Is it worth building a new villa or buying a ready-made one?
- Al Sander
- Dec 14, 2022
- 12 min read
Updated: Dec 15, 2022
How is it relevant in general to consider whether to spend time building a new villa or just find a suitable option of a ready-made property and buy it, instead of 2 years of getting a lot of problems and ruining your nervous system?
CONTENT:
The simplest answer is this. It all depends on who is building, what is building, and for what purposes. What are the objectives? In this article we would talk only about the elite real estate, in which you will have to invest a lot of money. Even if you buy a ready-made villa, you will still have to adjust it to your taste. A lot of things will not please the new owner. What is happening on the market today cannot meet the consumer’s requirement.
However, buyers are obliged to accept what the market offers. And the market offers standardization in architecture and interior décor. Competition and the desire to maximize profits force developers to minimize costs on everything. The industry's profit margin has its own standard. They get their 15-20% profit at best. So even if a buyer finds a villa to his liking, still he would have to change a lot and incur additional expenses, adopting it on their own, or inviting a designer.
The second question, which clearly faces the buyer, is the liquidity of such real estate. What will happen to the price if he decides to sell it sooner or later?
It is quite another matter, if there is a question of investment in the villa. For the time being the main issue is the question of liquidity and maximizing profits.
Buy Property in Marbella
Let's see what we can get in the market, and how much it might cost. One of the most important criteria for the price of real estate is its location. Let's start with the most expensive real estate locations to be the standard of luxury and a trend in the market for everyone without exception. There are few examples.
Villa 1 11,900,000 Euro, 1,947 m² gross floor area, of which 500 m² terraces, 3,412 m² plot
Villa 2 15,000,000 Euro, total area 1,380 m², of which 300 m² are terraces, plot 6,784 m²
Villa 3 9,000,000 Euro, gross area 2,055 m², including 500 m² terraces, plot 8,612 m²
Data: Reas.es (one of the real estate agencies)
Immediately specify that we deliberately took the category of real estate in the range of 10-15 million Euros, in order to compare further with the alternatives. Of course, older buildings in classical style, may be cheaper, but we deliberately will not consider them. They would either have to be reconstructed, renovated or redecorated, resulting in an increase in final price in any case.
We have deliberately based our analysis on typical coastal architecture. This is what the market offers, this is what is considered a tendency in the market and is imposed on clients as a level of luxury.
So, let's assume that the maximum budget the client is ready to spend is 10-15 million to buy a unique property, which he wants to make either his primary home when he relocates to Spain, or to use as a summer residence and one of the houses he has.
Build Your Own Villa in Marbella
What can we get for that money if we plan to build a new villa, picking a plot to build and that is perfect for the client in all respect. So, stopping at the same gated urbanization as La Zagaleta, we can get the following.
If the client's tastes gravitate towards the neoclassical style, here is one of the options that can be offered. The urbanization has all the building permits and, therefore, there is no administrative issue at all. This is one of the best plots to build on in terms of liquidity, security and privacy from the encroachment of paparazzi and unwanted neighbors. With enough land area of say 5.000 m² and the right partner, who is able to take all the headaches off the customer, we can really get such a unique property, an equal to which for such a price is simply difficult to find. If it does exist, the sales price will not be what we expect to get.
Many people think that the most important thing is to find the right architect, who would do all the works. However, that is not the case at all. Of course, the architect is a very important person in the process, you can't really do without him and he can really give a lot and solve a lot of problems during construction.
However, nowadays the business model "architect-developer" is only tested in America and very poorly developed in Europe, with a few exceptions. As a rule, everything to do with finding a plot of land, monitoring the project, the selection of decorator, the choice of materials lies on the client. Of course, you can entrust it all, but the result will not be what we expect.
What makes our home truly unique?
An idea.
Everything starts with an idea. What do the majority of architects do? They are in touch with the developers, who already have a building plot with a design on it. This is what they propose to the client. We gave an example of the kinds of things you can get.
Investment Club Business Model
Many things become clear over the long years of working in the luxury industry. The most forward-thinking people, the white crows who always go against the tide, begin to create their own business model, bringing their own baggage of knowledge and experience into it. They make discoveries. What is the business model of Investment Club, a young company in Spanish market?
