Buying property in the green belt – 6 tips
In recent years, buying property in new-build developments and in particular ‘greenfield’ properties has become common practice. The most common reason for this is the lower property price. As with any investment, there is risk involved in this one due to the disadvantages of buildings under construction. You can read more about the pros and cons of buying a greenfield property in our previous article.
If you have made the decision to buy a build-to-rent flat despite the risks, it is recommended that you become well acquainted with the procedure for buying a greenfield property.
The most important thing you should definitely do is to gather as much information about the project as possible. We advise you to pay attention to the following things:
Investor
Start your research with the investor company, as it is the company that is fully responsible for failure to fulfil the contract within the agreed timeframe. Check when the company was registered, whether it has sufficient capital to complete the project and whether it is in bankruptcy proceedings. This check can be done at the Commercial Register.
Builder
The investor and the builder may be the same legal entity, but very often the builder is hired to the investor as a subcontractor.
If the construction company is different from the investor company, find information about that company as well:
Find out what experience the builder has and the quality of its work – what work has been done, whether it was done as planned and the quality of the completed projects;
Study reviews of the company and, if possible, talk to the company’s previous clients who live in flats built by this company.
It is also useful to find out how the construction process will be financed – through a bank loan, the investor’s own funds or the buyers’ funds.
Building permit
Check whether the investor-seller has a building permit and make sure that the project documentation is complete. Ask for information about the architectural plan of the building, as well as all construction documents and protocols.
Terms of Sale
Make sure you are familiarised with the terms and conditions of sale before signing the pre-sale agreement to avoid unpleasant surprises later on:
What is the deadline for obtaining a building commissioning permit (Act 16)?
In what degree of completion will you receive the flat?
When will you actually become the owner of the property?
Payment Scheme
When buying a green property, payment is made in instalments, which is very convenient for both buyers and the investor. Phased payment is where the investor finances the project from the buyers’ contributions.
The standard types of instalments are stop payment, payment upon signing the preliminary contract and payment of a percentage of the price in stages when certain construction milestones are reached, which are negotiated and individual for each buyer.
As a rule of thumb, 20 per cent of the final sale price is paid when the preliminary contract is signed, approximately 20-30 per cent when Act 14 is issued, the next 20-30 per cent when Act 15 is received and the balance when the building is commissioned (Act 16).
When agreeing a payment scheme, it is advisable to try to negotiate the payment of the majority of the sales price upon receipt of the Building Commissioning Permit (Act 16).
It is important to note that when budgeting for the purchase of a flat under construction, you should take into account that the initial payments will have to be made from your own funds – or use a consumer loan, as banks do not issue mortgages until the ‘rough construction’ stage.
Preliminary agreement
The preliminary contract must be in writing and contain all material terms of the transaction, such as the sale price, payment scheme, timing of completion of the various stages of construction, timing of the final contract and transfer of ownership, penalties, etc.
When drawing up a preliminary contract, demand that it includes all the additional terms and conditions that you have agreed with the seller, and make sure that the developer’s obligations are spelt out in detail and tied to specific deadlines for each stage.
You can reduce the risk of bad faith and other breaches when buying a greenfield property by negotiating penalties for the seller’s failure to fulfil their obligations. Penalties may arise in case of late completion of construction, failure to meet the deadlines for transfer of rights to the property, existence of third party rights to the property and others.
However, no penalty clauses stipulated in the preliminary contract will not protect you in case of insolvency of the investor-seller.
Before signing a preliminary contract to purchase a Greenfield condominium, it’s a good idea to consult with an experienced attorney. A professional will be able to protect your rights by including appropriate and legally enforceable warranties in the contract that will minimise your risks.
Completion of the transaction
The last stage of buying a flat on the green field is the acquisition of ownership of the property. This can happen no sooner than after receiving Act 14.
The transaction is notarised and from that moment the buyer becomes the legal owner of the property.
The procedure of buying a green property becomes easier if you cooperate with an experienced broker. Brokers are well acquainted with investors and construction companies operating in the market with good reputations and successfully completed projects. They will assist you at all stages of the process of buying a property under construction, help you with documentation and protect your rights. So contact us and let our realtors help you find the house of your dreams on the most favourable terms.
