OFF-PLAN property resales have been hard to come by since the days of the real estate boom; in fact, they have been all but absent.
But with the property market finally rising from the ashes of the devastating real estate crash and new build properties being gradually offered to the public -and fast snapped up by speculators and consumers alike-, many off-plan buyers are finding that there is now a market to sell on their contracts before they get the keys to the properties.
But what are their options from a legal and tax viewpoint?
There are two methods to transfer the property rights, although both will require the consent of the developer:
With the first, the current buyer terminates the contract with the property developer who will refund the deposit paid.
Simultaneously, they will sign a new a fresh new off-plan contract with the new buyer.
Any profit or premium will be settled between the parties although, almost always, the developer will demand just compensation -often times called commission- for consenting to the deal.
This method would avoid -and evade- taxes as it is not obvious that a resale has taken place. However, property developers have been in the past investigated for these practices and can be made liable for non-payment of taxes, for which reason this solution is not very popular.
Method two involves the current and the new buyer exchanging contracts for the sale of the off-plan property, paying the relevant purchase taxes and informing the property developer.
The latter party will then either draw up new contracts with the new buyer or just wait until completion, when they will transfer title to the new buyer.
From a tax viewpoint, an off-plan sale will attract a hefty 10% VAT plus 1.5% stamp duty for the buyer when they complete on the sale.
But if a new buyer comes in, they will have to pay, in addition, transfer tax (8% minimum in Andalucia) on the assessed value of the under-construction off-plan unit, or the value of the premium, whichever the highest.
For its part, the vendor will have capital gains tax (19%) on the net profit (the premium minus any commissions paid) although few choose to pay it.
Clearly, buying an off-plan unit can place excessive costs on the new buyer, making it a prohibitive proposal.
It is suggested that prior to offering this to a prospective purchaser, real estate agents lay out the total costs (VAT and stamp duty, transfer tax, CGT, their’s and the developer’s commission) and where necessary, make a more evenly distribution.