BUYING PROPERTY IN SPAIN
Buying a home in Spain can sometimes be a very stressful journey, but if you´re truly dreaming of living in a villa on the Costa Blanca, under the hot Spanish sun, don´t let anything stop you!
On this guide to buying property in Spain, we will explain how to make your dream come true.
SPANISH PROPERTY MARKET INTRO
Spain was badly affected by the global financial crisis and resulting property market crash, with house prices dropping by as much as 30%. Nearly a decade on, there are signs that the recovery is finally underway, with indices showing year-on-year price increases in major cities and resorts, and an overall national rise of 4% in 2017. Transaction numbers are increasing too, with data from the National Institute of Statistics showing sales increased by 16% in 2017.
Home ownership levels are high in Spain, with around 80% of residents owning their own home, and many doing so outright, without a mortgage.
FINDING A PROPERTY IN SPAIN
Logic dictates that before you can buy a property, you need to find one that matches your needs.
First of all, you need to make clear what type of property you´re looking for. This can differ from apartments with sea views to historic property in local towns such as BENISSA, to rural fincas, to modern new build or super luxurious projects.
Making a list of requirements for your future home will save you a lot of time once you start looking for the property, and it´ll make the journey a lot less stressful.
Once that has been done, it´s time to find properties that meet your requirements list. This can be done through popular portals such as:
Portals are made to be used and they´re great to get a first general idea of properties and prices, but when it comes down to the real search, we don´t recommend portals because you´ll most likely run into data discrepancies such as finding the exact same property with different info, photos and prices, because multiple agents post their properties here.
You´ll also find properties that have already been sold but haven´t been updated; and the info you´ll be provided with regarding properties won´t be complete.
For this reasons, we recommend you find yourself a good agent in the local area to help you from start to finish, because at the end of the day, that´s our job and it is what we are good at.
PROS & CONS OF USING AN ESTATE AGENT
Most of the properties you´ll find are all managed by a real estate agency and most of the estate agents (especially in touristic areas) are multilingual, which comes in handy to make the process smooth for you.
Even though estate agents can help you with everything from info about the area to property info and legal advice, we recommend you proceed with caution when selecting an estate agent, because regulations are quite low in Spain and unscrupulous real estate agents do exist, even at the Costa Blanca.
CAN FOREIGNERS BUY PROPERTY IN SPAIN?
Absolutely! Spain highly encourages investment from foreigners, both resident and non-resident, so there are no restrictions on buying property in Spain.
You do need one thing before being able to get the process done though. A NIE NUMBER [click to read more about the Spanish NIE Number].
BUYING A SPANISH PROPERTY
The process of buying a property in Spain is straightforward but is markedly different to the process in every country. In the sections below you will find an overview of the most important aspects that you need to be aware of when buying a property in Spain.
THE BUYING PROCESS
Initially, you will make an offer on the property of your choice, usually through the seller’s estate agent. If the offer is accepted, the next step is for the buyer and seller to sign a preliminary purchase agreement and the buyer then pays a deposit, typically 10% of the purchase price. Any checks (regulatory, construction surveys, soil tests) you would like to make will have need to have be made before this point. This is especially important if you are considering buying a rural property (terreno no urbanizable) where it is not always clear what was built within regulations and what was constructed illegally.
Also, you need to be aware that if you are buying a property that is in ruins, or where some of the outhouses are in ruins, it is not always easy to bring these ruins back to living conditions. The exact regulations depend on the region, but in most a ruin will require to have a partial or completely intact roof in order to get permission to renovate it. In any case, it does not matter what the estate agent promises you, it is imperative you check this with a local architect or directly with the authorised counsel.
The buyer then arranges a mortgage if required, although they should have already discussed their needs with the mortgage provider. As we have previously explained, Spain has gone through a very severe property crisis since 2008 which has resulted in banks making it much more difficult for you to obtain a mortgage.
The next stage is for the contract of sale (escritura de compraventa) to be signed in front of a notary, at which point the full sale price, taxes and other costs are due. If you are not living in Spain at this point, it is advised you give a solicitor access to your bank account through a power of attorney so that he can go to the bank, collect the bank cheque and then head to the notary to sign in your name, pay the seller and pay any taxes due.
For a long time, Spain has been popular with overseas buyers looking for holiday homes.
On occasion, the large numbers of inexperienced foreign buyers have provided 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 others, the quality of the property has not been up to scratch or as indicated, resulting in costly repairs.
We always recommend to at least check:
– The credentials of any lawyers or estate agents used.
– The land registry (Registro de la Propiedad).
– That appropriate planning permission has been obtained.
– That there are no outstanding debts attached to the property, such as a mortgage.
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 visiting the national website: www.registradores.org (Spanish only).
Even if not legally required to complete the sale, it is very much advised to use the services of a notary to ensure a smooth transition of the property. This will also be a requirement for most mortgages.
The seller is officially responsible for any hidden defects in the property, even if they are unknown to them. Though, in practice gaining compensation for such failings can be difficult and costly. If you are unsure about the state of a property, it is best to have a survey carried out by an independent third party either before you pay the deposit or as a condition of paying the entire sum while paying the deposit.
