BUYING PROPERTY IN SPAIN
Factors to be aware of when buying Spanish property include property scams, high capital gains tax, and fluctuations in the Spanish property market.
The Spanish property market has many quirks, and it pays to do your own property market research before buying a house in Spain. Knowing what to expect when buying a property in Spain can help reduce any pitfalls of setting up your life abroad.
The Spanish property market
Spain has been badly affected by the global financial crisis and a property market crash. Since 2008, Spanish property prices have fallen by 30 percent overall, with some regions even worse off. Individual properties are selling for as little as half their 2007 price. Property prices remain low and are falling, which means that although the price drop can be a boon to new arrivals, making property more affordable, there is a strong risk that your home will lose value before the market picks up again.
Over 80 percent of Spanish residents own their own home, with around 50 percent of the population owning their home outright, without a mortgage. As many sellers are looking to recoup as much of their investment as possible, haggling can be drawn out and the market slow. However, with few buyers around, you may find you have your pick of bargains.
Should you rent or buy in Spain?
Rental opportunities can be limited in Spain as people prefer to buy, and with property prices low you may find you have more choice to buy than to rent. That said, prices for desirable, convenient, city centre properties are similar to those in other European countries such as Germany, Belgium or Ireland, although prices are predicted to fall further in 2014. Waiting may allow you to buy at a better price and in a more stable market.
The transaction costs of buying and selling a property in Spain are moderate, at around 15 percent of the property value. This means that even if property prices rise during your stay, you’ll probably need to live in the property for around three years to come out ahead in a strictly financial sense.
For those considering a shorter stay however, renting could be a more suitable option if you factor in Spain’s capital gains tax of more than 20 percent, which could offset any benefits of buying in the short-term. You can find more information on rental properties in guide to renting in Spain.
Are foreigners allowed to buy property in Spain?
Yes. There are no restrictions on buying property in Spain, whether it’s commercial, residential or land. In fact, Spain encourages investment by foreigners, both resident and non-resident. You will require a financial number which can acquire by visiting a police station with your passport. This is typically done on the day for Spanish or EU citizens but may take a few weeks for others.
Buy a property, get a visa
Spain currently offers a ‘golden visa’ program for property owners. This is a form of investor’s visa. If you invest more than EUR 500,000 in Spanish property, buying one or more properties, you will normally then be automatically eligible for a residency visa. This is not a work permit, but it will allow you to live in the country. It’s primarily aimed at retired people and holiday home buyers.
How to find a property to buy in Spain
As it is easy for foreigners to buy property in Spain, there are websites and estate agents catering to almost every language and nationality. Many British real estate websites also list Spanish properties, with some online portals listing thousands of options. However, these mostly focus on holiday homes, so you may prefer to use a Spanish site, such as the ones listed below.
As you don’t need to be resident to purchase a property, it is possible to buy a home before you arrive and move in directly. However, this naturally comes with certain risks and we strongly recommend that you view the property you are considering and don’t cut corners on the process, even if this means spending some weeks in a hotel when you arrive.
Online property portals
Advantages and disadvantages of using an estate agent
As estate agents are typically paid by the seller, there’s a strong advantage to using them for buyers. Estate agents can often provide detailed information about the region or city you’re considering. Many are bilingual and accustomed to dealing with overseas buyers. However, regulation is relatively low and unscrupulous estate agents do exist. Be wary of anyone who asks for payments upfront or suggests cutting corners. Always remember that you can choose your own notary, mortgage provider and so forth – you do not need to use a service suggested by the estate agent.
For over 20 years, Spain has been popular with overseas buyers looking for holiday homes. Large numbers of inexperienced foreign buyers provide an opportunity for unscrupulous developers and estate agents to sell properties which are not legitimate. In some cases, planning permission has not been acquired before building, and properties are eventually torn down by the local government. In other cases, the quality of the property has not been up to scratch or as indicated, resulting in costly repairs.
The British Foreign Office has issued notices warning expat buyers to be cautious and not take unnecessary risks. They recommend, at minimum checking:
- The credentials of any lawyers or estate agents used;
- the land registry (Registro de la Propriedad);
- that appropriate planning permission has been obtained;
- that there are no outstanding debts attached to the property, such as a mortgage;
- that the property is as described and structurally sound (either a surveyor or an architect can do this).
Most of this information can be provided by the land registry and accessed by making a request by email, phone, fax or in person. You can find the appropriate land registry office by vising the national website: www.registradores.org (Spanish only).
Buying off plan or a new-build home
The worst property scams in Spain, as elsewhere, have involved properties bought before they were completed or, sometimes, started. While malicious intent is rare, the building market is struggling and caution is advised when buying a property which does not yet exist. At minimum you should:
- Check the company exists and is officially registered; check online at registradores.org (Spanish only).
- Ensure that the project is registered with the land registry.
- Check that planning permission has been granted by enquiring at the local city hall.
- Not sign a contract you don’t understand.
