Advantages and Risks of Buying Property Under Construction in Croatia

Off-plan properties are becoming an increasingly popular way to purchase new developments. This method is becoming the norm primarily because it offers flexibility to buyers. The process of buying a property under construction can sometimes seem unclear, so in the following sections, we’ll explain exactly what it entails.

What Does Buying Property Under Construction Mean?

Buying property under construction, or off-plan property, means purchasing the property before the construction is completed – and often before it even begins. The buyer becomes thoroughly familiar with the property through visualizations and architectural plans, based on the investor’s concept and vision.

This type of purchase offers a turnkey experience, providing a move-in ready property with the added benefit of being the first occupant – an important factor especially for families seeking their dream home.

Advantages of Buying Property Under Construction

There are many advantages to buying property under construction, which is why it’s growing in popularity.

One benefit is that the buyer can invest early in a property whose value may increase as the surrounding area develops and gains new amenities.

The buyer can participate in the interior design process choosing wall colors, flooring materials, types of tiles, and depending on the construction stage, other details. In this way, the buyer has greater control over the property being purchased, without needing to later make or finance additional changes.

Another advantage is moving into a modern and contemporary home that follows current trends, which often includes smart and energy-efficient technology.

Off-plan purchases often include warranties, protecting buyers from issues they might face if building independently.

What Are the Main Risks of Off-Plan Buying?

One of the biggest drawbacks of off-plan construction is the possibility of construction delays. Construction can be prolonged for various reasons, so buyers should be flexible regarding the move-in date.

Another potential issue is market fluctuation. Although rare, property values can decrease during the construction phase due to external factors.

There may be some additional costs, so the buyer must understand what’s included in the price and what’s not. It’s essential to review all documentation thoroughly to avoid surprises. Buyers should also ask the investor about tax category, expected expenses, or potential utility costs.

Contracts, Documentation, and Investor Reliability

Before deciding to buy property under construction, you must check the reliability of the investor – verify their creditworthiness and history, past projects, ongoing lawsuits, etc.

The project, which includes the unit you’re purchasing, must have a valid building permit. The land must be registered to the investor, and the property must be in their ownership.

You can reserve the desired property first. Once the reservation period ends, a pre-contract is drawn up detailing deadlines and payment terms, including the deposit.

After the construction and subdivision are completed, the final contract is signed. It’s important to note that the buyer of this type of property does not pay real estate transfer tax since it is already included in the price, provided the investor is in the VAT system.

After full payment, the property is handed over to the owner by issuing a tabular statement. This is followed by the registration of ownership. The contract must contain cadastral and land registry information, construction and completion deadlines, detailed unit description (size, layout, orientation), and terms of sale.

After construction is completed, buyers typically receive a two-year warranty for minor defects and a ten-year warranty for structural issues.

Additional Costs of Buying Property Under Construction

Additional costs of buying property under construction don’t significantly differ from those for other types of property. Still, it’s crucial to thoroughly review all documentation and contracts to know what is included in the price and what isn’t.

If not covered by the investor, the buyer may pay for contract drafting and notarization costs. They may also bear ownership registration and legal fees.

If the purchase is financed by a loan, the buyer also bears the bank-related expenses.

If the unit is not subdivided, the investor covers those costs, although some may be passed on to the buyer, so reviewing the contract is highly recommended.

If utility connection fees (electricity, water, gas, internet) are not included in the price, the buyer may need to cover them, depending on the agreement.

What If the Project Is Not Completed?

A construction halt or cancellation is the worst-case scenario for this type of purchase. The first possible outcome is that the buyer loses their deposit.

Additionally, the buyer loses the desired home, as cancellation means no ownership or move-in. This is often accompanied by uncertainty, delays, wasted time, and decreased investment value.

After a failed project, buyers often sue the investor to recover their investment, and legal proceedings can last for years.

Buyers are strongly advised to protect themselves with a contract that includes a money-back guarantee in case the project is canceled. Such a contract should be notarized. Hiring a lawyer is also recommended to ensure legal protection and prevent misunderstandings, confusion, and financial loss.

Conclusion

Buying an off-plan or under-construction property can be an appealing option for buyers, especially those who want to participate in the building process and personalize their future home. There is also the potential for property value to increase during construction.

However, risks such as delays or even project cancellation are possible. Therefore, we strongly recommend hiring a lawyer, verifying the investor, and thoroughly reviewing documentation when considering an off-plan purchase.