This guide is reprinted with permission from Mark Stucklin of Spanish Property Insight
Buying a property in Spain can, and should be, a straightforward affair. But things can go wrong, and costs spiral, if you blunder into a purchase without knowing anything about the property market in Spain. So I have prepared this summary guide to buying property in Spain in the hope that it will help you on your way to a trouble-free purchase. Please note, however, that this overview is no substitute for legal or fiscal advice from a qualified professional. When buying property in Spain you should always use a lawyer.
Defining your needs
A successful purchase starts with clearly defined needs. Don’t make the common mistake of allowing wishful thinking to cloud your judgement when establishing what you need from a property in Spain. Think hard about your situation, both now and in the future, and try to identify the property characteristics that will best fit in with your evolving circumstances. Be prepared to challenge your assumptions about what you really need, and be clear about what you can afford. When defining your needs, it helps to create a clear, written brief that you can give to estate agents so they know exactly what you are looking for.
The sorts of questions you need to ask yourself are as follows:
Will this be a holiday home for a few weeks a year, or will it be a main residence for spending all or part of the year?
A holiday home will likely be left empty for large parts of the year, which means you might be better off with a property that doesn’t require a great deal of attention on a regular basis. The last thing you want is for your holiday home to become a burden that interferes with your life.
A more permanent home requires greater thought. You plan to spend large parts of the year living there, so you need somewhere that offers you the optimum quality of life. This means considering the local infrastructure and facilities, community, security, accessibility, and so on.
What are the needs of other family members?
Take into account the needs of other family members when deciding what and where to buy. For example, if you have young or teenage kids, your life will be a lot easier if you a buy property that allows them to have fun without you having to drive them everywhere. Residential estates that attract families are ideal, as both parents and kids are happy.
Is investment a primary or secondary concern?
Spanish property has been a popular investment in recent years, and well-informed investors have done very well out of it. However, many homebuyers have been seduced by talk of fat profits into buying properties that were neither good investments, nor good homes. If you want to buy a home or holiday home, then don’t pay too much attention to the ‘great investment opportunities’ you will inevitably hear about. Focus your search on quality properties that are a pleasure to live in, and the chances are you will also end up buying a property that makes a good long-term investment.
How much effort do you want to put into maintaining the property?
Property in Spain, as anywhere, doesn’t look after itself, and maintaining property in a foreign country can be more of a challenge than at home.
What sort of maintenance budget do you have?
You need to be clear about the maintenance costs that different properties involve, and budget for them before you purchase. Otherwise you may find yourself owning a property that is much more expensive to maintain than you expected.
What sized property do you need?
Be realistic about the size of property you need. Don’t buy a property on the assumption that extended family will always be staying, as you may end up with something too big for you. Focus on your own requirements.
What kind of property do you need?
Different kinds of property (for example new build/resale, villa/apartment, on- estate/off-estate) suit different needs, and it is important that you are aware of their relative merits before deciding what to buy.
Which regions best suit your needs?
Whereabouts in Spain to buy is another important question. You may have personal reasons for choosing one region, such as family or friends located there. Bear in mind that each region of Spain has a different set of advantages and disadvantages, and it helps to know which one best suits your needs. The vast majority of real estate agents are locally focused, which means they know very little about the other regions of Spain, and will be determined to sell you a property in their area. If you have no strong personal reasons for choosing one area, then it is in your interests to know about the merits of all areas. You may be surprised to find that some of the lesser known areas are also very attractive place to live or spend holidays.
How important is accessibility?
Convenient access will be important to you if you wish to travel regularly. As an expatriate you will probably find that you need good access, both for you and for the convenience of family and friends who may wish to visit. Good access means a choice of international airports that can be reached within an hour by car. It could also mean proximity to a TGV/fast train terminal.
What is really important to you in terms of surroundings?
Some properties offer rural charm whilst others offer urban glamour. Being in the centre of town, or right on the beach front will have advantages and disadvantages, as will being out in the countryside. What to choose depends on the qualities you value the most at this time in your life. You also need to think about the infrastructure you would like to have around you, such as hospitals, schools, shopping, leisure activities, and so on.
