Behind every new building is someone who decided to build it, financed it, and was accountable to the buyers: the real estate developer. At Domoblock, we take on part of that role in our new construction and repurposing projects, so we’re well acquainted with both the work and the risks involved. In this guide, we explain what a developer is according to the law, what they do at each stage, how they make money using a numerical example, and what to look for before investing in one of their real estate projects or developments.
It is the person or company that takes the initiative to build or renovate a building, finances it, and assumes legal responsibility for the outcome toward buyers. They don’t necessarily have to do the construction themselves—they hire someone to do it.
Article 9 of Law 38/1999 on Building Regulations (LOE) defines a developer as any person—whether an individual or a legal entity, public or private—who “decides, initiates, plans, and finances, using their own or external resources, construction work for themselves or for subsequent sale, delivery, or transfer to third parties under any title.” The definition is intentionally broad: it also includes a homeowners’ association that renovates its building or a housing cooperative.
An individual may act as a developer, for example, when building their own home (self-developer) or when constructing a small building for sale. If done for the purpose of sale, it constitutes an economic activity: the individual must register under the corresponding category of the IAE and collect VAT on sales. Most real estate developments are carried out through a company, often a special-purpose vehicle created for a single project. This isolates the risks associated with each development and facilitates financing.
It all starts with a plot of land or a building and a question: Can something be built that will sell for more than it costs? The feasibility study takes into account zoning regulations, local sales prices, construction costs, and timelines. As Sergio Navarro puts it, the hardest part is “finding the opportunity.” In our case, a proprietary tool scans real estate websites 24/7, and we analyze more than 100 properties per week to narrow it down to just a few.
The developer must have a right to the lot that allows them to build: ownership, a surface right, or an agreement with the property owner. The standard practice is to secure the land with a purchase option or a deposit contingent on obtaining the building permit.
Commission the project to the architect, establish the scope (number of units, unit types, specifications), and coordinate with the other stakeholders: construction manager, contractor, safety coordinator, and testing laboratories.
Combine your own funds with a developer loan or other sources. Then monitor each construction milestone to ensure the project stays on budget.
Sell off-plan or upon completion, manage reservations and contracts, and deliver the homes with all necessary documentation.
Purchase of the land, geotechnical study, topographic survey, preliminary and detailed design, and building permit. This is the phase with the most uncertainty: permit processing times depend on the city government and can take months.
Hires the contractor, supervises progress with the project management team, approves certifications, and manages changes. Each modification to the project during construction typically involves additional costs and delays.
Sign the acceptance certificate with the contractor, obtain the first-occupancy permit, file the new construction declaration and the horizontal property division, and hand over the units along with the Building Log.
Article 9.2 of the LOE requires the developer to hold a right to the land that authorizes construction. Without that right, there is no permit or financing.
The developer must apply for and obtain the necessary permits and authorizations, and provide the technical experts with the preliminary documentation and information they need to draft the project.
You must select and hire the construction professionals. The LOE holds the developer jointly and severally liable with them to buyers for material damage to the building (Article 17.3), even if the error is the contractor’s fault.
Article 17 of the LOE establishes three liability periods, counted from the date of acceptance of the work:
The developer must provide buyers with the documentation for the completed construction project, which constitutes the Building Logbook (Article 7 of the LOE): the project plans with any modifications, permits, a list of contractors, and instructions for use and maintenance. This is the home’s manual, and it’s a good idea to keep it.
The fundamental difference lies in who makes the decisions, who provides the funding, and who assumes the risk.
This is the person who provides the funds or secures them, and who is accountable to the end buyer. This is the role expressly regulated by the LOE.
The term does not appear in the LOE. It is used to refer to the person who manages the entire process (land, project, permits, construction, and sales), often on behalf of third parties, such as a cooperative or a fund, in exchange for fees. If they also make decisions and provide financing, they are legally considered a real estate developer as well.
Carries out the construction work in accordance with the project, using their own human and material resources, under the supervision of the project management team (Article 11 of the LOE). They are responsible for the execution and the finishes.
Many companies act as both developers and contractors. This offers advantages in terms of cost and control, but eliminates a check and balance: no external party reviews the construction costs. In such cases, the roles of the independent technical oversight body and the independent construction manager become more important.
Profit is the difference between sales revenue and total expenses. In the words of Sergio Navarro, “the difference between the costs of acquisition, construction, and sale results in capital gains.”
Illustrative example of a development of 20 homes with 2,400 m² of floor area, sold for €300,000 each. Sales revenue: €6,000,000. Costs:
In the build-to-rent model, the developer does not sell: they rent out the units and collect rent for years, or sell the entire building to an institutional investor. The profit is realized later and depends on rental yield and the exit value.
Here is the checklist we use, and which we recommend you apply to any developer, including us:
Ask to see completed projects—not just those currently underway—and compare projected timelines and budgets with the actual results. Óscar Peñaranda sums it up this way: “Selecting the right project is crucial for achieving high returns in a short period of time.”
How much of their own capital is the developer contributing? What portion is bank debt, and in what order do creditors get paid? If the project goes wrong, the bank gets paid before the investors.
Check the Land Registry for the ownership of the lot and any encumbrances, and whether the permit has been granted or is merely pending. Investing before the permit is granted is not the same as investing after it has been granted.
Request the construction budget, the timeline, and details on how and when the investment will be recouped: through sale, refinancing, or rental. A vague exit plan is a red flag.
A good developer explains the risks without being asked: what happens if construction is delayed, if costs rise, or if prices fall. If everything sounds too good to be true, be wary.
The developer creates the product: they decide to build, finance the project, and are responsible for the building. A real estate agency acts as an intermediary in the sale or rental of existing properties in exchange for a commission. A developer may use agencies to sell their homes, but they play different roles.
Yes. The LOE (Real Estate Development Act) does not require a specific degree or license. Anyone who builds their own home is a self-developer. If they build to sell, they are engaging in an economic activity with tax obligations (IAE, VAT, personal income tax) and assume the same legal responsibility as a company toward buyers.
It depends on the project, but banks typically require the developer to contribute the land—or a significant portion of it—with their own funds, in addition to demonstrating a certain level of pre-sales before releasing the loan. In practice, it’s advisable to have between 20% and 30% of the total cost available.
No, if you are self-building a single-family home for your own use (Second Additional Provision of the LOE). However, if you sell it before ten years have passed, you must purchase the insurance for the remaining term, unless the buyer expressly exempts you from this obligation in the deed.
Any payments made in advance to purchase a home off-plan must be guaranteed by insurance or a surety and deposited in a special account (First Additional Provision of the LOE). If the construction is not completed or the home is not delivered on time, you can recover those payments plus interest.
10% VAT on the price (4% for special-status affordable housing) and Stamp Tax, the rate of which is set by each autonomous community. No ITP (tax on second-hand homes) is payable.
Domoblock, a real estate investment platform, allows you to access house-flipping opportunities in Spain starting at €200—100% online—through the tokenization of properties and blockchain technology. Before investing, review the documentation for each project to verify the developer’s identity, experience, financial structure, permits, timeline, and exit strategy. Technology facilitates operations and traceability, but it does not replace legal, tax, and financial due diligence, nor does it eliminate the risks of delays, cost overruns, illiquidity, or capital loss.
The developer is the one who turns a plot of land into homes and is responsible for them for years to come. If you’re buying off-plan or investing in a development, our practical advice is to ask for three things before putting any money down: the approved building permit, the feasibility study including worst-case scenarios, and a guarantee for any advance payments. If the developer cannot provide any of these three items, wait until they can.
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Pedro María Ric, 5
Funded
Target
€550,012.94
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