Residential Development

Property Developers: who finances and how is it sold off-plan

The business structure for building a block of residential units is less intuitive than it appears. The developer doesn't put up the money: the bank does. They provide the land, the project, and the face. The construction company executes using fixed prices per square meter, which currently range between 1,300 and 1,600 euros, depending on quality and region. This is why the key lies in off-plan sales.

The 60-70% Threshold: no construction without pre-sales

Construction doesn't begin until 60-70% of the units are sold. They are sold at the same price as the finished apartment, using renders and promises. The real discount only appears when the project goes poorly. According to the most common model since the previous crisis, small developers market the units even before obtaining the building license. The contracts include a clause: if 75-80% of the development has not been sold by a specific date, it is canceled and the money contributed is returned. This allows the bank to provide credit without issue. If that percentage is not reached, construction stops and the buyer recovers their money.

Margin and Risk: between 10% and 20%

The profit for the developer and the construction company ranges between 10% and 20%, while the land depends on negotiation ability. To secure the land, the developer often uses a purchase option or swap agreement, conditioning the acquisition on obtaining financing and advance sales. The risk of ruin exists: if construction suddenly halts and demand collapses, the land bought with debt becomes a liability. Lowering prices doesn't guarantee sales. Facing this model, developers backed by investment funds can start building without that 75% sold, but they are less common. The conclusion: the risk pyramid is shared among the bank, buyer, and developer, and the most fragile link remains the land.