What kind of community would you like to live in?
Some people may prefer the solitude that comes with a house in the woods far from anywhere. Others may like the idea of a vibrant international community that you find on many of the best residential estates. Think about what you would like from a social life if you are going to spend a lot of time in Spain.
What will you need from the property in 5 years time? In 10 years?
Never forget how quickly the years pass by. If you are buying a property for the long term then bear in mind how it will suit your needs as they change over time.
Doing your research
For most people, buying a property in Spain is one of the biggest investments they will ever make. The bigger the investment, the greater the risk, so before spending a large chunk of your savings on a property in Spain, it makes sense to do a bit of research into different areas, companies, prices, and risks. The more you know about property in Spain, and how the market works, the harder it is for anyone to take advantage of you, say by selling you an overpriced or illegal property. Information is power, and when it comes to property in Spain, ignorance can be expensive.
Fortunately, it has never been easier to research the Spanish property market before you start house hunting, largely because of the internet. With a few clicks you can view countless properties from many different companies, and all from home. You should also check out the forums dedicated to Spanish property, where you can learn from the experiences of others. And be sure to visit www.spanishpropertyinsight.com for all the latest Spanish property market news, plus free advice, and tips, from a completely independent, unbiased source.
The internet may be the most powerful research tool, but it’s not the only one. I also recommend that you buy a good book on the subject of buying in Spain, and perhaps visit one of the many Spanish property exhibitions that now take place in the UK, and Ireland.
The main point of research is to arm yourself with knowledge of the property market, and the conveyancing process in Spain. But another important objective of your research is to make sure your expectations are reasonable. You don’t want to waste your, and other people’s time, with unrealistic expectations.
Arranging your finances
Forward planning helps you clarify the advantages and disadvantages of taking out a mortgage in Spain, and make the best decision as to how much, if at all, to borrow.
Arranging a mortgage in good time allows you to find the mortgage in Spain that best suits your requirements, and avoid overpaying.
By taking steps to arrange a mortgage at the start you will have a better idea of how much you can spend on your Spanish property, and can work out the likely future financial implications of your purchase.
Having a mortgage pre-agreement in place reduces the risks of you losing a Spanish property that it has cost you so much to find, and means one less source of anxiety and pressure when you are trying to close on a Spanish property.If you leave arranging a mortgage to the last minute, you are likely to end up with an expensive and inflexible mortgage, which you are forced to accept under pressure.
Along with working out an accurate property budget, you also need to plan for the ongoing financial commitments that you take on when you buy a property in Spain. These may be in addition to your living costs in the UK, and therefore an extra cost, or instead of your living costs in the UK, if you are relocating to Spain. Whatever your situation, you don’t want these costs to take you by surprise.
And finally, unless your finances (savings and earnings) are in Euros, you will need to understand, and manage, your exchange rate exposure, both for the purchase and for ongoing commitments. For this you will need the services of a good currency broker.
Finding a lawyer
You should try to find a lawyer at the very outset of your property search, so that you have an independent, English-speaking lawyer on hand when the time comes to sign a contract, or make any payments.
The challenge is to find a lawyer who is completely independent of your estate agent or developer. The reason being that you need a lawyer who is going to look after your interests alone and who will not hesitate to delay the purchase, or advise you to walk away if necessary. If you use a solicitor recommended by an agent, there is a grater chance of conflicts of interest, which can undermine the legal service you receive. Although the majority of agents will recommend a perfectly dependable lawyer, you are better off finding your own lawyer, and not taking any chances.
The worst mistake a buyer can make is to use the in-house lawyer of an estate agent or developer. In-house lawyers will draw up contracts in the interests of the company, and fight its corner if push comes to shove.
Some people use a ‘gestor’ for dealing with the legal aspects of buying a property. A gestor is an administrative agent who specialises in carrying out a wide range of bureaucratic and administrative tasks for clients in Spain. However, they are not trained lawyers, and I advise you to use a trained lawyer to draft or review contracts, perform a due diligence, or provide any legal advice.
