Navigating your off-plan property purchase in Spain

Purchasing an off-plan property in Spain offers a compelling opportunity for homeowners and investors, providing access to new residences, often at favourable prices, with personalisation options and structured payment plans. This approach is particularly attractive given the limited supply in Spain's resale market.

The Spanish legal framework provides significant buyer protections, notably through mandatory bank guarantees. However, successful navigation requires meticulous attention to detail and the guidance of an independent Spanish legal professional. This guide aims to better equip buyers by highlighting critical safeguards and potential challenges.

Off-plan properties in Spain are effectively real estate units under construction, ranging from apartments in new developments to renovation projects or land for custom builds. Each type has distinct characteristics, licensing, and timelines.

Advantages of buying off-plan property in Spain

The advantages of off-plan purchases can be significant:

• Attractive pricing: Typically 15-20% lower than completed developments, potentially leading to capital gains.
• Customisation potential: Buyers can personalise interior design, finishes, and fittings.
• Favourable payment terms: Structured payment schedules over the construction period (months or years) offer financial flexibility
• Brand new condition: Properties are delivered new, minimising immediate repair needs.
• High capital appreciation and strong rental yields: Spain's consistent demand for property, especially in coastal and urban areas, can yield substantial rental returns and value appreciation.

Spain's strengthened buyer protection laws, particularly in 2024, enhance transparency and security in off-plan transactions, mitigating inherent risks when correctly navigated. To know more about Spain's property laws read our article on changes for 2025.

How to buy an off-plan property in Spain

Acquiring an off-plan property in Spain involves multiple stages, each requiring careful attention to legal and financial commitments.

1. Initial due diligence and reservation

This foundational phase sets the stage for a secure transaction.

• Engage a Spanish lawyer and research the developer

Engaging a reputable, independent Spanish lawyer is the most critical first step, before signing any reservation agreement or private purchase contract, and before making any payments. The lawyer will meticulously examine all documentation, advise on contract terms, and ensure legal safeguards are in place. Early legal involvement helps identify and address issues concerning land ownership, planning permission, or developer financial standing, preventing costly disputes.

Buyers must research the developer's reputation, including their track record, quality of past constructions, adherence to timelines, and customer satisfaction.

• Verifying land ownership and planning permission (Licencia de construcción/edificación, cédula urbanística)

The lawyer must verify that the land is legally registered under the developer's name. It is crucial to confirm that the local authorities have issued a building license (Licencia de construcción/edificación) for the entire development before any contract is signed. This license ensures the development's legality and that it's not on protected land.

The Land Registry can confirm if the future building is registered, indicating the license exists and construction has begun. If not registered, the local Town Hall should be consulted to confirm land classification. For rural or unclassified land, additional confirmation from the Regional Government is highly advisable. A cédula urbanística from the Town Planning Department provides vital information on building restrictions and future infrastructure plans.

Verifying planning permission before any financial commitment is paramount, as the legal obligation for developers to provide bank guarantees only begins once planning permission is issued.

• The reservation agreement

The process typically starts with a reservation agreement and an initial payment (usually €3,000 to €5,000) to formally reserve the property, which is then deducted from the final price.

2. The private purchase contract and stage payments

After the reservation, a private purchase contract is signed. The private purchase contract (contrato de compraventa) is legally binding and must be thoroughly reviewed by a lawyer. It should include:

1. Detailed plans and specifications (planos and memoria de calidades): Comprehensive documents specifying built, usable, and total areas, and technical plans.
2. Surroundings and communal facilities: Clear documentation of the developer's commitment to completing communal areas, ideally included in town hall-authorised plans.
3. Infrastructure: Details on utilities (water, electricity, telephone, gas) and verification against town hall-approved plans.
4. Land classification and developer’s title: Re-verification of residential land classification and developer ownership, checking for debts or charges.
5. Clear payment terms: Precise outline of payment amounts, due dates, and corresponding construction progress, with full bank account details.
6. Delivery dates and penalties: A firm completion date with stipulated penalties for delays, and the buyer's right to a full refund plus interest if deadlines are not met.
7. Insurance/Bank guarantee details in the contract: The private purchase contract must explicitly include comprehensive details of the insurance policy or bank guarantee, including the financial institution and policy number.

How to pay for an off-plan property in Spain

Off-plan purchases typically follow a structured payment schedule:

1. Reserve: Initial payment to secure the property (usually €3,000 to €5,000).
2. Contract of sale: First significant payment (7-10% plus taxes) upon obtaining the construction license and signing the private purchase contract.
3. Payment plan: Subsequent payments (typically another 10% plus taxes) are divided into monthly instalments over the construction period (20-24 months).
4. Mortgage/final payment: The remaining balance is settled upon completing and signing the Public Deed.

