Investment approach
Plot With and Without a Licence: How Price and Risk Change
A plot with a licence costs more because the buyer gets a settled answer on what to build and how. But the licence has an expiry date and is tied to a project, and the price gap has to be calculated.
A plot with a building licence costs more than one without, because the buyer gets a question that is already settled: what to build, how much and under what rules. The price gap pays for time and refusal risk, not for a piece of paper. The licence itself has a validity period, is tied to a project and can lapse if construction does not start on time.
What the buyer gets with the licence
In Catalonia, building a new structure requires a prior licence, the llicència urbanística (urban planning licence) (art. 187 of the Llei d'urbanisme, the Catalan Urban Planning Act). A licence is granted according to the law, the plan and municipal ordinances, and any refusal must be reasoned (art. 188). So by the time of purchase the project, the volume and the conditions are already known. Without a licence you buy a plot and, with it, uncertainty.
| Parameter | Plot without a licence | Plot with a licence |
|---|---|---|
| What is known about the project | Only the possibilities under the plan | Approved project and conditions |
| Refusal risk | Sits with the buyer | Already removed |
| Time before works start | Time to obtain the licence plus construction | Only the time to start works within the licence |
| Validity period | Not applicable | Limited (see below) |
| IVA on sale by a business | Depends on the land class | 21%: the plot is treated as buildable |
The last row of the table has a simple explanation. The IVA (VAT) law treats as buildable the solar (a plot fit for building) and, besides that, plots that are fit for building because building is authorised by a licence (art. 20.Uno.20 of Ley 37/1992). A plot that is exempt from IVA without a licence is subject to it at 21% with one (art. 90).
How long a licence stays valid
A works licence sets a start deadline and a completion deadline. If it names none, works must start within one year and finish within three (art. 189.1 of the Llei d'urbanisme). Once the deadline passes, the licence lapses, and a new one is granted under the plan in force at that moment (art. 189.3). By law an extension of up to half the period is available if requested with reasons and before expiry (art. 189.4).
For the buyer this is the main question: how much time the licence has left, and whether construction can start in time.
How the risk changes
A licence does not remove risk, it changes it. Refusal risk is replaced by the risk that the licence lapses and the risk that the plan changes. If the urban plan changes after the licence is granted, its effect may be altered or ended. In that case the national land law gives a right to compensation (art. 48 of RDLeg 7/2015, the consolidated Land and Urban Rehabilitation Act). But compensation covers a loss and does not save the project.
Without a licence there are more risks, and they are different. A refusal is possible. While a plan is under review, the municipality may suspend the granting of licences: for one year, or for two years where several grounds combine (art. 73–74 of the Llei d'urbanisme). These periods will not appear in your model unless you put them in.
How to estimate the price gap: a worked example
The maximum price of a plot without a licence equals the expected value with a licence, discounted for the time, minus the cost of obtaining it. A worked example, not a forecast: a plot with a licence is worth 1 M€; without a licence, if refused, it could be sold for 600,000 €; obtaining the licence takes a year and costs 50,000 €; the return you need is 15% a year. Taxes and financing are not included.
| Probability of obtaining the licence | Expected exit price | Maximum price of the plot without a licence | Discount to the price with a licence |
|---|---|---|---|
| 60% | 840,000 € | about 680,000 € | about 32% |
| 80% | 920,000 € | about 750,000 € | about 25% |
| 95% | 980,000 € | about 802,000 € | about 20% |
The probability is your own estimate, and it is the weakest number in the calculation. So the discount has to leave a margin for error in that estimate on top of the costs.
In the DNPI project in Sitges the plot was bought for 509,250 €, permits and licences took 20,000 € (about 4% of the purchase price), and it was sold with a licence for 760,000 € two years later. The difference before other costs was 230,750 €: the sale price minus the purchase price minus the licence costs. Taxes, financing, closing and other costs are not included; this is not net profit and not the investor's return, and past results do not guarantee future ones. One project does not prove that another plot will behave the same way. More detail: Sitges and the project review.
What to check on a plot with a licence
- The date of issue, the start and completion deadlines, whether they have expired, and whether the licence was ever extended.
- Who the licence was issued to and whether it can be transferred. The general rule: licences for the terms of the works are transferable, but the previous and the new holder must notify the ayuntamiento (town council) in writing, otherwise both answer for the licence holder's obligations (art. 13.1 of the Reglamento de Servicios de las Corporaciones Locales, the regulation on local authority services). A buyer of a plot with construction under way takes on the licence conditions, and they are recorded in the notarial deed (art. 41.3 of the Llei d'urbanisme). How this works in a specific municipality is a question for an abogado (lawyer).
- Whether the project complies with the plan in force today and whether a procedure to change the plan is under way.
- Whether the licence carries conditions: ceding land, urbanisation, guarantees.
- How much the tax and fees will be. The construction tax ICIO is charged when works begin, and its rate is set by the ayuntamiento within 4% of the cost of physical execution of the works (coste de ejecución material) (art. 102 of RDLeg 2/2004, the consolidated Local Taxes Act).
Who such a plot does not suit
A plot with a licence does not suit you if you are not ready to start works on time: the licence will lapse, and a new one means paying and waiting again. It also does not suit someone who buys at the licensed price without reading the project itself: it may turn out not to match what you want to build.
How to obtain a licence yourself is covered in the article on the stages and timelines of a licence in Catalonia. You can run a deal with your own numbers through the investment analysis.
Questions and answers
Can a plot be sold together with its licence?
The general rule allows a licence for the terms of the works to be transferred, with written notice to the ayuntamiento from both the previous and the new holder (art. 13.1 of the Reglamento de Servicios de las Corporaciones Locales). The procedure in a specific municipality is checked by an abogado.
How long is a building licence valid in Catalonia?
The licence names a start and a completion deadline for the works. If it names none, it is one year to start and three years to finish, with an extension of up to half the period (art. 189 of the Llei d'urbanisme).
Does a licence guarantee that building will be possible in any case?
No. It lapses if deadlines are missed, and a change of plan can alter its effect. Compensation is then possible, but it does not bring the project back.
Is IVA paid when buying a plot with a licence?
If the seller is a business, a plot with a licence is treated as buildable and is subject to IVA at 21%. If the seller is a private individual, ITP (transfer tax) is paid instead. A specific calculation is done by an asesor fiscal (tax adviser).
