Buying an apartment off plan

[BA_Life]

Hola a todos,

I'm interested in buying an apartment but it doesn't need to be straight away and I wondered if anyone had bought a place before the building was built.

I'm especially interested in the process here (deposit, sequence of payments etc) and of course advice on current new builds in Palermo or other barrios would be greatly appreciated

Gracias!

 

[shoush]

hey! i bought an apartment but it hasnt been one that is being built. I heard that you have to be an Argentine or a resident to buy the ones that are to be built or in the process.
maybe the rules have changed since!??!

 

[Davidglen77]

My first apartment here, I didn't buy off plan, but I bought it prior to the building being finished and prior to what is called "aprobación de final de obra", which is the approval of the certificate of occupancy. It wasn't that different from any other transaction in the sense that I paid a portion of the money up front and then the rest when I signed the deed. However there were many additional charges that the builder passed on to us, that you wouldn´t have to pay if you bought an existing apartment: Gas and Electric Meter installation, legal and escribano costs to have the consorcio registered and all of the accounting books created (rubrcation), fire extinguishers in hallways, emergency lights in hallways and illuminated exit sign, hookup of cable TV system to building, and several other items that of course nobody thinks of were left to us to figure out. Then of course after the final de obra (and of course the bribes being paid to the building inspectors to approve it) the problems began, inadequate wiring, leaks in the roof, rotten wood on the deck, broken entrance door, builder left the worksite and never finished the sidewalk. Since there is a law that supposedly protects buyers of new properties from "vicios ocultos" hidden defects for 5 years after the purchase of a new property, the builder was responsible, but of course ignored us, so we had to pay a lawyer to get involved, threaten to sue and end up in court appointed mediation, and believe it or not he fixed everything. As soon as that was done I sold that place immediately, but it took about 2 years to resolve the whole issue and I did make a nice 20% profit on the sale. A huge headache but at least it was profitable.

One of my friends decided to buy what's called a "fideocomiso at cost" in Caballito. That's where they sell you the apartment before the building is constructed "de pozo" and you get it at a much lower cost but of course you have to wait about 2 years. So he sold his apartment and moved in with his girlfriend. Gave 20% of the purchase price to the builder upon signing the fideocomiso agreement, then was supposed to pay 30 installments of $1500 u$d and then the balance of the cost when the building is complete and it's time to sign the deed. Low and behold after payment #10, some building inspectors went to the construction site, found a ton of violations and closed the building site down. This happened in August of last year. They still have not resumed construction and they don't know when it will start again, however the contract states that he still must make his monthly payments, or he will forefeit his initial payment and all of the other payments to date. So he has no apartment, one under construction that he must still pay for and no date as to when the project will be complete. The builder who was SO friendly at first no longer answers his cell phone and has not contacted anybody. And his girlfriend who told him not to buy "de pozo" wants to throw him out because she's so angry at him (this new. apartment was going to be their marital home) So of course now there is a lawyer involved who of course knows how serious this is and will gladly charge everyone up the kazoo to sort this out.

So of course be VERY VERY careful if you do this, have a good lawyer review EVERYTHING and leave no stone unturned and every single "clausula" must be analyzed. The nice part is, if the real estate market holds up, you can get a nice apartment for below market value, and have some good equity immediately. However realize that you are in Argentina and many things can and will go wrong and to sort them out always takes a very long time and will cost a lot of money to resolve. Business people here rarely take responsibility if anything goes wrong and their first reaction is usually to hide from you before dealing with the problem.

 

[jb5]

The economy becomes more iffy by the day. I wouldn't consider anything other than a fully built property.

 

[Davidglen77]

One other important thing if they give you plans that show the measurments of the rooms, make sure that you count any closets, and other non-living spaces before final measurements are calculated. For example, if the bedroom says 3x3 meters on the plans, ask if there are going to be any closets or structural columns in any of the rooms. I went with another friend to see a new apartment that was already constructed. The floor plan they gave us said the bedroom measured 3x3 meters. We brought a measuring tape and measured it, it was 3x2.50 meters. When we told the agent showing the apartment, she said "you have to measure wall to wall" in other words you have to open the closet door and measure from the wall inside of the closet to the other wall in the bedroom for the measurement to be 3 meters. Also make sure you have a lawyer review the "reglamento de copropiedead" (by-laws) of the building before you buy into a new project, you can't imagine the clauses the builders put in them and since there is no consorcio of owners when these documents are written, they try to get away with crazy things. The builder of the building I had bought in kept one of the units for himself and in the reglamento it stated that that unit paid only partial expensas, had the right to park a motorcyle in the lobby entrance, used electricity from the common areas, and several other items that totally favored that unit and left the other unit owners paying for his services. Again, GET A GOOD LAWYER TO REVIEW EVERYTHING, this is not for beginners!