The critical role of bank guarantees (Aval bancario)

Bank guarantees are the cornerstone of buyer protection for off-plan purchases in Spain. Here are the key points to understand about bank guarantees in Spain:

• Legal mandate: Since 1968, Spanish law (Law 57/68) mandates developers to provide a bank guarantee or insurance policy for all payments made by the buyer before property delivery. This protects against developer failures.
• Coverage: The guarantee covers the full deposit and all stage payments, including VAT and legal interest.
• Separate escrow accounts: Payments must be held in a special, separate bank account used exclusively for the specific development's construction.
• No cost to buyer: The guarantee is issued at no additional cost to the buyer.
• Non-Expiry: The guarantee must not have an expiry date and remains valid until the Certificate of First Occupation is issued.
• Individual guarantees: Developers must provide individual guarantees for individual buyers.

This robust framework shifts financial risk from the buyer to a regulated financial institution. If the developer fails to meet obligations, the purchaser is entitled to recover all money paid, plus interest, with a 15-year limitation period for claims. Buyers typically have 2 years to claim against the guarantee once the developer defaults.

3. Construction completion and handover

As construction nears completion, key documents and processes become paramount.

• Certificate of completion of works (Certificado de final de obras): Before signing public deeds, the seller must provide proof of construction completion via a Certificate of Completion of Works, issued by a registered architect. Buyers should never make final payments without this.
• The Licence of first occupation (LFO/LPO)The Licence of first occupation (Licencia de primera ocupación or Cédula de habitabilidad) is a paramount document for new build properties.
  • Purpose: Issued by the local town hall, it confirms the property complies with building regulations, planning laws, and is legally fit for habitation.
  • Essential for: Utility connections (water, electricity, gas), mortgage approvals, legal registration for tourist rentals, and future resale.
  • Timeframe: Obtaining an LFO can take 3 to 9 months. Developers cannot force completion without this license.
• Utility connections: Developers are generally expected to ensure utilities are in place before delivery. Buyers need a NIE, a Spanish bank account, a certificate of residence, and proof of ownership to contract services. Specific installation certificates are required for electricity and gas. Delays in activating services can occur even with infrastructure in place.
• Snagging process and building warranties: Before a new development's completion, buyers should prepare a "snagging list" for minor defects. Developers typically allow 15-30 days for rectification. Engaging a construction expert for this inspection is highly advisable.

New-build properties in Spain are protected by statutory consumer rights and construction guarantees:

4. Completion, taxes, and property registration

This final stage involves legal ownership transfer and formal property registration.

• Signing the public deeds (Escritura Pública): This is the final step, during which the remaining balance is paid, and ownership is legally transferred before a Public Notary. The buyer's lawyer ensures that any developer mortgage is removed, guaranteeing a clear title.
• Property registration in your name: After signing the public deeds, the lawyer handles tax payments and formal property registration at the Land Registry.
• Understanding property taxes for new builds: Specific taxes apply to new build properties:
  • VAT (IVA): Typically 10% of the purchase price (7% IGIC in Canary Islands).
  • Stamp Duty (AJD - Actos Jurídicos Documentados): Generally 1.2%, varying by autonomous region.
  • Developer-related costs: Contract should state developer covers notary costs for declaring new build and plusvalía (local capital gains tax on land value increase).
  • Ongoing annual taxes: Once registered, buyers are liable for local property tax (IBI) and refuse collection fees.

Other considerations for off-plan buyers

Despite bank guarantees, developer insolvency remains a risk that activates these guarantees. The legal process for claiming against a bank guarantee can still require legal assistance and cause delays. However, constructor insolvency, although a risk, is not the only pitfall. Practical challenges can arise with off-plan properties:

• Construction delays: Common due to unforeseen factors; contracts often allow non-negotiable extensions (up to six months).
• Project variations: Changes to the original project or specifications may occur beyond the buyer's control.
• Difficulty in visualising the finished home: Challenging to imagine the final product, potentially leading to unmet expectations.
• Market uncertainty: Fluctuations during construction could alter the property's value by completion time.

Buying an off-plan property in Spain remains an attractive investment, offering competitive pricing, personalisation, and a brand-new home in a desirable location. While complexities exist, Spain's robust legal framework, particularly mandatory bank guarantees, provides significant buyer protection.

The key to a successful and secure off-plan purchase lies in meticulous due diligence, a comprehensive understanding of the legal process, and the unwavering support of an independent Spanish property lawyer. By adhering to these safeguards and staying informed about regulatory developments, buyers can confidently navigate the off-plan market and achieve their property ownership aspirations in Spain. If you are still unsure, why not read our article about the key factors on deciding whether to buy new-build or second-hand property?