For the children?: Buying a home in advance is not without risk

For the children?
Buying a home in advance is not without risk

Buy now, build later: Anyone securing building plots early to perhaps build a property there at some point should know exactly what they are getting themselves into. Because real estate investing is basically a speculative investment.

Building plots are rare. The joy is often all the greater when private individuals or municipalities offer land for sale. However, it is no longer just families who are willing to build and want to quickly move into their own home who are trying to get the coveted property.

Other interested parties also took advantage of the opportunity. For example, parents like to buy plots in their own region in advance for their children so that they can build there in a few years.

Now it is quite understandable that parents would like to have their adult children close to them when they grow up. “But you also have to know that investing in a property is basically a speculative investment,” says lawyer Claudia Stoldt from the working group on construction law and property law in the German Bar Association.

No one can predict exactly how the market will develop over the next few years. “For a long time, prices went up steeply, but that can change very quickly,” says Stoldt. It is therefore risky to buy now in the high price phase.

Development obligations can put a damper on the wheel

But there are a few other factors that make buying a hamster difficult or impossible. “It makes a difference whether I buy the property from a private seller or from a municipality,” says Inke Meybauer from Dr. Klein, a nationwide financial services provider. “Municipalities often include a construction obligation in the purchase contract. The buyer must then adhere to that. Otherwise there is a risk of fines or even confiscation of the property.”

“With the scarce supply of land, many municipalities are conducting population policy with the land they have advertised for sale,” says Holger Freitag, legal advisor at the Association of Private Builders in Berlin. “They want to attract a specific clientele to their local community, for example young families or employees of companies in the region.” Therefore, they sometimes offer building plots at very reasonable prices, but then demand that construction be done quickly.

Buyers should therefore pay close attention to whether such an obligation is stipulated in the contract. If, for example, a deadline of three years is set, the house must be ready by the agreed date. “If there are delays, buyers should talk to the municipality well in advance,” advises Inke Meybauer. “Usually there is a solution.” However, delays of several years will not be tolerated.

In the case of private sales, there is usually no obligation to build

“If parents buy building plots for their children, for whom there is a construction obligation, they can of course also build the house on the property. They must comply with the contract conditions,” says Meybauer. If the builders do not succeed in completing the house within the agreed construction period, the municipalities usually reserve the right to cancel or pre-purchase. In addition, contractual penalties or fines may be imposed, depending on the contract.

“Municipalities are not necessarily interested in sanctions,” says Holger Freitag. “But they want to decide what and when they want to build and rule out speculation.”

If a property is bought from a private seller, there are usually no building requirements preventing the buyer from leaving it fallow for years. Even common areas without a building obligation must not be built on immediately. “There are even many owners who do not want to build at all. For example, they buy the neighboring property because they want peace and quiet,” says Inke Meybauer.

If a plot is a building plot, it does not automatically mean that there is also a building obligation. “If it is not explicitly stated in the purchase contract, the buyer can build when he wants – or not at all,” says Claudia Stoldt.

An undeveloped property also entails costs

What you should consider: A property entails ongoing costs – even if it is neither built on nor used. “Property tax, landowner liability insurance, possibly street cleaning fees and sometimes also special items such as development contributions or disposal costs because the land has developed into a wild waste site,” lists Holger Freitag.

And what if, after many years of waiting, the adult children finally have completely different plans and do not want to build on the property? Or if they can’t afford to build because of rising interest rates? “If there are no other rules in the contract, the parents can sell the land to any buyer at market prices,” says Inke Maybauer. However, if the original seller has secured a right of first refusal in the contract, it is up to him to decide whether to buy it or waive his right of first refusal.

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