Buying off-plan property overseas, where buyers pay in stages as a property is built, is increasingly popular. In its reader survey Your Overseas Home found that a fifth of buyers in Spain and Portugal were keen, while another 30% or so would consider it.
However, if buying a property that exists already poses a currency risk if exchange rates change during the two- or three-months buying process, there is an even bigger risk when the buying process stretches into the years.
In this article we look at the benefits of off-plan buying and how to protect your funds.
What does “off-plan” mean?
Buying off-plan means purchasing a property, literally, from a plan. You choose it before it is completed, often during construction or even directly from architectural plans.
For overseas buyers, this approach is particularly appealing. Many off-plan projects are located in popular expat destinations and feature modern designs, sustainable features, and amenities tailored for international living. Unlike with a primary home, most of us can afford to wait for a holiday home. For investors too, it offers opportunities for buying prime sites that will rise in value rapidly.
The benefits of buying off-plan
The most obvious advantage of buying off-plan is the price. Developers frequently offer early-bird discounts, giving buyers the chance to secure a home at a lower cost than a completed equivalent. As construction progresses and demand rises, values can increase. By the time the keys are handed over, the property may already be worth more.
You also get a brand-new property, with the building, appliances and amenities all shining and new. You may enjoy being the first into a new development, making friends in a new community. Early buyers can have a better choice of property on the development and may also be able to negotiate with the developer for how the property is set up – two bedrooms or three in the same space, for example. Buyers may also have the option to influence interior finishes during the build process, resulting in a more personalised home.
Another advantage is the way payments are structured. Rather than paying everything upfront, buyers usually make a deposit followed by stage payments as the build progresses. For example, a deposit of 20%, then another 20% with the foundations, 20% with the walls, 20% with the roof, and so on. Most of the balance will be due on completion, but with some held back for ‘snagging’.
This allows more time to prepare financially.
The financial risks of stage payments
Despite the appeal, buying off-plan does involve risk. The reliance on stage payments means that you are exposed to currency fluctuations over months or even years. A payment scheduled today might cost significantly more by the time it is due if exchange rates move against you.
There is also the risk of construction delays or, in rare cases, developer failure, which can leave buyers with money tied up and no completed property. Market conditions can also change, meaning the property’s value at completion may be lower than anticipated.
In terms of buyer protection, most countries earnt the lesson of the global financial crisis, when many developments went bust mid-build, and offer the buyer full protection. If the building isn’t finished, you’re refunded in full.
However, there is no such protection from exchange rate changes that can drastically increase the bill before completion. Unless, that is, you work with Smart Currency Exchange to lock in your exchange rate.
Currency implications for overseas buyers
For anyone buying off-plan abroad, exchange rates are just as important as property prices. Payments are usually required in the local currency, whether euros, dollars, or another, so the strength of the pound can directly affect affordability.
Because stage payments are spread over time, exchange rate volatility becomes a real financial risk. Even small changes can add thousands of pounds to your overall costs. The key to managing this is planning ahead. Forward contracts, for example, allow you to lock in an exchange rate for future payments, ensuring your budget is protected. Regular transfer solutions can also make it easier to manage scheduled payments without paying more than necessary.
How Smart Currency Exchange can help
Smart Currency Exchange specialises in helping overseas property buyers manage the financial risks that come with stage payments. Our team can help you:
- Fix exchange rates for future instalments
- Plan a payment strategy that ensures you meet your developer’s deadlines
- Transfer funds securely and on time, without unnecessary costs
By managing the currency side of your off-plan purchase, we help give you the confidence that your new home overseas will be affordable, whatever happens in the currency markets.
Final thoughts
Buying off-plan property overseas offers the chance to secure a modern home at a competitive price, with the potential for strong future value. But the staged nature of payments also introduces financial uncertainty, particularly when it comes to fluctuating exchange rates. By planning ahead and working with a specialist currency partner, you can protect your budget and enjoy the rewards of your investment with peace of mind.