Given that English-speakers have been buying property in Spain for many years, it is not that difficult to find a good Spanish lawyer who can deal with you in English. The best way to find a lawyer is by recommendation, either from a friend, or another independent, trustworthy source.
Selecting estate agents
Most of the estate agencies selling property in Spain to foreigners are actually foreign-owned and run companies. This means that you will not have a problem finding an estate agency that can take care of you in English.
Having said that, some of the foreign companies selling property in Spain lack professionalism, not to mention scruples, so you need to be careful whom you deal with. Using a good, professional agent can significantly increase your chances of a successful purchase, whilst using an unscrupulous or simply incompetent agent can spell disaster. Look out for estate agents who listen to your needs, and be wary of those who seem more interested in showing you what they want to sell. Take everything you hear about ‘great investments’ with a pinch of salt. Also, when it comes to buying property in Spain, you are well advised to work with estate agencies that focus solely on Spain, and that don’t sell property in other countries.
Beware the cheap inspection trip! Many companies offer inspection trips at low prices. If you take one of these the chances are that you will be herded around in a large group with other buyers, visiting properties that it suits the agent to sell rather than you to buy, and all the while subjected to subtle forms of pressure selling. Subsidised inspection trips are a false economy for buyers, who are better of paying for and organising their own visits.
Don’t let yourself be manipulated by any agent whilst you are visiting Spain. They are there to help you and the moment they let their own interests interfere with your decision they are letting you down. Your interests are paramount, and it should be clear from the beginning that your agent understands this. Don’t think twice about walking away from an agent if you are not happy with the service.
Once in Spain, you will have a chance to visit the properties or developments that interest you. Be sure to take notes of the good and bad points of each property, and any other distinguishing features, so that you have access to all the relevant information when the time comes to make a decision. It is a good idea to have a digital camera with you, as your evaluation process is much easier if you have photos of all the properties you have seen.
Be prepared to return empty handed from a house hunting visit to Spain. Better to try again later than to buy and live to regret it.
Making a decision
There is an important point to make about the mental process of house hunting. Of course you want to buy the ‘dream’ property, the ideal property, the best there is given your budget. But don’t fall into the trap of searching for the ‘perfect’ property, as it may not exist. To avoid frustration, you should try to find the best property on the market, rather than the perfect property full stop. Perfectionists will always want to see one more property just in case it is the one, but the chances are they will end up with nothing, or have to compromise in the end.
So choosing a property always involves making some compromises, but once you have made a decision, act decisively. If you are buying a resale property, decisive action sends the right message to the vendor, with whom you will have to negotiate the price. Vendors who are keen to sell will value the fact that you are a serious buyer, and can complete without wasting time, so use this to your advantage in the negotiations over price. Always try and find out as much as you can about the vendor’s reasons for selling, and don’t be shy about making an aggressive offer. The research you have done into property prices will be useful in deciding how much to offer, and where to draw the line. But don’t sign anything or make any payments before doing due diligence.
It is important to do some legal checks before signing any contracts, or making any non-refundable payments. You need to confirm that the property belongs to the seller in its totality, and that it is free of charges (in Spain mortgages, tax obligations, and other charges are ascribed to property rather than individuals). In some cases, you may also need to run a number of other checks related to land classification, urban development plans, the condition of the property, maintenance costs, and community obligations.
Your lawyer can advise you on the appropriate level of due diligence in your particular case. In most cases, the following checks are carried out:
Property Registry Report
Check the property registry report (known as the nota simple in Spanish), which lists the owner(s), and reveals if there are any debts and/or charges, such as a mortgage, attached to the property.
Check the title deeds (Escritura in Spanish), a copy of which you should be able to get from the vendor. Amongst other things, you need to confirm that the property is accurately described in the deeds.
When buying off-plan from a developer, or even from an investor selling on an off-plan property, it is sensible to check that the property has the necessary planning permission, given the recent problems with illegal building in Spain. If a newly built property has a licence of first occupancy (see below), then it is fair to assume that it was legally built with a valid construction licence.
