Cowboys on the Spanish property market: back from (never) being gone?

In 2018, we wrote in an article about cowboys on the Spanish property market that amateur Spanish construction promoters found it harder to enter the market because of the financial crisis. Today, three years later, the market looks different. Are the cowboys back?

Popular Spanish property market

Due to the corona crisis, second homes have become very popular. And because of low interest rates, potential buyers can borrow cheaply. Driven by these market conditions, we are seeing several new promoters entering the market. However, our practice shows that these promoters are not following the rules very closely. This mainly affects buying on plan in Spain.

What to look out for when buying on plan in Spain?

So what do we come across in recent files?

The most common problem is the lack of a bank guarantee. A bank guarantee protects your interim payments to the promoter and is nevertheless required by law.

Banks assess promoters for sufficient solvency before issuing a bank guarantee. However, small promoters or new promoters often do not yet have a track record. For example, we have files with promoters with registered capital of €4,000. Moreover, due to the 2020 lockdown, there have been fewer sales, resulting in liquidity problems. And banks are stricter in granting financing or guarantees because of the corona crisis.

There are also promoters who already started the works without building permit. In that case, it is advisable to suspend contract payments until the building permit has been granted. It is best to include this possibility in a separate annex.

Finally, some property developers are still not being a registered owner of the land on which they build. Often this has a specific reason, so there is no standard solution available. For example, the parent company may own the land. Or the promoter is still in the process of purchasing the land.

Read more about a bank guarantee in Spain.

Specifically, what does this mean for your purchase?

Often such situations occur with small promoters in the Costa Blanca and the Costa Calida. And with big promoters setting up separate companies for each project.

However, this does not necessarily mean that you cannot buy safely in such a project. However, it is recommended that you wait to make a contract payment until the promoter comes up with an acceptable solution. Such a negotiation does take time and finally not every promoter is willing to do so. Therefore, it is important that you are well informed beforehand.

Read more about the purchase process of new construction in Spain.

Do you have any questions about buying new construction in Spain? Then feel free to contact on.

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