Mclaren - Property Abroad

Finding the Right Spanish Property

Selecting your property requires careful thought as the investment you choose today will have a direct effect on your future assets. Taking into account the right factors, such as location, quality and market trends, is of utmost importance.

Do keep an open mind when it comes to choosing the best property to suit your needs. Often what you think exists is not as readily available as you think and after much research and planning you may even end up deciding upon something completely different than you originally planned.

A Few Words of Advice

If you decide to buy in an up-and-coming area which is not yet built up, bear in mind that empty plots will be built on one day, so your property will sit amongst ongoing construction for many years to come and it may even lose its lovely view. Make sure also, that there is some “breathing space” on your land to avoid being overlooked from every angle.

• Look at local amenities, accessibility and security as they will all affect your future sale price or rental income. Is the area high in demand now or expected to be so in the future? If not then you may struggle to sell your property.
  
  
• Remember that a cheaper property inland will need to tick all the right boxes regarding easy access and local amenities if it is to prove a sound investment. Also, if you will need to make frequent flights, you will want to be near an airport.
  If you have health issues, you will need to consider buying in an area with a large municipal hospital and good doctors in the area.
  
  
• If you have are relocating with children, you may need to be near International Schools.
  
  
• Find a qualified estate agent who is a member of the API (Agentes de la Propiedad Inmobiliaria) or GIPES (Gestores Inmobiliarios). Not all agents are qualified and recent legislation allows just anyone to open up a real estate agency. Good agents listen to you, are not pushy, share their market knowledge with you and if you stick with them, they will pull out all the stops to find you the right property for your needs.
  
  
• Find a reputable, English speaking lawyer to oversee your purchase and ensure you avoid any potential pitfalls. We will gladly assist you in finding a good lawyer.
  
  
• Purchase only for your own requirements, not the rest of the family, who are often unlikely to visit as often as you expect.
  
  
• Remember that reforms and modernizations take time, hassle and often more money than you envisage. If you decide to go down this route, be sure to obtain professional quotations prior to purchase and budget for unexpected surprises.
  
  
• Visit enough properties to enable you to make a correct market evaluation. Compare the actual sale price of properties for sale in the same area, not the asking prices.
  
  
• Be aware of orientation. No one wants to wake up on holiday to find the terrace and garden already in the shade, so almost never buy an east or north-facing apartment as the demand is very small!
  

Off-Plan Properties

• If you are buying a property off-plan, make sure the developer has an insurance policy or bank guarantee to protect your payments should the project not be completed. The developer must also be able to provide proof of ownership, planning permission and insurance over against building defects.
  
  
• If the price of your off-plan property does not compare favourably with that of similar finished or soon to be finished developments in the surrounding area then you are gaining nothing by buying off-plan.
  
  
• With an off-plan purchase, you should aim to pay as low a deposit as possible. Normally the lowest is 30/70, ie. 30% deposit and 70% payable on completion. You will need to walk away from any development asking more than 40/60.
  
  
• Be sure that you can sell on your contract before completion as not all developments allow you to do so and will not publicize this fact to purchasers. You will be better off with your options left open so it is advisable to avoid developments where selling on is not possible.
  
  
• Some developers say you can sell before completion but have a clause in the contract stating you may sell on only when they have sold all the other apartments within the development. You may not be allowed to sell for a lower price than the remaining apartments, or they may require you to sell through the developer’s sales office who will then charge huge fees for the privilege! Developers normally charge 1-2% to transfer paperwork from one name to another and this is normally paid by the purchaser.
  
  
• Ideally 16 months or more is advisable from initial contract to completion. You will need to allow 4 months to sell and 12 months to see an attractive amount of capital growth.
  
  
• Developments in Spain sell very quickly and normally over the course of construction the developers will increase prices four or five times. You need to get in as early as possible to maximize your profit.
  