- Ensure that any translation is done by an independent party.
- Demand proof that any sums paid (e.g. a deposit) are being held or spent appropriately.
- Proof of insurance that will refund your money if the property is not built.
As a non-resident, you may also buy land and have a property built yourself. In this case, good legal advice is even more important as you will need to ensure that contracts with builders are appropriate and watertight.
Debts transfer with property
In Spain, any mortgage or debt tied to a property is transferred to the new owner when the property is sold. It’s thus critically important to ensure that there are no debts attached to the property when it is sold, or that if there are, they are covered by the terms of the contract. Debts may include:
- A mortgage;
- payments due to a tenant’s associations;
- property tax (impuesto sobre bienes inmuebles).
Buying a Spanish property
The process of buying a property in Spain usually runs as follows. First, the buyer makes an offer, usually through the seller’s estate agent. If this is accepted, then the buyer and seller sign a preliminary contract (contrato privado de compravento) and the buyer pays a deposit, typically 10 percent of the purchase price.
The buyer then arranges any mortgage they require, although they should have already discussed their needs with the mortgage provider. The contract of sale (escritura de compravento) is usually signed in front of a notary, at which point the full sale price, taxes and other costs become due.
The services of a notary are not legally required to complete the sale, but it is advisable and required by many mortgages.
The seller is responsible for hidden defects in the property, even if they are not aware of them. However, in practice gaining restitution for such defects can be difficult and costly.
Paying the costs and taxes associated with buying a home can be completed by the buyer or their agent. It is the buyer’s responsibility, however, to ensure taxes are paid.
The buyer is also responsible for registering the property. The notary may provide this service for a fee, and/or may notify the registry office that the sale has taken place, without completing full registration.
Funding purchase: deposits and mortgages
Following the 2008 crash, Spanish banks have been heavily reformed with significant IMF involvement. This has reduced the number of lenders from around 50 to around 12, and significantly increased the regulation and oversight of the industry. As a result, many banks are lending less and mortgage rates and terms have become less favourable.
Mortgage lenders will not complete on a mortgage agreement until you own a property. For this reason, it’s important to include a clause in the contract allowing you to exit the agreement if you cannot acquire a mortgage.
Fees and charges
Costs are primarily paid by the buyer, and vary from region to region. Many are negotiable – there are no fixed fees for lawyers or estate agents. Costs paid by the buyer are typically around 8–14 percent of the property value and include:
- Property transfer tax 5–10 percent (existing properties);
- VAT (or IVA) at 10 percent (new properties);
- notary costs, title deed tax and land registration fee 1–2.5 percent;
- legal fees 1–2 percent (including VAT).
The estate agent’s fees are usually paid by the seller, and this is typically their only cost. Estate agents usually charge a percentage, typically around 3 percent of the final sale price.
Capital gains tax
Spain has a capital gains tax of 21–27 percent. To avoid this, sellers will sometimes request buyers to list the sale price as being lower than they actually paid. This is inadvisable as it can cause legal problems. Listing a lower sale price than you paid can also increase your own capital gains tax bills at a later date.
Capital gains tax is paid on the profit of selling your home, i.e. the difference between the listed purchase price and the listed sale price. Thus if you pay EUR 200,000 for a property and sell it for EUR 250,000 you will pay capital gains tax on EUR 50,000. However, if you previously accepted to list the purchase price as EUR 150,000, you will then be required to pay a capital gains tax on EUR 100,000.
If you are a resident and Spanish tax payer then the profit from selling your property counts as part of your savings allowance. If you’ve already exceeded the EUR 6,000 threshold or are non-resident, the tax rate is 21 percent. This would mean paying EUR 10,500 on the profit of EUR 50,000 described above, or double that if you’d listed the lower sale price.
You may be able to claim a reduction on the capital gains tax to account for inflation; or if you are purchasing another property in Spain; or if you are over 65 and have lived in the property as your main residence for more than three years.
Otherwise, unlike in other countries, capital gains tax applies no matter how long you’ve lived in the property. Your residential status does not affect the application of capital gains tax either, as capital gains tax should be paid in Spain for property owned in Spain even if you are no longer a resident.
Choosing a reliable lawyer
Any lawyer practising in Spain should be registered with the local bar association (Colegio de Abogados). They will have a registration number that you can ask for and then verify with the bar association. Naturally, registration does not guarantee honesty or competence, but it is a good minimum standard to insist on. You can find a list of all the bar associations at the national website for Spanish lawyers, Abogacía Española.
Finding a translator
Many governments provide lists of lawyers and translators who speak both Spanish and another language. The British Embassy’s list of English speaking lawyers and translators is a useful resource. The Spanish government also provides a list of accredited translators (page in Spanish, follow first link in article text for up-to-date PDF).
Selling a property
The Spanish property market is in a difficult state at the moment, and you should not expect to sell a property both quickly and for a good price. Moreover, experts predict that prices will continue to drop in 2014, which means that you may struggle to recoup your investment.
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