 

[alpac]

I would also think the track record of the builder is important. My cousin is an architect who, as general contractor, has constructed a few multi-unit apt buildings in Belgrano. If you would like to speak with him, PM me and I'll give you contact details.

 

[jimdepalermo]

David has described the process and risks of buying "en pozo" quite well. I agree with everything he says, although I think there are also good reasons to buy in construction. It's a personal choice, to be made with eyes wide open.

Here are some additional details to think about:

• The best new properties often are sold well before the building is habitable. As an example, there's a huge new development on Santa Fe opposite the Botánico that's currently excavating the basement garages. Nominally, they should deliver the apartments in 2014 or 2015. I called in December to ask about prices on 4 units that look especially attractive, and they told me 3 of the 4 were already sold (at U$ 3.500 x m2!!!)
  .
• With any new apartment "a estrenar", check to see what's included. I've seen construction plans that deliver no more than the concrete walls, floors, and ceilings, with plumbing and electrical connections, but no fixtures or outlets. If you want elegant high-end fixtures and finishes, this is actually an advantage, since you don't pay for stuff you have to throw out in favor of, for example, better kitchen furniture and appliances. But you need to be aware of what's included and whether it's what you want, so you can plan your "estrenar" budget when you buy.
  
  Increasingly, I find builders are delivering apartments without flooring, so buyers can decide whether they want carpeting, tile, wood floors, etc. I actually like this option, because the quality of materials they install even in the most upscale developments is usually D-minus.
  
  A trend I don't like at all is the elimination of gas from a number of new developments whose plans I've reviewed. I understand the problems and costs of dealing with Metrogas, and the longer-term risks to owners, but do you really want an apartment with an electric range?
  
  So make sure you know how the apartment will be heated and cooled, where the hot water comes from, what kind of communications are being installed (cable, internet, telephone), whether pets will be allowed (if this matters to you), what happens during a blackout (especially if it's a tall building), which of the windows will open and how many glass panes will be installed in each. Use your imagination, and assume NOTHING!
  .
• Additional charges that almost always appear magically in new developments fund the consorcio's working capital and furnish common areas - hall, lobby, gym, laundry, pool furniture, and anything else you can imagine. Of course, buyers try to pass these along when they sell, and usually they succeed.
  .
• Taking these factors into account, I would still argue that you may be better off buying in a building under construction than a resale in the same building. The seller will certainly price the apartment to include all of his costs, and in most cases, you'll find that the seller has already finished the apartment with furniture, appliances, tilework, etc. that you don't like and want to replace.
  
  Plus, you won't be able to select the best layouts or views except by buying before completion.
  .
• It would not be unfair to call Fideicomisos a sham. I'm not suggesting they should be avoided, just that they don't actually save any money. Many/most developers here are architects, who in Argentina are also construction companies. So a development "at cost" is at the developer's cost, and he can include any charges he imagines, including whatever charges he wants to book from his architectural studio. From the standpoint of the buyer, I've never found any real cost difference between a fideicomiso and a standard commercial development.
  .
• It should be obvious that you don't trust the developer's construction schedule. For safety's sake, plan on doubling the construction time, with the possibility of a pleasant surprise if you actually get the apartment earlier.
  
  Because the building is complete enough to be legally habitable doesn't mean that it's really livable. Since the apartments will be delivered "a estrenar," each owner will have noisy, dirty work going on inside their apartments for some time after they actually obtain legal occupancy. In addition to maddening noise, this work will dirty the hallways and tie up the elevators to the point that you wouldn't want to live there unless you had no other option.
  
  In the case of an apartment I bought during construction for use as a short-term rental, the actual delivery date was 14 months late, and it was another 6 months before the interior work in the apartments calmed down enough for me to reasonably offer the apartment to tourists. After I finished the interior work in my apartment, I installed a gasket around the entrance door because the cement and plaster dust from other apartments' work was entering my apartment and damaging the new wood floors I had installed. Everything David described about "vicios ocultos" applied here as well, including the specialized lawyer and mediation.
  .
• As David describes, there is always a risk of the developer going bankrupt and abandoning the project mid-stream. Look around the city, and you'll see new buildings that have been just skeletons for over a year - each of these has unhappy investors who want to be owners of the finished apartments.
  
  I recommend checking the developer's history to see if he's ever done anything comparable to the project that interests you. And then do some thumbnail calculations to estimate the risks he's taking and the likelihood of failure. An inmobiliaria can tell you the price paid for the terreno, and you can estimate construction costs from the tables in the weekly Clarin Arquitectura.
  