  
• Remember that on a development that has a 30% / 70% payment schedule, if the price of the apartment goes up 10% then that is actually a 31% gain on capital invested. See the example below:
  
  Purchase price = €200,000
  30% deposit = € 60,000
  7% IVA (VAT) = € 4,200
  Total capital invested = € 64,200
  If the developer puts the price up by 10% then the increase is € 20,000.
  If you bought the apartment immediately when is was released at € 200,000, then your gain would be as follows:
  € 20,000.00 / € 64,200.00 = 31%
  

If you had bought after the increase, then you would have lost a 31% gain!!!

The Property Buying Process

The buying process is relatively simple although the fiscal and cultural variations between countries make it advisable to get your own independent solicitor for ease and peace of mind.

1. When you find the property you wish to buy, you will be required to pay a deposit payment or reservation fee of around 10% upon signing a private sale contract. The property will then be immediately taken off the market and the price is fixed. If the vendor pulls out of the sale, he is legally required to pay you double the payment in compensation. However, if you pull out of the sale or fail to complete on the date fixed, you will lose your deposit payment.
   
   If you buy off-plan, payments are different and covered as staged payments throughout the development period. Your solicitor will keep you informed as to when these are due.
   
   
2. Be sure that the payment is refundable subject to legal checks as to ownership, planning permission, boundaries and legal description of the property.
   
   
3. Once the legal checks have been undertaken, the sale is performed before a Public Notary who acts as a legal representative of the State. The Notary checks the legal documents and witnesses the signatures.
   
   The final payment is made at the time of sale and this transaction is recorded in the Title Deed (Escritura de Compraventa) signed before the Public Notary. If you are unable to appear in person at the signing you should give a Power of Attorney to your lawyer to act on your behalf. At this time, any existing mortgage should be cancelled. If you are taking a mortgage with another bank the loan amount will be paid directly to the vendor on completion.
   
   Many charges and debts incurred by the previous owner can be registered against the property. If these are left unpaid, it is your lawyer's job to ensure you buy the property free of any debts.
   
   Once completion has taken place, certain fees and taxes must be paid. See our Spanish property tax information to find the additional fees to expect during the purchase of a Spanish property.
   
   
4. Title deeds are sent to the Land Registry where the transaction is officially registered in Spain.
   

NIE Number

At the earliest possible time we recommend you apply for an NIE number (a foreigner’s identity number). This number is necessary when carrying out any financial transaction in Spain including buying a property.

The NIE numbers are issued at the National Police Station in the town where you are purchasing the property and you need to apply for these in person. Unfortunately, there are few hard and fast rules with regard to making the application as each town has its own rules. You will need your passport and a photocopy and complete the application form in duplicate using black ink. It is always useful to have several spare photocopies of your passport. You should go to your nearest National Police Station usually between the hours of 9am and 2pm and complete the NIE application form, but be prepared to queue.

Often, your estate agent will assist with this formality and they generally know the procedure in the area where they operate and will give you further guidance as to what additional, if any, documents you need to present.

Insurance

Once you are the owner of the property you should ensure there is adequate building insurance and contents insurance is in place. If a mortgage was used to buy the property, this is a mandatory requirement. Buildings are often insured by the community if the property is on a complex.

Mortgages

Mortgage options in Spain include either a European mortgage or a re-mortgage through an existing property.

Normally non-residents can borrow only 70% of the purchase price. However, it is possible to have a combination of 70% European mortgage and 30% re-mortgage. Interest rates in Spain are currently lower than in the UK but the costs for arranging the mortgage are high. If you are buying a new build property, a firm mortgage offer will only be given once the property is completed and a property valuation has been carried out.

Payment of Taxes

The relevant taxes (either IVA (VAT) if a new property or Transfer Tax if a re-sale property) must be paid within a fixed period of time to avoid fines. It is your lawyer’s job to ensure the appropriate completed forms are sent to the tax authorities on your behalf. Stamp Duty is payable after completion of the property at 1% of the purchase price.

Registration (Inscription)

Once the taxes have been paid, then Deeds (escrituras) can be delivered to the Land Registry for registration. This is probably the most important stage of the purchase and it is vital that the property is “inscribed” in your name from the start, to protect your interests.