When buying a resale property, planning permission is normally not an issue, though you should always check with your lawyer, as resale properties in some parts of Spain may have been illegally built in their day. However, it is quite common for resale properties in Spain to have extensions or additions that were carried out without planning permission, and which are not registered in the deeds. These need to be identified, and legalised before you proceed to buy.
Check the latest payment receipts for local taxes (IBI) to ensure that they are up to date, and in some cases check with the town hall (ayuntamiento) that there are no problems with unpaid rates from previous years. The town hall can issue a certificate to this end. Any unpaid rates become the new owner’s liability.
If buying a resale property you might also need to check the how much local capital gains tax (Plusvalía) will become due when the property changes hands. In theory the seller pays this tax, but in some cases the buyer agrees to pay it. It is important to know how much it is, and who will pay it before committing.
When buying resale property it may be prudent to ask the seller to demonstrate that all utility bills are up to date, and to specify in the deposit or private contract (if you enter into any such contracts) that they will be up to date at the time of granting of the public deed of sale.
Community bylaws and fees
When buying property that is part of a community of owners (Comunidad de Propietarios) it is important to know what the bylaws governing the workings of the community are, and what the financial obligations are per period. A copy of the community bylaws can be obtained from the secretary of the community, or the land registry. You may also need to check with the president, or secretary of the community, that the previous owner is up to date with community bills.
Insurance if buying from a developer
Developers who sell property under construction are legally required to arrange bank guarantees to protect any payments made to them before the property is completed. This ensures that you get your money back if the developer fails to complete. Never buy off-plan from any developer who does not provide bank guarantees for all stage payments. Note that developers are also required by law to hold an insurance policy which guarantees for 10 years eventual damages occurring due to defects affecting ground work, supports, beams, reinforcement bars, retaining walls, or other structural elements.
Licence of First Occupancy
Once again, when buying from a developer, it is important to check that a licence of first occupancy (licencia de primera occupación) has been granted by the town hall before completing. Utility companies will not supply properties without this licence, which is why you should never complete without when. Though some may try, developers cannot force you to complete without this licence.
There is always the option of having a chartered surveyor check a property before you buy. This is advisable if there are any doubts as to the condition of the property. A survey can also be carried out on new build property to confirm that it is delivered in the condition promised.
Prior to completion, there are various types of private contracts you can use to formalise an agreement with the vendor. Whichever one you use, don’t sign or pay anything until you get the thumbs up from your lawyer.
Reservation contract – Documento de reserva
With this contract you pay a deposit to reserve a property for a specified period of time – often 30 days. If you back out at the end of this period you typically loose your deposit. If you proceed with the purchase, the vendor is contractually obliged to sell you the property at the agreed price. The deposit is usually between 3,000 and 6,000 Euros, and counts towards the final price of the property. Developers often use this type of contract when selling off-plan. Even though the deposit is relatively small (compared to the overall property price), you should not sign this contract without checking with your lawyer.
Deposit Agreement – Contrato de Arras
This contract requires that you pay a deposit – normally 10% of the agreed price – when the contract is signed. If you fail to go through with the purchase you will loose all of your deposit to the vendor. But if the vendor backs out before signing the deeds, you receive back double the deposit. This contract makes it expensive for either side to back out, but at the same time it does leave the door ajar should either side wish to do so. This is the contract you are most likely to be asked to sign if you buy a resale property from a private individual.
Option To Buy Agreement – Contrato de Opción de Compra
This type of agreement gives the buyer the exclusive right to buy a property within an agreed time frame. The option does not have to be exercised, but it is usually agreed that if the option is not exercised, the buyer loses the money paid for the option.
Private Sales Contract – Contrato Privado de Compraventa
A contract that specifies in detail (price, dates, contents, etc.), the terms under which the transaction will take place. Unlike a deposit contract, there is no backing out of private contract unless both sides agree to it.
