not on the cadastral plan, it is always important to know what city plans exist for the area. If we are talking about real estate in a project, this is even more relevant, given the period of time that will pass between the start of construction and the completion of the work. Try to understand what the area will be like when you move in, what development projects exist for the area. Research the ones that exist: do they improve or devalue the place? Look for news and try to get information in the public documents of the municipality (Câmara municipal), such as the municipal master plan (PDM - Plano Diretor Municipal). This plan regulates the use of land, the location of infrastructure, etc. Thanks to this document, you can see whether there are plans to build in the area, which could, for example, disturb the view from the windows or be a source of noise.
- Carefully read the contract with the real estate agents and lawyers. A written document signed by both parties is the best way to ensure that if something goes wrong, your rights are protected. It is important that this document (which will be, as I mentioned before, a preliminary CPCV contract) include a deadline for delivery of the property and a detailed payment plan, as well as penalties (for both seller and buyer) in case of non-compliance.
Is it possible to take a loan from the bank for a transaction to purchase real estate under construction?
Of course, it is possible to access bank financing to purchase during the construction phase, but like any home loan, this financing does not cover 100% of the necessary cost. It is important to create a savings account that can be used to pay the down payment and several down payments. Always remember that buying a home always involves another type of expense, including those associated with registration of the transaction (Taxes, notary fees, etc.) For example, for a property worth 250,000 euros, you will need to set aside at least 13,000 euros for taxes and mortgage costs.
Usually banks are available for financing as soon as it is possible to register a mortgage on the property, so in most cases getting a mortgage is postponed until the deed of acceptance or the final contract of sale is signed. I remind you that the down payment in this case is paid from your funds. This formula allows you to pay for the property you're buying little by little until you reach about 20% of the total value of the property, averaging the down payment made during the project and keeping the amount needed to pay taxes and the cost of the process. One of the questions about getting a mortgage is at what point is the right time to go to the bank to request a loan. According to experts, the ideal time is two to three months before the completion of construction and, consequently, the delivery of the keys because, firstly, the economic situation of the family may change due to the length of time between the launch of the project and the registration of ownership. During this period, we can see changes in conditions by the banks, we may (God forbid) lose our job or increase the family due to the birth of a child, for example. And any of these changes will affect the mortgage offer, so a period of two to three months before the date of signing the final contract of sale and acceptance of the property is reasonable to minimize the risks inherent in this process.
Often, the organizer of a new building project (the builder) or the real estate agency cooperating with the project has an agreement with a banking institution. But you should not proceed with a mortgage with their help without studying the market and without knowing the conditions offered by other banks because they, in fact, may be more favorable. The good news for consumers is that banks compete to attract new customers, which allows them to find more attractive offers. Experts say that there is no perfect mortgage, it all depends on factors such as the personal and financial circumstances of the client, the term for which the loan is taken, and the choice between peace of mind at a fixed rate and the benefit of the current negative values Euribor in the case of variable rate. It is factors like these that make it so important to analyze the market before deciding that will determine the next decades of your life.
Useful resources
Information about developers, other than on the Internet by reviews, as well as trends in the real estate market, something about new projects in this area and much more, can be found on the website of the Portuguese Confederation of Construction and Real Estate (Confederação Portuguesa da Construção e do Imobiliário (CPCI). A list of accredited real estate agencies with addresses and phone numbers, articles on the current market situation in Portugal and much more can be found on the website of the Association of Real Estate Professionals and Intermediaries of Portugal (Associação dos Profissionais e das Empresas de Mediação Imobiliária de Portugal (APEMIP). In terms of finding the properties themselves, there are numerous well-known aggregators that can be used when looking for properties under construction (casa em planta or nova construção), such as Idealista, Imovirtual or Supercasa.
I hope this article was helpful to you. As always, I want to wish you all the best of luck!
Translated from Ukrainian by Rodion Shkurko
