Apartments & Villas
1. Introduction to buying a property in Spain
The Economist recently reported that property prices have risen faster in Spain in the last 20 years than anywhere else in the world. If you purchased in Spain two years ago, you might have benefited from a 30% increase in the value of your property, possibly more in some areas. Although increases are currently a little more modest, experts predict that prices will continue to rise for the immediate future, and are unlikely to drop. This means that you can still buy a property in Spain that you can enjoy and be secure in the knowledge that it's also a good investment.
There is a wide range of property available. High quality, new construction projects are readily available throughout Spain. The introduction of the Euro has made it easy to compare property prices across Europe. Compared to the property prices in Northern Europe, Spanish property still represents good value. With mortgage rates at record lows and the continuing uncertainty in the stock market, investment in Spanish property can be a wise decision.
To make sure that you enjoy the potential benefits of property ownership in Spain you need sound legal advice and representation. This could be provided by a lawyer, a registered estate agent, a specialised 'gestor', or an 'administrador de fincas', any of whom is qualified to act on your behalf.
Estate Agents in Spain
When you decide to buy property in Spain you will almost certainly contact a number of Estate Agents. There is no law in Spain regulating the real estate industry and anyone may, quite legally, act as an intermediary in property sales. There are, however, two professional associations that promote a voluntary level of regulation for their members - API and GIPE.
Ask an Estate Agent if they have professional indemnity insurance, and, if so, for how much. Also ask if they operate an ESCROW bank account, a bonded client's account, into which any deposits are placed, and which is inaccessible except for the recorded purpose of the deposit. Estate Agents dealing with Spanish property typically charge commissions of
between 5% and 10% of the sales price. This they justify because of the increased costs associated with international marketing and the complications arising from a market where a buyer comes from one country, the seller from another and the transaction taking place in Spain, potentially a third country. Very few agents in Spain have exclusive rights to sell a particular property, so you will probably find more than one agent showing you the same property, sometimes at different prices.
Lawyers in Spain
You would use a lawyer in your home country when buying property and there is no reason why you should deviate from such common sense when buying property in Spain. Many Spanish lawyers speak excellent English, among other languages, and are accustomed to dealing with foreign purchasers and advising on their property transactions. The best way to locate one is to ask around for personal recommendations and experiences. Alternatively, the British Consulate maintains a list of lawyers who speak English. The lawyer will charge you around 1% of the value of the transaction, unless there are some unusual complications.
2. Spanish Property Buying Paperwork
Before signing anything there are some important pieces of paper you and your lawyer should have a look at ..
The Escritura Publica and Nota Simple
The Escritura Publica is the registered title deed of the property. It is entered in the 'Registro de la Propiedad', the Property Registry, and is the only guarantee of title in Spain. It contains a description of the property, the details of the owner and any mortgages or legal claims that exist against the property. This document is important because it tells yyou if the seller is the owner of the property being sold. A nota simple contains further details of any mortgages or charges against the property and is also available from the Registry.
The IBI receipt
Before purchasing a resale (not new) Spanish property check out the 'lmpuesto sobre Bienes lnmuebles', or lBI, which is the municipal property tax. Ideally, you'll be able to see the IBI receipts for the last five years because that is the limit of liablity for unpaid back taxes and is attached to the property, not the owner. A new property bought from a developer will not have an IBI receipt (because it has never been 'owned') so it will be your responsibility to register the property for this tax.
The Referencia Catastral
Every property sale must quote the 'Referencia Catastral' of the property in question. The Catastro is another system of property registration in Spain, concentrating on the location, physical description and boundaries of the property. While the Property Registry focuses almost exclusively on ownership and title, the Catastro is concerned with property valuation.
These two systems do not communicate with each other, and it is common to find that the catastral description of a property differs greatly from the one in the Property Registry. It is a good idea to request the actual certificate from the Catastro with a full description of the property. The certificate is in two parts, one being a description of the property and
the other being either a plan or an aerial photograph.
Community fees, statutes and minutes of the AGM
This only applies if you are buying a property in an urbanisation or where there are some 'communal' resources, shared amongst a number of properties. These are the fees charged by the 'Comunidad de Propietarios', the Community of Property Owners, a legal body that controls all the elements held in common; the lift, gardens and pool for example. Each owner is assigned a quota, or percentage of the expenses which, by law, must be paid.
These assure you that the bills are paid and also provide an idea of what the running costs of the property will be.
If you are buying a property in an urbanisation, make sure that it is legal and registered by asking to see the approved 'plan parcial' at the town hall. If the property is on the beach, make sure the development is also approved by the Jefatura de Costas. For a new property, make sure that it has been declared for IBI and that the developer has made the 'declaracion de obra nueva'. Also ensure that the escritura mentions the house you are purchasing as well as the plot of land on which it stands. As an additional safeguard, it is wise to examine the town planning maps for the area around the property, called the Plan General de Ordenacion Urbana, or PGOU.