Completion takes place when you sign the public deeds in front of a notary public (notario in Spanish), and pay the vendor in full. This is when the property becomes officially yours, though you still have to register your title in Spain’s property register (registro de la propiedad).
Signing the deeds before notary, know in Spanish as the Escritura Publica, has to be done by everyone involved in the sale – buyers and vendors (or their legal representatives). This is normally when final payments are made to the vendor. It is still quite common in Spain (though less common every day) for vendors to ask for a certain amount under the table in cash, which goes unrecorded in the deeds. This is a fiscal fraud, and should be avoided. But if cash payments are agreed to, they usually take place at the notary’s office, once the notary has left the room.
As a buyer at the Escritura you need to take along a valid ID document, such as your passport, and payment – such as a banker’s draft – if there are any payments still outstanding. Depending upon the notary and the region, you may also need a foreigner’s identity number (NIE number), which is obtained from the Spanish police. NIE number can take several weeks to obtain, so be sure to look into this issue in good time.
The notary will verify the identity of everyone involved in the transaction, and read the deeds out aloud – in Spanish of course – so that everyone present understands the terms of the sale. Your lawyer should accompany you to the signing to make sure that there are no last minute changes without your agreement. Don’t believe anyone who tells you that you don’t need a lawyer, and that the notary will protect your interests.
Within 30 days of the Escritura you have to pay the taxes related to the purchase, after which you are strongly advised to inscribe your title deeds in the land registry. Your lawyer should help you carry out these formalities.
Most English-speakers buy the simple way, which is in their own names, or shared with a spouse. In most cases this is a sensible option. However if you have any inheritance concerns – for example you are remarried and want your partner, rather than your children, to inherit the property on your death – then you need to consider one of the other options. You should always discuss your needs and circumstances in the context of Spanish inheritance laws with your lawyer before deciding how to structure the purchase.
On top of the cost of the property there will also be some transaction costs to pay. Transaction costs in Spain depend upon the type of property you buy, where you buy, and whether or not you use a mortgage. As a rule of thumb, transaction costs average 10% of the price of the property, but can be as low as 8%, and as high as 14%.
The various transaction costs are as follows:
If you buy a resale property from a private individual, you only have to pay a transfer tax (ITP). If you buy a newly built property from a developer you pay VAT (IVA – if buying in The Canaries then the local equivalent of IVA known as ICIG) and stamp duty (IAJD). If you buy from an investor who has bought off-plan to sell on before completion then, for tax purposes, this is the same as buying a newly built property from a developer. These taxes vary by autonomous region, but are usually either 7% or 8%.
Notary and registry fees
Notary fees are set by the government, and are comprised of a fixed element, and a variable element, that reflects the price of the property, and the number of clauses in the deeds. If you use a mortgage, then you will have to pay Notary fees on the mortgage deeds as well.
You also have to pay a fee to the property registry to inscribe your deeds in the register, including mortgage deeds if you are using a mortgage. As with the notary fee this fee is calculated on a sliding scale that reflects the price of the property, and the mortgage.
Notary and registry fees combined are often around 1% of the value of the property.
English-speaking lawyers often charge 1% plus VAT (at 16%) of the full property price for their service, as recommended by the lawyer’s association (colegio de abogados) in areas such as Málaga.
When hiring a lawyer you should find out what services are included in the price. Some lawyers offer a full conveyancing service that includes paying the taxes, inscribing your title in the property register and updating the cadastre. Others may just limit their service to checking the contracts, and accompanying you to the Escritura, and then charge extra for all other tasks. In the latter case you should use a gestor to carry out these tasks, as gestores charge less than qualified lawyers.
If you use a Spanish mortgage this will increase the taxes, notary and registry fees. You will also almost certainly have to pay an arrangement fee, often around 1% of the value of the mortgage.
About the author
Mark Stucklin runs Spanish Property Insight – a property information website – and writes the Spanish Property Doctor column for the Sunday Times. His latest book ‘Need to Know? Buying Property in Spain’, is published by Harper Collins.
© Mark Stucklin Spanish Property Insight