04.03.2024
“Purchasing off-plan” means that you buy a home that is still under construction directly from a general contractor. We tell you what to look out for and how financing works.
General contractors handle every facet of the construction of real estate such as single family homes or apartment buildings. They manage all quotations, conclude work orders with subcontractors, coordinate the work, order all materials and much more. General contractors are also responsible for cost controlling, as construction is commissioned and paid for by them. As the client, you pay a fixed price for the turnkey house or apartment.
The advantages of building a house with a general contractor are clear. As the client, you save yourself a lot of work and only have a single contact person for the entire construction project. The disadvantage: handing over control to the general contractor carries risks. In the worst case, your general contractor could go bankrupt in the middle of construction. If there are still outstanding payments to suppliers and tradespeople, these companies can ask you as the client to pay. If you are unable to pay, they may auction off the property. This is in accordance with the statutory regulations covering craftspeople’s rights of lien. You would then have to pay for some parts of your house twice: once to the general contractor and once to the tradespeople who were left out of pocket by the general contractor.
As the client, you should protect yourself against the general contractor as well as possible. You can do the following:
Before you do business with your contractual partner, you should obtain as much information about them as possible (e.g. an extract from the debt collection register, a credit report and references). You can also ask experts about their reliability. General contractors with a bad reputation are usually well known in the industry.
If possible, ask the general contractor’s bank for a financing confirmation and a general contractor declaration. The financing confirmation confirms that the bank has agreed to finance the construction for the general contractor. The general contractor declaration ensures that your payments to the general contractor are used exclusively for the construction of your property.
There are no statutory regulations stipulating the content of a contract for work and services with a general contractor. You should regulate the following points in the contract for your own safety:
Generally, anyone buying an existing house finances it with a mortgage. For a new build or renovation work, however, (future) owners must first take out a construction loan. Upon completion, the lender converts this into a mortgage. When purchasing a house off-plan from a general contractor, however, the situation is usually different. Most lenders do not require a construction loan in this case – they finance it directly by means of a mortgage.
When purchasing an existing property, the start date of the mortgage usually corresponds to the purchase date. This is not the case when purchasing off-plan. In this case, you can split your mortgage according to the payment plan and do not have to take out the full mortgage in one go. This saves you money, as you don’t have to pay interest on the entire mortgage from day one.
The first tranche of the payment plan can be settled with the equity capital. This results in the following mortgage tranches:
