GUIDE TO BUYING PROPERTY IN SPAIN
Please note the following is just a guide and legal advice should be sought
Finding the Right Property
Examine your reason for buying property in Spain. Where in Spain you want to buy property depends on whether you want the property as an investment, as a vacation home, or to live in permanently.
- If you're buying as an investment, look in vacation hot spots on the coasts or in large cities. These properties are likely to go up in value and will provide good rental income.
- For a vacation home, concentrate on apartments and villas in developments. The property management company will care for the exterior and landscaping, and plenty of neighbors means leaving the home vacant for months won't be as big of a concern.
- For a more permanent home, you'll want to focus on your quality of life. Look at the local infrastructure, facilities, and accessibility. If you want to be around other expats, focus on towns and cities that have thriving expat communities.
Calculate your budget. Before you start looking at properties in Spain, you need to fully understand the costs of owning property in Spain so you can budget accordingly. You will have expenses beyond the price of the house.
- You'll pay a stamp tax of around 1 percent of the purchase price of your new home, as well as fees to brokers, attorneys, and others. Assume you'll pay between 10 and 15 percent more than the list price of the house, once you factor in taxes and fees.
- Don't forget the costs associated with moving your furniture and belongings to Spain, or purchasing new items for your Spanish home.
- If you're buying a new home, you also must pay a 10 percent VAT tax (4.5 percent in the Canaries) on the property when you close on the sale of the house. (these fees are only a guideline).
Look at different types of Spanish property. Just as in any other country, you can buy properties in Spain that are in different states of readiness. Which you choose depends on your needs as well as your budget. There are different costs associated with different types of property.
- New construction (obra nueva) is the most expensive type of property you can buy in Spain. However, the biggest advantage is that you know exactly what you're getting, and won't incur any remodeling expenses.
- You also can be resale property, which essentially is an existing house that has already been sold at least once. These properties are generally safer investments, provided you understand how much you'll have to spend on repairs or remodeling.
- Off-plan (sobre plano) property has been approved for construction by local authorities, but construction is not yet completed. You may get a lower price for these properties than you would for new construction, but you run the risk that the house will never be finished.
Research your favorite areas. Before you buy property in Spain, hit the internet to learn more about areas that have captured your interest. The information you need depends on your reasons for buying property in Spain.
- For example, if you're buying the property as an investment, you want to check out the property values in the area. If property values have been declining significantly in recent years, the area might not be a good investment.
- If you're looking to rent out the property when you're not there, you want to look for a well-connected area with lots of attractions and things to do. Avoid properties that are too rural or isolated, as you may have a hard time keeping them rented on a regular basis.
- If you want to move to Spain and live in the property permanently, research what it's like to live in that area on a daily basis. Find out about any risks, and compare the cost of living and tax rates to surrounding areas.
Visit the area where you plan to buy. Spending some time on your own exploring the area around property you want to buy is crucial. Go there not as a tourist on vacation, but with an eye toward what it would be like to live there full-time.
- While it's important to find out what activities and entertainment are available, if you plan to live there permanently, these things shouldn't be your priority. Renting a property in the area for a few months will give you a better idea of what it's like to live there.
- If you want to buy property in Spain for investment purposes, you still need to look at what daily life is like in the area. You'll need to be able to tell prospective renters what the property offers for them.
It is strongly recommended that you choose an independent lawyer who is specialised in Spanish land law (urbanismo). Independent means that they work on your behalf only and are not also looking after the interests of the agent or developer. The Spanish property conveyancing system is different to the UK system so you should ensure that those involved in the transaction are qualified and experienced in Spain.
Exercise extreme caution if an estate agent, promoter or lawyer urges you to cut corners to save money or time.
A Spanish notary public will be involved in preparing the contract of sale and issuing the public deeds. As the purchaser, you have the right to choose which notary you use. The notary is a public servant who has a duty to provide you with free and impartial legal advice on all aspects of the contract before you sign. It is a good idea to seek advice from the notary early on. When a date is set for signing the contract, you have three days beforehand to visit the notary and ask any questions you may have about any aspect of the contract.
If you choose to work with a British estate agent, promoter or lawyer, check that they are qualified, reliable and have experience operating in Spain. Check that they are registered with the Law Society in the UK and specialise in International Transactions. If your lawyer is based in Spain, ask for their registration number and check that they are registered and practising with the local bar association (Colegio de Abogados).
You should also check that your lawyer has professional indemnity insurance and not sign any papers or hand over any money until you have taken independent legal advice.
Many Spanish citizens use a ‘Gestor’ to carry out bureaucracy on their behalf. You should note that only a Gestor Administrativo with the GA kite mark is professionally qualified and certified to process paperwork directly with the Spanish administration.
The Spanish tax authority is called the Agencia Tributaria. It provides some information on its website in English.
Purchasing the Property
Get your Foreigner's Identity Number. If you want to conduct any business or financial transactions in Spain, including purchasing a house or opening a bank account, you'll need a Número de Identificación de Extranjero (NIE).
- EU citizens will automatically get one when they register, while others must first register and get a residence permit (assuming you want to stay in the country for more than three months).
Set up your accounts. You'll need insurance and a Spanish bank account if you want to buy property in Spain. Most sellers will only accept checks drawn on Spanish banks and payable in euros.
- If you're receiving a pension, make sure you can get that pension paid into a Spanish bank.
- You may be getting your mortgage through a Spanish bank. In that case, it's usually easiest to set up your bank account at the same bank.
- If you're using a Spanish mortgage lender, they'll help you get property insurance. Otherwise you'll have to arrange for this yourself.
Hire a translator. Even if you consider yourself fluent in Spanish, legal documents can be especially difficult. Having these documents translated into your native language so you understand the deal.
- Check the website of the Spanish Ministry of Foreign Affairs to find a list of accredited translators.
- Ideally, you want a translator who has experience with legal documents, especially real property documents.
Get a full survey done. Even if the property has been surveyed fairly recently, you still want to have a fully survey done before you buy the property so you know exactly what you're getting for your money.
- A survey is separate from an inspection. An inspection shows you existing defects or improvements that can be made to the house and other structures. A survey simply tells you where the boundaries of your property are, as well as the locations of any underground cables or pipes.
Negotiate a contract. Your broker and attorney (if you've hired one) will negotiate with the seller in an attempt to lower the price as much as possible. Other factors up for negotiation include who pays taxes, what structures or fixtures are included in the final price, and who pays for any repairs.
- The contract also will include deadlines for various steps of the process to be completed. There will be deadlines for you and the seller. For example, if you've not yet secured financing, the contract may specify a date by which you must have a mortgage for the property.
- The details included in the contract depend to some extent on the type of property you're buying. For example, if you're buying an off-plan contract, you'll be signing a payment construction contract. This contract binds the seller to complete the house under a certain schedule.
Before you complete your property purchase you should make sure that:
- you have seen the Land Registry extract (nota simple), available from the Colegio de Registradores (translations into English for an additional fee), and checked the following details
- the property and land for sale match the details registered and the sellers are the registered owner(s)
- there are no debts or charges, such as a mortgage, on the property
- there are no legal proceedings initiated against the property for contravention of land planning law
- you have checked that planning permissions are in order and the property is a legal build. This is particularly relevant when buying off-plan or direct from a developer. The town hall can inform you whether the building has all licences and permissions and provide details of the type of land. If the property is built on rural land or land that is not classified for construction, additional confirmation should be sought from the regional government as to whether they have authorised the construction
- if you are buying an off-plan property, confirm that the property has been certified as finished by a registered architect and registered as a new build in the property register. The registration should also provide details of the developer’s insurance against structural and other defects in the construction. In the case of a private build (the previous owner built their own house and decided to sell before ten years had lapsed) you will need to request these details separately
- you have checked the latest town plan to see whether or not the plot you wish to buy has any building restrictions, is in a green zone or includes a public pathway or similar. This can be viewed at to the town planning (urbanismo) department of the local town hall
- you have carried out a property survey. Whilst this is not obligatory, it is wise to get a chartered surveyor to check the property
- You know the cadastral value of the property and how much purchase tax will be due. Be aware that tax is charged on the council’s valuation of the property as opposed to the amount of the sale. You can check this at the regional government’s online tax agency site using the cadastal reference number
Make sure you have seen the following documents:
- a paid-up receipt for the previous owner’s annual property tax (IBI). It is also wise to get a certificate from the town hall proving that there are no unpaid rates from previous years
- the Catastral certificate giving the exact boundaries and square metres of your land. The Cadastral record will be linked to the Land Register record by a cadastral reference which will be included in both. You should ensure that the property and land description contained in both records matches
- the licence of first occupancy or habitation certificate issued by the town hall. You will need this document to connect to electricity and water companies. Developers cannot force you to complete without this licence.
- receipt to prove all utility bills have been paid by the previous owner
- if applicable, a certificate signed by the President of the Community of Property Owners stating that there are no outstanding debts. You should be aware that if you later find that there are such debts outstanding, as the new owner, you assume the debts for the current and previous year (two years in total)
- as from 1st June 2013, all homes for sale or to let in Spain are required by law to have an energy efficiency certificate. If you are considering buying a property, the seller is obliged to show you this certificate
On completion, the public deed should reflect an accurate description of the property. It is advisable that you register the property in your name with the Land Registry as soon as possible to ensure full protection of your rights. The notary can even send advance notification to the Land Registry electronically once the public deed is signed.
Apply for a mortgage. Unless you're buying the property for cash, you'll need to finance your purchase.
Do your homework: you should analyse and compare a range of different products and services offered by different lending companies. If you have any doubts about the terms and conditions, ask the lender to clarify. You should also check that the lender is listed as authorised to operate in Spain with the Bank of Spain.
Look for the mortgage which is most appropriate for your capabilities and needs. There are a range of mortgages on offer and you should pay special attention to the interest rate and repayment period, fees for setting up the mortgage as well as early repayment and cancellation fees.
If you cannot keep up the mortgage repayments, the Spanish bank could repossess your property in Spain. If the value of the property is less than the total debt outstanding (you are in negative equity), the bank may pursue your UK assets to recover the mortgage shortfall using a European Enforcement Order.
Make sure you fully understand the mortgage agreement you sign. If you have any doubts check with the branch during the 10 working-day period after the binding offer has been provided. If for any reason you cannot keep up the mortgage repayments, you should speak to your bank immediately (before defaulting on repayments) to discuss the options available.
Close on the property. Once you've negotiated a sales contract and have your financing in place, you'll conclude your purchase. If you're able to do this in person, it typically will occur at a notary's office near the property.
- When you close on the property, you'll have to make your initial deposit, typically of around 10 percent of the total purchase price of the home.
- If you're not able to appear in person, you can arrange to have someone represent you as a representante verbal (verbal representative). You can later ratify the representation at a Spanish consulate office in your home country, or at the notary's office next time you visit Spain.
Register the property. In Spain, the buyer is responsible for registering the transfer of ownership with the local registry office. If you used a notary for closing, they may provide this service for a fee.
- If you're paying the notary to register the property, make sure you understand exactly what they're going to do. They may simply notify the registry office that a transfer was made, but not complete the full registration.
- The cost of registration and notary services together typically ranges from 0.5 percent to 1 percent of the sale price of your property.
Compute property taxes. There are several types of real and personal taxes you must pay if you are living in Spain for any length of time, or if you own property there. The amount of taxes depends on the cost of your property and the area where it's located.
- You must pay property ownership tax yearly. The tax is set locally, and ranges from 0.4 percent to 1.1 percent of your property's valor catastral, or the administrative value of the property. That amount is typically lower than market value.
- For a small country home, your taxes may be as little as 100 euros per year. However, a luxury villa in a waterfront tourist development could set you back as much as 3,000 euros a year in taxes.
- If you own more than 700,000 euros in worldwide assets, you may end up paying the wealth tax for any property value beyond that amount. The rate ranges from 0.2 percent to 2.5 percent, depending on the value of your assets.
- You also must pay personal income tax based on the valor catastral of your property. If you plan to rent out your property, you'll also pay around 25 percent of the gross income you earn from renters.
Renting out your property
As from 1st June 2013, all homes for sale or to let in Spain are required by law to have an energy efficiency certificate. If you are offering your property for rent after this date, you will need to obtain an energy certificate first. New rules and regulations for the Valencian region.
If you want to let your property to tourists on a short-term basis, you must ensure that you are doing so in accordance with Spanish law. The regulations on letting tourist apartments (apartamentos turisticos) and holiday homes (viviendas vacacionales) to tourists will vary depending on the region where the property is located.
If you are planning on making a return by renting out your property on a short-term basis, it is best to seek independent legal advice and check what the rules are at the local town hall or the tourist department of the regional government before you buy. Be aware that the marketing of private residential property to tourists is strictly regulated in many regions of Spain.
Owners who are caught illegally advertising or letting out their properties without complying with local legislation can be liable for significant fines, in some cases reaching as much as €30,000. If you are planning to buy an apartment which is part of a residential block, you should also check whether there are any rules set by the committee of owners that prohibit or restrict short-term letting. You may want to consider hiring a Spanish letting agent to assist with finding tenants, drawing up rental contracts and managing the property on your behalf. In some regions, such as Murcia, it is obligatory to use a specialist tourist apartment management company for short-term rentals to tourists.
Owners who let their properties on a long-term basis are free to do so within the terms set out by the national rental law. However, it is worth seeking professional advice to make sure that you are complying with Spanish legislation and that you are using the correct rental contract.
In Spain, there are different types of contracts depending on how long the property is due to be let. You can get copies of these contracts from tobacconists.
You must ensure that you declare your rental income to the Spanish tax authorities (Agencia Tributaria) whether you are resident in Spain or not. Taxation is a complex issue, and it is advisable to seek the advice of an accountant or professional tax adviser with comprehensive and up to date knowledge of both the UK and Spanish tax regulations.