  Still there are surprises - we're in Argentina after all! In the case of my rental flat I mentioned above, the developer had a terrific record with big, successful projects here and in Uruguay, and positive reports from owners in recent developments. Based on success here, they had expanded to build a huge, luxury tower in Miami Beach, and when that market collapsed, they didn't have the liquidity to continue the BsAs project at the same speed and quality they had planned. But as the project slowed down, Argentine inflation hit and construction costs zoomed, further worsening the situation. So you never know.

Regarding the question about financial arrangements, I would add that everything is negotiable. Usually the developer needs money up-front to keep the project going, so you can probably get a better deal by offering a larger deposit. You're unlikely to get a deal at all if you offer little or nothing until the building is complete. You may find that payments in dollars or Euros into a foreign bank account also get you concessions on price. If you hate making monthly payments, as I do, offer to pay a percentage on signing, a percentage when the structure is topped out, and the rest on possession.

Also, be aware that you can re-sell your purchase contract if you decide not to wait longer and you find a willing buyer. Lots of people do this as investments because before the escritura is signed, the profit isn't recorded anywhere. The inmobiliaria in charge of a development's sales may accept such transactions and offer the apartments to prospects along with any unsold inventory. Since the risk decreases as the project progresses, there are usually good buyers for nearly-ready apartments.

 

[PhilipDT]

I would also think the track record of the builder is important. My cousin is an architect who, as general contractor, has constructed a few multi-unit apt buildings in Belgrano. If you would like to speak with him, PM me and I'll give you contact details.

Sorry to bump an old thread but I was hoping to PM you for your cousin's contact info but your PM aren't enabled as far as I can tell.

 

[jimdepalermo]

For the archives, I'm updating this thread with some information I learned last night.

A good friend - a knowledgeable porteña businesswoman who owns a number of properties - bought an apartment in pozo 2 years ago in a fideicomiso. The price was about U$ 120.000. She has made all payments required. As usual, construction is behind schedule, supposedly by about 8 months. All units in the development were sold over a year ago.

Last week she received a notice claiming an additional U$ 30.000, payable within 30 days. When she called the developer to question this, they told her that due to inflation, the original construction budget has already been spent, well before the apartments are ready for occupancy. The buyers are now required to fund an additional presupuesto to complete the work.

Checking the contract ("boleto"), she found there is indeed a cost-overrun clause that she hadn't paid attention to. She checked with another developer and her escribano, both of whom said this is now common in boletos for fideicomisos and occasionally appears in boletos for standard commercial developments as well.

 

[RSPlayer]

There is lots of good information here from several posters including DavidGlen77. However the statement “…decided to buy what's called a "fideocomiso at cost" in Caballito. That's where they sell you the apartment before the building is constructed "de pozo" and you get it at a much lower cost but of course you have to wait about 2 years” is not quite my understanding/experience. Generally buying an apartment in “pozo” in a fideicomiso “ implies buying “al costo” (at cost). This usually means that the buyer pays a down payment and then agrees to monthly payments. At the signing of the “boleto” or contract they are provided with an estimate of the amount of the monthly payments and hence an estimate of the total cost. However, these payments may be “adjusted” using the index published by the Cámera Argentina de la Construcción (CAC). Of course each developer handles this issue differently; obviously the most straightforward and transparent method is to provide the buyer with a monthly or quarterly statement of expenditures throughout the construction period containing the Index of the CAC and the appropriate calculations as well as an indication if both the cost of materials and the cost of the labor are adjusted. Depending on the market (neighborhood) this (“al costo”) seems to be common practice now in an inflationary environment. For instance, the index published by the CAC indicates a 23.2% and 26.7% increase in the cost of materials and labor, respectively (from Jan. 2011 to the end of Dec. 2011). This could be a little more realistic than the INDEC. Most construction labor contracts, even though they say a fixed price, include the clause that they will be adjusted monthly according to CAC. For the buyer, the monthly payments, which typically cover the construction costs (down payment covers cost of the land and developer/builder fees) may increase by 20+% in a year. The reality of buying “at cost” is it reduces the risk (and profit potential) for the developer but may end up being cheaper for the buyer, because the theory is you purchase the apartment for “what it costs”, not what the market price is when it is finished, which is presumably going to be higher.
For the OP, purchasing a new apartment here in Argentina before it is built can be confusing, I mean if a “knowledgeable porteña businesswoman who owns a number of properties” was not aware of adjustments to monthly payments in the contract, imagine a lay person trying to wade through this. Speaking of cost overruns and developers going bust (although perhaps for a slightly different reason) check out this recent article in the WSJ http://online.wsj.com/article_email...AxMTAyMDIwOTEyNDkyWj.html?mod=wsj_share_email