How do I Know Which Developers have Sufficient Capital to Build?

ventanamagazine.com
Author: 2009 Raúl Jaime


Many people approach me wanting to know if the particular development where they want to purchase has enough money to build and deliver the units as promised. I tell them that, while there are other ways to find out, the best and easiest way to tell if a developer has sufficient capital or financing to build is by looking at their contracts, payment structure, and delivery commitments.

How do I know which developers have sufficient capital to build?

Similar to the US or Canada, developers in Mexico begin the sales process many months before the planned delivery date of the project. This practice is normal as developers want to move their units as quickly as possible. However, many developers do not have sufficient financing or capital available to build their projects, and they rely on their pre-construction sales to complete them. During times of bonanza this practice is barely noticeable as the volume of sales allows developers to build and deliver without delay. Unfortunately, when a developer is only relying on proceeds from their presales to finance construction, they may run into trouble if sales are slower than expected.

If you ask sales representatives, they will all tell you that their development is not like that and that they have all the proper financing to deliver on their promise. So how can you tell apart the wannabes from the Real McCoy? Look at their contracts and payment structure.

A reputable developer with proper construction financing will offer a payment structure that requests a small percentage of the payment down when you sign the contract and the balance due upon delivery of the unit. Something similar to 20% down and 80% upon delivery is a very good indicator of solid construction financing. There is a big difference in Mexico between taking possession of a unit and getting title, so make sure you know where you stand.

Another good way to tell if you are buying from a developer that can deliver on their promise is by analyzing the acquisition contract. You should request to see and review the contract before you move forward with the transaction; I strongly recommend that you seek independent advice. A trained expert will be able to identify these issues in the contract much better than a buyer. If developers don’t allow you to review the contract with an independent expert, it could be the first sign there’s something fishy about the developer. Things to look out for are specific dates and penalties for late delivery, as well as a commitment to transfer title onto you promptly. Always remember that the Spanish version of the contract is the one that stands and don’t assume that the translation is exactly accurate.

Just like in the US and Canada, construction in Mexico is often delayed and delivery dates have to be changed, so don’t make plans to visit and stay at your new condo exactly on the date when it is supposed to be delivered. To protect yourself, make sure that, if you have a payment plan for your purchase, the payments are tied to construction milestones and not to specific dates on the calendar.