It is your responsibility as the buyer to pay for all the costs and taxes associated with buying a home. If you have decided to use the services of a lawyer, he will be able to advise you of everything you need to be aware of.
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.
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).
FEES AND CHARGES
Most costs are the responsibility of the buyer in Spain and there will be significant variations in costs from region to region. As a rule, the additional fees and charges paid for by the buyer will be between 8-12% of the purchase price and include:
– Property transfer tax 5–10 percent (existing properties).
– VAT (or IVA) at 10 percent (new properties only).
– 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, but it is good to verify this at the start with your agent. For your information, estate agent’s typically charge the seller about 3% of the final sale price.
FUNDING PURCHASE: DEPOSITS AND MORTGAGES
Following the 2008 credit crisis Spanish banks have been heavily restructured with significant international involvement by the EU and the IMF. As a result of this, banks are approving fewer mortgages and mortgage rates and terms have become less favourable.
One thing to be aware of is that the value the banks place on a property might be very different from the actual market price. Furthermore, for a rural property you will only ever be able to get a mortgage for 50% of the bank’s valuation of the property. It’s therefore absolutely crucial that you go talk to a bank first before putting down a deposit if you are depending on the bank’s money to pay for the purchase.
In Spain, 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.
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.
HOW TO PAY FOR YOUR HOUSE IN SPAIN?
The final step! Firstly, you will need to open a bank account in Spain. There are several banks who provide a bank account specifically aimed at expats, where you can open an account with just your passport and your N.I.E. (see this article on how to obtain your N.I.E.).
Now you probably have a bank account in your country with your budget and will need to transfer this money to your Spanish bank account.
Calling your bank asking them to transfer the money would certainly be one way to go about it but this will often lead to inflated rates and potentially carry extra fees. A foreign exchange company like WorldFirst can help solve this problem by offering much more competitive rates whilst at the same time providing you with a quick and hassle-free transfer.
You can find more detailed information about this on the buying property in Spain guide by Altea Moraira Villas.
FAQs when buying property in Spain
ARE FOREIGNERS ALLOWED TO BUY PROPERTY IN SPAIN?
Of course! 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. Remember that if you buy a house worth more than €500.000 you can apply for a Golden Visa.
WHAT ARE THE TAXES I NEED TO PAY WHEN BUYING A HOUSE?
All property owners in Spain are required to pay three different taxes each year. If you are a resident, you are subject to Income Tax (including Capital Gains Tax) and Real Estate Tax (IBI).
If you are a non-resident in Spain, you are subject to Income Tax (including Capital Gains Tax), Property Tax, plus an additional Non-resident Property Tax.
CAN I GET CITIZENSHIP IF A BUY A PROPERTY?
Sure! Spain encourages new home buyers by offering its Golden Visa residency program.
BUY A HOUSE IN SPAIN: DEPOSITS AND MORTGAGES
In general, non-resident buyers in Spain can enjoy the same mortgage conditions as Spaniards, i.e. up to 80% cover in the case of a first home, and between 60 and 70% in the case of a second home.
This means that you must have a minimum of 20% of the price of the available property, plus approximately 15% extra on the cost of the property to pay taxes, lawyer’s fees, notary fees, etc. In addition, your debt cannot exceed 30-35% of your income.
Other important information to bear in mind is that mortgages in Spain are normally taken out for a minimum of five years and a maximum of thirty, with the maximum age of 75 years for completing the mortgage. It should also be noted that each institution has its own risk criteria, in which the country of residence can be included, and that properties abroad are not usually accepted as collateral, as it is difficult to reach them.
TAXES TO BUY A HOUSE IN SPAIN
When you buy a property in Spain, you will be obligated to pay some taxes. Property taxes vary whether you are buying a brand-new property or a resale property.
TAXES WHEN BUYING A NEW PROPERTY
When buying a brand-new property, which is being sold for the first time, you will have to pay 10% VAT on the value of the property and the additional 1.5% on behalf of the Legal Documentation Tax.
TAXES WHEN BUYING A RESALE PROPERTY
When buying a resale property (a property that has changed hands at least once) you will be required to pay the Transfer Tax or ITP in Spanish, that is levied on a sliding scale depending on the purchase price.
For more information about property tax in Spain, you can check the linked article.
PROPERTY LAWYERS IN SPAIN
If you are going to buy a property and want to save yourself future problems, it is advisable to seek advice from a property lawyer in Spain. The savings far exceed the cost of legal fees.
Buying your home is usually the largest investment for most individuals. Even those who own several properties tend to invest cautiously in the real estate market. Real estate companies always use the services of lawyers before making an investment.
In short, the services of a lawyer are often more useful for preventive than corrective purposes. But most people still hire them when it’s too late.
The effort to find a good advisor can save you a lot of trouble.
HOW A LAWYER CAN HELP WHEN BUYING A HOUSE
Before entering into the purchase of a property, basic tasks of research and analysis must be carried out. It is important to check that the property is in order and that the contracts of purchase and sale and, where appropriate, mortgage loan, will not end up causing problems.
In addition, tax burdens represent a significant percentage of the operation. Together with the associated costs, they can increase the sale price by up to 20%. It is therefore a good idea to know this extra before you get a fright.