Have you ever been scrolling through listings, stumbled upon a rendering of a new project, and thought, "This is it, this is where I want to live. Everything new, modern, no renovations—sounds perfect." But be careful, buying a property "off-plan" from a developer has its own pitfalls and quirks. It's a whole different ball game than buying a pre-owned apartment.
Today, we'll look at what makes financing a new build unique, why the bank might not lend you the full list price of the apartment, and what to expect during construction. When might you start paying interest to the bank, even before you move in? And what should you watch out for regarding how the developer finances their construction?
1. Appraisal Value: How Much Will the Bank Actually Lend You?
The first quirk is the appraisal value. The developer is selling you an apartment at a future price, let's say 10 million. You need the bank to say, "Yes, this apartment is worth 10 million." But with smaller banks, you often hit a snag. Smaller banks are generally more risk-averse and are reluctant to appraise a future property as if it were already built. They're just more conservative and will often "lowball" the price to cover themselves.
On the other hand, major banks often have project agreements with developers. This means the bank knows the project, trusts it, and automatically accepts the developer's purchase price without a complex review. They often even finance the project directly, and in that case, it's usually completely hassle-free because they have a say in setting the prices of the apartments being sold.
Choosing the right bank, therefore, determines whether your 10% down payment will be enough, or if you'll have to pull another million out of your pocket because a cautious bank might undervalue the apartment.
2. Client Modifications and Finishing Touches
In my experience, clients often want better flooring or more expensive tiles, but for a bank appraiser, that's just aesthetics. Whether you have tiles that cost 500 or 2,000 crowns won't move the needle much on the appraisal value. What *will* affect the price, however, are things like kitchen cabinets and built-in furniture.
Developers often sell apartments without a kitchen. If you have the kitchen designed after the final inspection and pay for it out of pocket, the bank doesn't really care. But if you want these finishing touches to be reflected in the future value, you need to give the appraiser a budget right from the start so they can, for example, factor the kitchen into the future price. The bank will then lend you money for the kitchen, and you won't have to pay for the finishing touches yourself.
But watch out! There are many developers on the market who are, I'd say, a bit paranoid and won't let you do what I've just described at all. This is because they don't want to sign a lien agreement for an amount higher than what you're supposed to pay them from the mortgage.
Let's take a specific example: you're buying an apartment for 10 million, and the developer wants a 10% down payment. So, the mortgage will be for 9 million, but you also want to spend 400,000 on a kitchen. The bank appraises the apartment at 10.4 million, so hooray, it's possible to finance 9,360,000 CZK. But that's more than what the developer is asking from you, and they might refuse to sign such a lien agreement.
So, if you plan to "tack on" something extra to the mortgage like this, ask in advance. It's also interesting that, for the same reason, some developers won't let you use another property as collateral to finance the entire purchase price. For example, if you were to put up your parents' apartment as collateral and wanted to borrow the full 10 million, that could be a problem again.
3. The Payment Schedule: When Do You Pay and for What?
This third point is absolutely crucial and separates the financially strong developers from the weak ones. Always ask about the payment schedule right from the start.
A financially weaker developer needs your money sooner. Often, this happens as soon as they file the so-called declaration of the owner. Why then? Because that's the legal moment when the apartment unit is formally created as a property under construction, and the bank can finally place a lien on it and release the funds. At that point, however, the building is far from finished; it could be six months or even longer until the final inspection.
What does this mean for you? You'll start paying interest to the bank on the drawn amount, even though you don't own the apartment yet and aren't living in it. For six months, you're paying rent on your old place *and* paying interest to the bank.
In contrast, a financially strong developer has their financing secured and will tell you, "Pay 15% now and the rest of the mortgage after the final inspection." This difference can save you tens of thousands of crowns that you would otherwise pay in interest while the construction is being completed. By the way, this has a hidden but very tangible impact on the purchase price. If you find an apartment that's 100,000 CZK more expensive but only requires the mortgage payment after the final inspection, it might actually be cheaper than one where they want 70% of the purchase price nine months before completion.
4. A Technical Tidbit: Who's Financing the Developer?
And now for a technical tidbit that's rarely discussed. Before you sign the reservation agreement, check the land registry. If you see a lien in favor of a non-banking company, pay close attention. Not every bank knows how to (or is willing to) pay off a non-banking entity's mortgage.
And even if they can, they often require an attorney's escrow, to which the bank is also a party, to be part of the transaction. And that's when the real fun begins, because the bank's lawyers have to agree with the developer's lawyers on the wording of the escrow agreement. They often argue for weeks on end. Meanwhile, you're waiting nervously as deadlines approach and penalties loom. This is not a standard process at all, and I dare say that without an experienced mortgage specialist, you'll get lost in this legal ping-pong match.
5. Attorney's Escrow? Don't Expect It from Developers
This reminds me of one last point. With a normal pre-owned apartment, you'd always want to use an attorney's escrow. It protects your money until the property is formally yours in the land registry. But be warned, with developers, attorney's escrow is not common practice at all.
Money is sent directly to developers, which carries certain risks. Especially in the case described earlier, where the developer wants a substantial part of the purchase price long before the final inspection. What if they go bankrupt? Your money isn't protected in any way.
Curiously, it's actually safer to take out the largest possible mortgage on such an apartment. That's because, unlike your own cash, the mortgage is secured by a lien. To sum it all up, buying a new build before it's completed is a completely different discipline than buying a finished apartment. You can run into a number of pitfalls, and you need to find out the details right from the start to be clear on how and when the purchase price is to be paid.
If you've found an apartment you'd love to live in and you know you'll need a mortgage, but you're not sure how to proceed to make sure everything goes smoothly and safely, don't hesitate to contact an expert. We can look at it together.