3. The Private Contract
It is common practice for the buyer and seller to confirm the details of the purchase in a private contract, with the buyer putting down a non-refundable deposit of between 5% and 10% of the purchase price. This reserves the property and allows the buyer sufficient time to arrange payment of the balance. If another buyer comes along and purchases the property despite the existence of the private contract, the first buyer can claim double the amount of the deposit back. If the buyer fails to
complete the sale, the deposit is forfeited. Pay the deposit into an escrow or bonded client account, where it will stay until the sale is finalised. The estate agent will probably have a standard contract available which you should have your lawyer read and comment on.
The contract you sign should identify the property and the seller and buyer. It should state that the property is sold free of all charges, liens and mortgages. Before signing, your lawyer should check to make sure that no back taxes are owed on the property and that its original registration is in order. Back taxes are checked with Hacienda or the Town Hall and are the only debts not listed at the Property Registry. If you are buying the property 'off-plan', make sure the contract states
that the payments are deposited into an escrow account. This is usually a little more expensive but it means that your funds are secure if there are problems.
Power of Attorney
If you are not likely to be in Spain to sign the contract or conclude the purchase, a general power of attorney is frequently used to appoint a legal representative in Spain. The document is in a standard format that lists the actions that can be carried out by the holder - including buying and selling property. A Notary can prepare the relevant forms and will
print copies for you, retaining the original document in his offices. You will need copies authorised by the Notary to use the power of attorney at a bank or during a property sale. The only document required to establish power of attorney is a national identity document or passport of both the 'giver' and receiver'. The procedure will cost approximately 60 euros.
The Escritura de Compraventa
Assuming that the private contract is in order and that the buyer has secured the funds to complete the transaction, the sale is completed by signing the Escritura de Compraventa in the presence of the Notary. The Escritura de Compraventa does not guarantee your title to the property until it is registered at the Property Registry (making it an Escritura Publica, a public document). Once registered, the document is returned to the Notary, where it is kept on file. If you need a copy you can request one from the Notary who will produce an authorised copy. The deed should be registered within a few months and your lawyer will usually ask for a sum of money in advance to cover the estimated taxes and fees, and will either bill you for the remainder or refund you the overpayment once the deed is registered.
Do not confuse the Notario with a lawyer. The Notario is a public notary and an official of the State who ensures that contracts are legal. He does not verify or guarantee the accuracy of the statements made in the contract. You still need a lawyer representing your best interests.
4. Buying a property in Spain - how much does it cost?
On average, the cost of buying a property in Spain will be in the region of 10% to 15% of the purchase price depending on the complexity of the procedure and the area of Spain in which you are buying.
The notary - EUR 300 to EUR 600
The notary charges a standardised fee which varies according to the amount of land, the size of the property and its declared purchase value.
The registry fee - EUR 300 to EUR 600
The inscription of the property in your name in the official property register
The transfer tax - 6% to 7% of the declared purchase value
Transmisiones Patrimoniales in Spanish, is 6% (7% in Andalucia) of the value declared in the contract. If you purchase a new property from a developer, this tax will be value added tax at 7%.
The document fee - ½% to 1% of the declared property value
This is equivalent to stamp duty and is currently ½% (1% in Andalucia) of the declared property value.
The municipal tax - 10% to 40% of the increase in value of the property
This municipal tax is on the increase in the value of the property since its last sale. It is called 'plus valia' and can vary from 10% to 40% of the annual increase, depending on the length of time between sales and the town in which the property located. This can be a large fee so you would be wise find out exactly how much it will be by going to the municipal tax office and asking in advance.
Your lawyer - approximately 1% of the property value
The lawyer will charge you around 1% of the value of the transaction, unless there are some unusual complications
The tax deposit - 5% of the declared purchase value
If you are buying from someone not resident in Spain, you will deposit 5% of the total purchase price at the town hall in the seller's name as a guarantee against his future tax liabilities. You pay the seller 95% of the price, and pay the other 5% directly to the town hall. This serves as a guarantee against the non-resident seller's various Spanish tax liabilities.
Deciding who pays which taxes
This list of fees pretty much covers the extent of the major expenditure when buying a property in Spain. The buyer and seller are free to agree whatever terms they choose as there is no Spanish law requiring that one of the parties must pay any particular tax. Typically, the seller pays the notary fees and the municipal tax, as he is the one making the profit on the increase in the property value, while the buyer pays the transfer tax and the registry fee, as he is the one who is interested in making sure the property is registered in his name.
Deciding the declared property value
Until recently it was common practice to declare a low value for the property in order to minimise the transfer tax. Now most lawyers advise both parties to declare a realistic market value. If the Spanish tax agency discovers that the value was under-declared by more than EUR 12,000 or 20%, they can (and do) apply heavy fines. The safest way is to ask at the payment office of the nearest tax agency and they will tell you exactly what value they assign to a particular property
If and when you resell the property, you will be liable for Spanish capital gains tax on any profit made. Although it is tempting to declare a low value now, you will be liable for tax on a much bigger profit when you later sell.
