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Created on 04.03.2024

Purchasing off-plan: pitfalls and financing

“Purchasing off-plan” means that you buy a home that is still under construction directly from a general contractor. We tell you what to look out for and how financing works.

General contractors handle every facet of the construction of real estate such as single family homes or apartment buildings. They manage all quotations, conclude work orders with subcontractors, coordinate the work, order all materials and much more. General contractors are also responsible for cost controlling, as construction is commissioned and paid for by them. As the client, you pay a fixed price for the turnkey house or apartment.

Beware of rights of lien

The advantages of building a house with a general contractor are clear. As the client, you save yourself a lot of work and only have a single contact person for the entire construction project. The disadvantage: handing over control to the general contractor carries risks. In the worst case, your general contractor could go bankrupt in the middle of construction. If there are still outstanding payments to suppliers and tradespeople, these companies can ask you as the client to pay. If you are unable to pay, they may auction off the property. This is in accordance with the statutory regulations covering craftspeople’s rights of lien. You would then have to pay for some parts of your house twice: once to the general contractor and once to the tradespeople who were left out of pocket by the general contractor.

How to minimize risks

As the client, you should protect yourself against the general contractor as well as possible. You can do the following:

Check on the general contractor

Before you do business with your contractual partner, you should obtain as much information about them as possible (e.g. an extract from the debt collection register, a credit report and references). You can also ask experts about their reliability. General contractors with a bad reputation are usually well known in the industry.

Obtain a financing confirmation and general contractor declaration

If possible, ask the general contractor’s bank for a financing confirmation and a general contractor declaration. The financing confirmation confirms that the bank has agreed to finance the construction for the general contractor. The general contractor declaration ensures that your payments to the general contractor are used exclusively for the construction of your property.

Check the contract carefully

There are no statutory regulations stipulating the content of a contract for work and services with a general contractor. You should regulate the following points in the contract for your own safety:

  • In the plans and details, record in as much detail as possible what the turnkey building should look like.
  • As a rule, the client and general contractor agree on a payment plan consisting of several partial payments. Insist that the payments are linked to specific construction progress.
  • Determine how change requests that lead to a price increase will be handled during the construction phase.
  • With a performance guarantee, your general contractor undertakes to provide compensation if they are unable to fulfil the contractually agreed services. 
  • The warranty protects you against quality defects. The general contractor must pay to rectify the defect, regardless of whether it was caused by the general contractor or the subcontractors.
  • Define what happens if you or the general contractor withdraw from the contract. If you, as the client, terminate the contract and nothing else has been agreed, Article 377 of the Swiss Code of Obligations applies automatically. Accordingly, you would have to pay in full for the general contractor’s lost profits.
  • Specify the exact handover date and the consequences if the general contractor is unable to meet the deadline.

Financing: mortgage instead of construction loan

Generally, anyone buying an existing house finances it with a mortgage. For a new build or renovation work, however, (future) owners must first take out a construction loan. Upon completion, the lender converts this into a mortgage. When purchasing a house off-plan from a general contractor, however, the situation is usually different. Most lenders do not require a construction loan in this case – they finance it directly by means of a mortgage.

Mortgage tranches based on a payment plan

When purchasing an existing property, the start date of the mortgage usually corresponds to the purchase date. This is not the case when purchasing off-plan. In this case, you can split your mortgage according to the payment plan and do not have to take out the full mortgage in one go. This saves you money, as you don’t have to pay interest on the entire mortgage from day one. 

The figure shows how purchasing off-plan works. You can divide your mortgage into different tranches based on the payment plan (e.g. during the shell construction, general construction and at key handover).
Save on interest costs by taking out a mortgage in tranches based on construction progress.


  • Purchase price for the house: CHF 1,000,000
  • Equity capital: CHF 200,000
  • Mortgage: CHF 800,000

Payment schedule

  • First tranche (20%, due upon signing of purchase contract and work contract): CHF 200,000
  • Second tranche (30%, due upon completion of shell construction): CHF 300,000
  • Third tranche (25% due upon completion of general construction): CHF 250,000
  • Fourth tranche (25% due at key handover: CHF 250,000

Mortgage plan

The first tranche of the payment plan can be settled with the equity capital. This results in the following mortgage tranches:

  • First tranche (start: completion of shell construction): CHF 300,000
  • Second tranche (start: general construction): CHF 250,000
  • Third tranche (start: key handover: CHF 250,000
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