Wills

Spanish inheritance law is very different and quite complex compared to UK law so it is important to have a Spanish will in place to ensure your wishes are respected. Technically a valid British will can be used in Spain but a Grant of Probate would have to be obtained which can be a lengthy and expensive business.

The level of inheritance tax paid by your heirs can be significantly affected by the way that a Spanish will is prepared. At the moment inheritance tax is higher if you are a non-resident. Wills have to be signed in front of the Notary and you have to be present for this. A Power of Attorney is not acceptable so ensure you arrange for your will to be signed either upon completion of your property or on one of your planned visits to Spain.

Costs Involved

Re-sale purchase tax: If you are buying a resale property, you are required to pay the ITP (Impuesto de Transferencia de Propiedad or Transfer Tax) which stands at 7%.

New properties purchase tax: buyers of brand new houses in Spain pay 7% IVA (VAT) if the house is finished or is being built at the time of the purchase, plus 0.5% stamp duty.

However, if you buy land in Spain, commercial premises or parking spaces in garages, then the VAT payable rises to 16%.

Increased patrimony tax (Capital Gains): this is payable to Spanish Treasury must be paid by the vendor. The purchaser withholds 5% of the total purchase price to ensure the seller declares it. It represents the difference between the current (official) sale price and the original purchase price when the seller originally bought the property, plus the value of any reforms and improvements carried out since then.

Land, commercial premises or garages separate from buildings where the
vendor is a developer or trader.: 17% (16% VAT and 1% stamp duty) is payable.

Notary and Property Registry fees vary between € 1,200 and € 2,500 each
depending on the value of the property. Therefore you will need to account for
around 8% of the purchase price for resale residential property or 8 - 9% if VAT is
paid (for new properties). To this you must add approximately 1% for lawyer's fees.
The vendor normally covers agent's fees unless otherwise agreed.

Other Costs

Local rates

Annual local rates (IBI) are payable and are calculated from rateable value of the land. The rateable value takes into account the value of the land plus buildings as well as location, and usage and the tax is calculated at 0.85% of this value eg. a 2 bedroom beachside complex apartment in Marbella paid rates of €1.219/ £870 in 2003 and a free standing beachside villa in the heart of the "Golden Mile" paid annual rates of €2,500/£1,785 in 2003.

Rubbish collection & water rates

The Town Hall sets this charge according to the property and this must be paid every 6 months. It will never cost more than about £200 per year. Water consumption is paid quarterly and is metred in cubic metres.

Community fees

The purpose of the Community is to own and maintain the common areas within the community or urbanization. Depending on the size of plot, each homeowner must pay a contribution towards upkeep in the community areas and its services.

Community charges vary according to urbanization. A typical 2 bedroom apartment in a building with a hall porter, swimming pool, and a small garden, could cost between €120/£85 to €300/£215 per month or in a luxury development it could be as high as 600/£428.

An individual villa in an estate of villas could be liable for lower community fees as its private gardens and exteriors are not generally maintained by the community. Community fees cover the road and roadside garden maintenance, as well as services maintenance, and security.

Gardeners

Typical rates for private gardeners are about €14/£10 per hour. A full-time gardener’s salary could be around €1,000/£715 per month. Social security is an additional cost to full time wages and stands at around 40% of the salary.

Cleaning services

Cleaners fetch full-time salaries ranging from €600/£428 to €800/£571 per month plus approximately €120/£85 per month social security contributions. Part time help usually costs anything from €8 to €10 / £5.7 to £7.15.

Electricity

Electricity is billed bi-monthly and is the most expensive service in Spain. Minimum rates are charged whether you are in residence or not, and the minimum varies according to the amount of electricity your house could potentially use with all power and lights turned on.

A minimum charge for an apartment might be around €25/£20 per month. Charges for a villa are from around €70/ 50 per month, depending largely on the extent of the electrical installation. Usage is €0.08 /5.7pence per Kwh plus tax.

Fixed-line telephone

The telephone bill is also charged bimonthly. Standard rates can be in the region of €20 per month including a touch dial telephone. There are telephone companies offering substantial savings and ADSL broadband is available virtually everywhere.