Purchasing a property in Spain
Purchasing a property in a foreign country can be daunting, but with our easy to understand Buyers Guide we aim to make this as easy as possible for you to understand. It’s true that the Internet has become by far the most useful tool for those looking to buy properties and a net-based property search is usually the first step taken by any potential buyer, however keep in mind that it is still over the internet and there are some fraudulent websites. Some websites do not even identify themselves correctly, have no office address and not even a landline telephone number (in this region these start with either 951 or 952).
Choosing an agent
Google is a great tool for finding properties, but it is the second step you take, once you see a few desirable properties on several sites, which is probably the most important decision made in the whole buying process. Establishing a relationship with an established, reputable agent, who has an in-depth knowledge of the area(s) you are looking in is essential. The right agent will help you through the process of looking for your property and they can share their market knowledge and give you great advice on the area. If what you are looking for is not in their inventory, they will go out and find the property for you through colleagues in other agencies on a commission-sharing basis. A reputable agent will not charge you a commission or “Finder’s Fee” as they receive their remuneration from the seller.
Choosing a Lawyer
Marbella For Life always recommend that purchasers of property in Spain hire a qualified, registered lawyer, based in Spain and who can speak English, to handle all of the paperwork that will be entailed when purchasing your property. It is always beneficial when you are in Spain to meet with a lawyer, even if you have not found your ideal property yet, as it is clearly more difficult to choose a lawyer long distance. Also please bear in mind that in some cases you will have to give your lawyer power of attorney to avoid travelling to and from Spain to sign at each stage of the purchase process.
Also, getting the basics into place, before you find a property is also a good idea. Having a lawyer, NIE number (a number issued to foreigners in Spain) in place, and bank account opened strengthens a buyer’s position when negotiating as he or she can put down an immediate deposit if an offer is accepted, since all the other details will have been taken care of already.
Negotiating a purchase
A good agent will also be immensely helpful to you in negotiating the purchase of a property you are interested in buying. It is important to remember that if your offer is too low it will not engage the interest of the seller, and might actually prove counter-productive.
An articulate offer will generally capture the attention of a vendor. We recommend getting all your points together, rather than negotiating “piece meal.” Make your offer in writing if possible (of course, subject to contract). Points to include are not only the price, but also the deposit amount and when you are prepared to pay it, when you are prepared to complete the transaction, what you understand to be included in the price (for example furniture and fittings if applicable), Also, if you have a second choice property you should certainly advise the vendor of this fact.
Your lawyer can also be consulted during the negotiation to ensure that the terms of the offer meets his or her legal criteria, and on occasion will also become actively involved in more complex negotiations.
The Buying Process
Reservation or Holding Agreement
Once you have found your ideal property and you have come to an agreed price with the vendor, then the next step is to reserve and remove it off the market. This is achieved by making a reservation or holding agreement along with a fee of normally €6000. This reservation agreement will hold the property, removing it off the market while you and your lawyer start the due diligence process. This fee is fully refundable pending due diligence checks.
Private Purchase Contract
Around 30 days after the reservation agreement a private purchase contract will have to be signed and a 10% payment made to the lawyer. The private purchase agreement would provide details such as legal description of the property, purchase price, form of payment, date of completion, date of possession etc. Of course this 10% is only payable upon the full satisfaction from your lawyer that the full due diligence has been completed and that there are no liens and encumbrances. New properties from developers are paid over the construction period, and all payments on account before finishing must be guaranteed by a bank or insurance company. If the property is not finished by a certain date, a purchaser has the right to reclaim the monies paid plus legal interests. There is also a law in place that the property developer has to arrange a 10-year insurance policy with respect to any basic building defects.
Documentation and Banking
Once the purchase process has started you will be required to get a NIE (an identity number issued to foreigners) which your solicitor will help get by making an application to the local police station with a copy of your passport and reservation agreement. The NIE will be used by the notary when completing the sale and by the bank when opening an account. As mentioned above if you are intending to buy a resale property it is always a good idea to sort all of this out as soon as possible in order to strengthen your negotiation power.
Once the remaining balance has been paid the seller will issue the public deed of conveyance (escritura) to the purchaser, free of liens and encumbrances. The deed is issued before a Spanish notary and then passed from the notary to the tax office to be assessed for Transfer Tax to see if the property is a resale (second hand property) or assessed for Stamp Duty if the property is sold directly by the developer. It’s then presented to the property registry for inscription (there is a provisional inscription made immediately upon the issuance of the deeds).
Property purchasing costs in Spain
Legal Fees – These usually are 1% of the selling price.
Transfer Tax (I.T.P) – Scaled at 8%, 9% & 10% – THESE ARE APPLICABLE TO RESALE PROPERTIES
This is a tax payable by the buyer for the purchase of any Real Estate (villas, flats, land, commercial premises, garages), provided the vendor is not a developer or normally trading in the business of resale properties. If the “minimum fiscal value” of the property as per the Regional Government is greater than the price, then the minimum fiscal valuation applies:
- 8% is applicable up to the amount of 400,000€ or 30,000€ in the case of garages except those belonging to the dwelling and with a maximum of two.
- 9% is applicable to the amount between 400,000€ and 700,000€ or between 30,000€ and 50,000€ for garages.
- 10% is applicable to the amount exceeding 700,000€ or 50,000€ for garages.
VAT and Stamp Duty – THESE ARE APPLICABLE TO NEW PROPERTIES FROM DEVELOPERS
- 10% VAT and 1.5% Stamp Duty is applicable for villas, apartments, or a garage that is annexed to an apartment or villa, where the vendor is a developer, promoter or habitual trader for brand-new properties.
- 21% VAT and 1.5% Stamp Duty is applicable to the first sale or resale of parcels of land, and for the first sale of brand new commercial premises where the vendor is a developer, promoter or habitual trader or a company.
Please note: In all cases where the vendor cannot pass on the VAT to the purchaser, i.e. where the vendor is a natural private person (not a business developer), whether being a resident or non-resident of Spain, the transfer tax to be paid by the purchaser will only be the I.T.P and VAT will not be applicable.
Notary and Property Registry Fees
The fees for the Land Registry correspond to the registration of the deed of sale in the Land Registry in question. The cost increases according to the number of pages or complexity of the title deed, and value of the property. +/- € 3,000
Municipal Added Value Tax (Plus Valia) – PAYABLE BY THE SELLER
This is a tax by the town hall based upon the increase in the index value of a property between the years of purchase to the year of sale. The tax corresponds by its nature to the vendor who is responsible for its payment. Unless otherwise negotiated this can range from a few hundred Euros up to thousands of Euros on a property that has not changed hands in many years with lots of land.
The total official costs involved in purchasing a constructed residential property should be around 10-11% for resale properties or around 12% – 13.5% for new properties (if VAT and stamp duty is paid on the purchase price) plus lawyers’ fees.
Ongoing annual costs after purchasing your property
The fees below will vary on a case to case basis depending on the property size.
- Normally between €200 – €400 pm (these fees are set by the community of owners who appoint an administrator to run a defined set of services. The building is maintained and insured and fees vary depending on the size of gardens and facilities).
- These cover electricity and water and will vary upon your personal consumption.
- As the building is insured by the community, the insurance will be for contents and damage by fire and water etc. It is mandatory that in a communal building owners are insured.
Town Hall Tax (IBI)
This is paid once a year to the Town Hall based upon the capital value estimated by the regional community and the size. IBI rates vary but on average are between 500 – 2,000 Euros p.a.
Non Resident Income Tax (IRNR)
This is a wealth tax based on the value of the property which is a percentage of the previous tax and on average ranges from 200 – 500 Euros p.a.