5. Financing for a Spanish property
Once you have found a Spanish property to purchase, you'll probably need to decide how to raise finance for it. There are an increasing number of sources of finance within the UK which are willing to lend against a foreign property. Here we cover the two general options that are available in Spain.
Financing from the developer
If you are buying a brand new property or 'off plan', the developer will generally have the most attractive financing options to offer to purchasers. The paperwork will be standardised but you'll want to check the terms and conditions carefully.
Check that the contract stipulates the initial payment, the number of the subsequent payments and when these payments will end. From the sum of these payments you'll be able to see the true cost of the developer's financing compared to other options. Make sure you know what happens if you should miss a payment. Usually there will be provision for you to make a certain number of late payments and incur only a small penalty. Make sure that you are allowed to pay off the remainder of the contract at any time without incurring the total remaining interest.
Developers generally offer excellent terms to purchasers who begin payment before the building is finished. This can work in your favour but you must be sure that the developer is reliable and solvent, and that he is able to bring the project to
completion. The developer must offer a bank guarantee that assures the return of your total investment if the project stalls or fails. It is important that this guarantee does not cost you anything and details of the guarantee must be documented in the contract or a separate document.
Bank Loans and Mortgages
With the introduction of the euro and the lifting of virtually all exchange control, both residents and non-residents can now obtain loans and mortgages against a Spanish property in any currency from any bank in the world - in theory at least. With inflation and interest rates at an all-time low in Spain, Spanish bank mortgages are now being offered at low rates compared to the rest of Europe. Mortgages of 20 and 30 years, and mortgages of 100% of the property value, are available in Spain. For a non-resident buyer, the mortgage is usually limited to around 70% of the property valuation. It's certainly worth shopping around as terms, penalties and interest rates do vary significantly. Typically, the building societies in Spain offer lower interest rates and lower penalty fees but Spanish banks are waking up to the potential from foreign investors.
6. Check list to completion after finding a property
1 Get qualified, professional legal assistance working solely on your behalf
2 Review the seller's title deed
3 Review a recent nota simple
4 Review the full catastral certificatation document
5 If buying in an urbanisation, check the plan of building plots
6 If buying a plot of land, check that building is legally possible
7 Review the IBI receipt or the declaration of new construction
8 Review the community charge receipt and the statutes if buying in a communally owned development
9 Review the sellers utilities receipts
10 Draw up a private contract in Spanish and have it translated into your mother tongue
11 Agree a price, method and currency of payment
12 Sign the escritura de compraventa in the presence of a notario
13 Pay the required fees and taxes, and the 5% tax deposit to Hacienda if you buy from a non-resident
14 Establish how and when you will receive the escritura publica, making you the legal owner.
7. Glossary of terms
Abogado - Lawyer or solicitor
Administrador de Fincas - Licensed property administrator
API - Agente de la Propiedad Inmobiliaria - Association of Estate Agents, see GIPE
Arbitrio sobre el incremento del valor de los terrenos - Municipal tax on property sales, see Plus Valia
Boletin Oficial - Official State record where laws are published
Catastro - Land Office, concerned with measurementsand physical descriptions of property
Certificado Catastral - Catastral certificate describing land and buildings
Comunidad de Propietarios - Community of property owners
Declaracion de Obra Nueva - Declaration of new construction
Escritura de Compraventa - Sales contract
Escritura Publica - Registered title deed
Expediente de Dominio - To establish title
Finca - Any plot of land or property
Gestor - Licensed administrator in Spanish procedures
GIPE, Gestor y lntermediario de Propiedades y Edificios - Association of Estate Agents, see API
Hipoteca - Mortgage
Impuesto sobre Bienes Inmuebles - Annual property tax (IBI)
Impuesto de Transmisiones Patrimoniales - Property transfer tax (ITP)
Jurado de Expropiaciones - Special tribunal in cases of forced purchase
Justiprecio - Legislation of fair price by the State in cases of forcible purchase
Ley de Costas - Shores Act to protect the coastline
Ley de Tasas - Law of public fees
Ministerio de Obras Publicas y Transportes - Ministry of Public Works and Transport (MOPT)
Nota Simple - Certificate of registration from Property Registry
Oficina Liquidadora - Tax office that assigns property values
Plan General de Ordenacion Urbana - Town development plan (PGOU)
Plan Parcial - Plan of building plots in an urbanisation
Plus Valia - Municipal tax on property sales
Poder - Power of attorney
Registro de la Propiedad - Property Registry
Reposesion - Repossessed property
Subasta - Auction
Subasteros - Professional auction buyers
Topografo - Property surveyor
Urbanismo - Town planning department
Valor Catastral - Assessed value of property for tax purposes
This article, is intended as an overview of the subject matter, for guidance only and should not be considered a substitute for individual professional legal advice.
Facts and figures source: 'You and the Law in Spain' - according to The London Times 'The bible for foreigners in Spain'. Written by David Searl and published by Santana Books, ISBN 84-89954-25-9. Buy direct from Santana Books at http://www.santanabooks.com
For more information about buying and selling property in Spain, please visit Kyero
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