We start by creating a concept, finding an idea and only after that, the ways of implementation. In the construction of private villas a revolutionary idea is when, for a budget of 10-15 million, clients can get their villa for not so much money. But with such a budget, you may get a property, the market value of which is more than 15 million Euros, but the actual client gets it at a discount of up to 70-80%. The final price of such a real estate depends on many parameters for the client, but this business formula comes up with works.
Of course, there are some pitfalls here. That's why this model is not accessible to every company on the market.
What are the underlying pitfalls? They exist for everyone, but not for those who actually invented this formula to make money building new luxury villas, making money for ourselves and for our clients. If clients can get something that's not available on the market just for 3-4 Million Euro instead of 15 Million, is that a know-how? Undoubtedly.
Why is it possible and how do we do it?
Cost to Build a Luxury Villa
Any realtor, developer or a builder knows that on average you should count on 4,000 euros/m² (the price includes all costs), which is absolutely realistic and is the average price on the market in the luxury segment. Plus the land cost and we get the price of the villa. Based on these simple calculations we have the price shown above, when considering the real estate in La Zagaleta. But what is unique about these projects? The purpose of this article is to show a different approach to buying real estate. Where are the answers hidden if the cost of construction is clear in advance? The answers are as follows. 1. The first challenge for us is to create a real estate project with great liquidity. If we want to sell the villa in 5-10-15 years, its value should not only remain not lower than the original price, but increase over the years. Unique real estate is always in value and in demand in the market. 2. The architect on the team must work for this idea 3. We should have some special opportunities to lower the cost of implementation of the project, while keeping the market price higher than expected. Then the next question arises. How can we obtain such discounts, leading us to a loss-making project, as the price after discounts are lower than the cost of production. Herein the main intrigue lies. In this article, we will uncover some of the secrets, but the rest we leave as an affair until a personal meeting with the customers. At such a meeting, they are pleasantly surprised at how simple everything is.
Build a Villa for Sale in Marbella
If the goal is to get a villa construction as part of your business and earn good money on it, then there is a different solution. If we want to have a rate of return not of 15% of the industry standard, but say, not less than 50% to start the reasoning, then the business model of the Investment Club is a bit different. What is needed then is an approach where we somehow create a property that is higher than market value and the buyers would believe such a price to be unreasonably low. The property should make an impression of being more expensive than it is asked for. That is the challenge. How do we handle it?
"Genius is just an unusual way of looking at things"
Albert Einstein
The business model of Investment Club in this case is a business model for the investor.
- The same idea. We need to create an interesting architectural concept, a novelty on the market. The architect waits for the client and only then begins to work. In fact, the process of creativity is a long process, especially if we are talking about designing something unique. We do not invent anything at the time of the order. We spend time and money to build our library of ideas long before the client knocks on the door.
- We need to create the visual impact of the property so that it visually looks much larger than it really is. The visual effect partially justifies the value offered in the sale. This is accomplished by many things. This is a know-how.
-The most important part of the price is as we call it, the WOW effect. This is the emotional state that the buyer feels when he looks at the property. Only talented people have the ability to cause such a state. If the first impression is the tour around the property, when the customer drives up to the villa and starts to see the volume, and it certainly exceeds the amount of square meters advertised in the brochure, the next player must be the interior.
Here is where to stop especially, because the level of interiors, of which we talk, are impossible to find on the market. And the ones that are on the market stand for orders of magnitude higher.
Interior is our passion. 25 years of designing luxurious interiors and unique pieces of decor have not been in vain. Today we are able to design masterpieces without regard to their cost. Yes, that's right, and there's no provocation here.
The reason is that we manufacture everything we need for décor, and not manufacture in Europe, but supply from our Asian factories. Do not think we buy consumer goods from China. This is not the way to design luxury. We produce goods that are consumed by Asian billionaires and that they prefer to manufacture locally rather than buying in Italy and France.
And herein another answer to the question of how we achieve a high rate of return lies. We reduce not the cost of the construction, but the exterior and interior finishing, while at the same time generating a completely different level of properties.
But that's not all. For the first time in the industry we have implemented the concept of "art property". To understand how it works, let's make a little comparison to help you understand this business model better.
