Buying Land and Building a House After Lockdown

*Update: Please contact our team for current pricing.

Following the lockdown caused by the COVID-19 crisis, many families have been writing to us because you are considering selling your apartment, buying land, and building a house.

So we have decided to create a brief guide to help you assess whether this is a viable investment for your family and to clarify the steps to follow to get started.

Some preliminary considerations regarding post-lockdown uncertainty.

First of all, we must consider the uncertainty about the economic scenario following the lockdown period.

Uncertainty about bank financing

On one hand, we do not know what approach banks will take in the face of the coming crisis. We know that in the previous 2008 crisis, the strategy was to significantly limit bank financing; at that time they had a large housing stock and self-build mortgages were practically not accepted. Now, the scenario is different, but we do not know whether conditions for accessing a self-build mortgage will become more stringent.

Variation in land prices

The economic downturn may lead landowners to consider price reductions to sell more quickly and make their land affordable, but we also have reports of inverse processes where prices are increasing due to high demand from people seeking land to escape the city where they spent lockdown in small apartments without terraces, without direct sunlight, without natural ventilation, or without access to green spaces.

Uncertainty about construction rates

Finally, an indicator that allows us to estimate the investment for building a house is the price per m² of construction. After the 2008 economic crisis, we spent several years with rates around €1,100-1,200/m², but in 2019 we were already at rates between €1,400-1,500/m². We do not know whether these rates will be maintained from 2020 onwards, and this will largely depend on the ability of banking institutions to offer financing for new projects. If the bank provides funding, builders have work and prices per m² tend to increase.

With this in mind, let us examine step by step what process we should follow if we want to assess and, if appropriate, proceed with purchasing land and building a house.

1 Financial and Family Planning

When we consider buying land to build a house, the first thing we must bear in mind is that banks do not finance land, so we will have to purchase the land with savings.

If we own an apartment or have part of the mortgage pending, we should consider the option of selling the apartment first and renting.

In addition to savings for purchasing the land, we need some liquidity to cover the costs of the architectural project and building permit, since the bank will grant us a self-build mortgage only for the construction of the house and associated taxes.

“Will the bank give me a mortgage to build my own house?”

Provided you meet the minimum requirements—that is, both of you have employment contracts or stable income and do not have other mortgages in your name—banks generally offer self-build mortgages. You should consult with your bank as each institution varies the minimum conditions.

Furthermore, an essential condition for accessing a self-build mortgage is to own the land.

“The bank tells me I need a certified project with a permit to assess my mortgage”

To grant the final mortgage they do need the certified project with a permit, but to provide you with preliminary information about the mortgage financing range you can access, it is sufficient to assess your current financial situation without having to present anything more than your employment and financial status.

With this, they can indicate the mortgage range you can access, which for an average family is around €200,000-250,000. Always bearing in mind that the mortgage only covers the construction of the house, not the project or building permit.

If your bank does not provide this information, consult with another branch or another institution, as most banks provide this information without difficulty.

Let us look at an example of what this means in terms of costs.

1 How much do the costs I must cover with my savings amount to?

Land. An average plot in the surroundings of a major city such as Barcelona or Madrid can vary from €80,000 to €150,000 in average cost. Be careful with sloped land, which is cheaper but will require significant investment in earthworks and retaining structures. In the following section we will discuss land purchase in detail.

Taxes on land. To the cost of the land we must add 10% in taxes if it is a sale between private individuals or 21% if it is land owned by a company, such as land repossessed by a bank.

Technical projects. The architectural project can vary in total (including complete project, structural engineer costs, installation engineer, and construction management) between €20,000 and €30,000 depending on the size of the house. To this we must add VAT (21%).

Building permit. The building permit represents 4-5% of the construction cost, which in practice can range from €5,000-10,000 depending on the municipality and the size of the house.

2 What mortgage does the bank usually approve?

For an average family with two stable incomes and no previous mortgage, the anticipated amount the bank usually approves varies between €200,000 and €300,000 depending on each family’s financial capacity.

A 120 m² house requires an investment of between €220,000-250,000, depending on the land, construction system, or efficiency and finish requirements of each family. Some families prefer to prioritize maximum surface area in square meters and others prefer to prioritize energy efficiency.

2 Land Search and Assessment

Once we have clarified the costs, know our liquidity and the anticipated mortgage according to our bank, it is time to assess purchasing land.

During this lockdown period, many families have been writing to us asking for help in assessing land. You can review the previous links that will help you understand whether land is suitable for building.

When you have land options, you can send us the address so we can help you complete the technical and legal land review.

3 ASSESSMENT OF ARCHITECTURE TEAMS

Although at Slow Studio we are a project team, we always tell you that it is important to compare different options to understand how each studio operates, the options they offer you, and above all to find the team you feel comfortable with and in whom you can place your complete trust.