Contemporary art galleries offer us a great opportunity to get a lot of ideas. The art industry is a special world with its own rules. Whereas in the past the price for artists' works only peaked after they die. Today art has been transformed into commerce and pricing is a process. The art industry has no time to wait; the money has to be earned today, meaning certain rules have to be in place.
Look, all the pieces in galleries are displayed separately, so that the buyers could focus on each of them, contemplating the beauty represented and not being distracted by the rest. Generally, in decent galleries, art historians will give many stories about each item on display.
Serious galleries bring their works to exhibitions where antiques are juxtaposed with contemporary art. The most famous exhibition is the Antiques Salon in Maistricht, Holland. Numerous agents and gallery owners try to place works by contemporary artists in museums. All of these short-listed ways of promoting contemporary art impact the price of an item
People don't come to galleries as they do at museums simply to enjoy themselves. Generally, gallery visitors are buyers or potential buyers.
Art is not cheap. But no one is surprised by the price tag attached to any piece at the gallery. In people's subconscious, the cost of art is justified in advance. The rest is a matter for professional art historians and art dealers.
Let's return now to our business model of "real estate as an art object. If works of art have a high value, then, in this case, using them in the construction of private villas we significantly raise the sales price and make a great contribution to the project, making it truly unique.
Let's stipulate that we are not talking about the antiques items or contemporary paintings. In our business model, it's the so-called architectural innovations that will live in the villa, even after it is finally sold. They are so well integrated into the exterior and interior, the property would lose its identity, and therefore a good price for sale without them.
What is important here? What is the cost of items in galleries? Clearly, it is not very high and is defined by the labor costs of the artist and the costs of the galleries to promote such works of art.
If we can apply the same principle to the construction of unique properties, and that's exactly our ability to do with all the necessary production lines for that, then our business idea "Property as Art" could work perfectly well.
Here are a few examples of that. One of our unique factories is the type of workshops for making marble mosaics. It looks like everybody is able to produce mosaics, the technology is very simple. The key point is to have a source of raw materials and qualified workers. All those are true, except for one of the most important issue. The question is what we make, what kinds of designs are translated in a marble mosaic, and whether that design is a masterpiece.
Open the Internet and look at most of the factories do, how primitive the design is in principle. Could such works have any significant effect on the price of real estate? I think not. But even technologically, some of our designs are incredibly difficult to make. The number of shades of marble is so great that it would require not only a labor-intensive production process but also artists of the highest caliber. And they themselves must be artists. All the selection of colors they have to do by eye. In addition, the level of design has to leave an impression of great value, and the work itself belongs to the kind of art objects that we call as art. How many people can do that art?
To give you an example, here are 2 works that give tremendous value to the new villa. The first is a large marble mosaic in the entrance lobby, skillfully integrated into the interior. It sets the perception of the object, the WOW effect and the effect of the internal euphoria, which was discussed above in this article.
Just compare the cost of such a work with the cost of making a similar order made by the European factory, at Sicis.
We see a half million Euros in front of us. That is the price they would ask for the production. The implementation of the design is not a simple thing, because we need to get not just a remake, but a full illusion of the Roman mosaic with thousands of shades of marble. Those shades create the effect of antiquity. Does this work increase the value of the villa?
Absolutely!
And now let's look at another design. Even Sicis simply declined to do this job, when a preliminary price calculation was made. In front of us there is a marble glade of lilies of the valley. Each flower consists of 7 shades of marble. Looking at this masterpiece of modern art, it is unlikely that anyone would dare to throw it away when renovating the villa in future. Such works would be carefully preserved and restored.
Another example of decor as art is the creation of such unique wall panels, with no match in the world.
Summarizing all the above, and we would get a low cost of the project and a high sale price of the property, and therefore a very high margin. Something that has no analogue and unique in the market would have any price. The most important thing is that the visual impact would generate that level of value. The villa must look an equal amount more expensive than the price we are asking for it. Provided this identity, we may see that such a property is always priced and in demand on the market.
So, answering the question of whether to give preference to a finished object and its reconstruction or construction of a new villa, the answer is obvious. The construction of new villas of really luxury class is a whole line of business. Luxury is never mass-produced, and therefore, such business becomes a niche for real estate investors.
Is it worth building a new villa or buying a ready-made one?
Comments