A comprehensive guide to buying a property in Spain!
- By admin
Hey everyone, welcome back to another blog from your favorite luxury realtor, Verdin Property. We hope you’re finding them enjoyable and informative, be sure to let us know! Just a quick reminder as well to subscribe to our YouTube channel where we will be showcasing not only the amazing properties we have for sale, but also the lifestyle you can enjoy on the Costa Del Sol.
So without further ado, let’s get on with the blog. This week we are focusing on the very essence of our business. We sell houses, it’s something we can do in our sleep. But what about you, the buyer? It’s not something you do day in, day out, so how up to date are you with the buying process? If your answer is anything other than 100% certain, then make sure to read on!
So, are you ready to become our latest happy owner? Let’s take a look at the five pillars of buying property in Spain.
These are simply abbreviated terms, we will cover each one in slightly more detail below, so let’s dive right in!
House hunting is not simply being in the area, being chauffeured around by your agent. No, this part can start several months, even years in advance.
From the very moment you decide to purchase, the first step should always be research. Whether it be via Wikipedia, recommendations from friends and family, Spanish property websites, online blogs, holidays or flying visits to the areas you have in mind, etc., we ALWAYS advise our clients to really get acquainted with the locations and be certain before traveling for viewings.
Whilst some of you may feel that seeing a certain amount of properties online is enough, neither photos nor virtual tours will give you a good feel for the area, infrastructure and general neighborhood. That is why, unless you really don’t care, you should always visit properties for yourself, as what you see can have a big impact on the quality of your life. Before saying ‘this is my home’, you should see it with your own eyes, hear with your ears, smell with your own nose. We instinctively know whether we like something or not within the first minute, always a good rule to bear in mind.
It is also not enough to go on the age of said house. Just because it’s fairly new, or brand new for that matter, doesn’t mean it’s perfect. The construction boom has created houses with low-cost noise insulation, smaller kitchen sizes, smaller bedrooms etc., as several developers look to increase profit margins. Obviously this is not a generalization, we can personally vouch for the construction quality of several developments.
Also, check out the local areas. Make sure what was advertised in the brochure or online is actually correct. Walk to the nearest beach or golf course. The promised “10 minutes” can be a very different timescale for sellers and buyers.
Remember as well to listen and look properly during viewings in order to gather as much information as possible to double and triple check afterwards. Here at Verdin Property, we encourage as many questions as possible, and remember that no question is considered ‘silly’, you’re in charge after all.
When it comes to you actually having a shortlist of properties, or even just that one standout favorite, make sure you go over every inch of the property. If you didn’t have enough time on the first viewing, ask us to go back again. Check walls for damp and/or cracks, signs of humidity, structural issues, lights and the fuse boxes, the views from every part of the property (are they what was mentioned), pay particular attention to the orientation of the property. We could go on, but basically just make sure you’re buying something that is sound and not going to be problematic.
Speaking of problematic, make sure all the property paperwork is correct, as there are well documented issues regarding various ‘illegal properties’ on the coast, however many of these are not a problem now, given the length of time since construction and changes to the law and governments. Inland properties can be slightly different, it’s not unusual to see a 4 bedroom house that is registered as an almacen (storage room). This happens when the owner redevelops an existing structure on rustic (rustico) land, in other words, it’s not designated for a property. AFO (Asimilado Fuera de Ordenacion) and LPO (Licencia de Primera Ocupacion) are the most common licenses you will come across during a property search. Everything mentioned above can be used for bargaining a price, or justifying a price given, so make sure to take notes!
The next step is to secure your chosen property by paying a reservation deposit. This is called the Contrato de Arras. Тypically, the amount required is between €3.000 and €12.000, or 10% of the price. This amount can vary by agreement.
First things first, let’s make sure a few points are clear. There are no restrictions on foreigners buying property in Spain. However, non-residents will have to make some steps before completing such a major transaction.
You need to apply for a NIE (foreign identity number) and open a Spanish bank account. As previously mentioned, make sure all the property paperwork is correct and sign the contrato de arras plus arrange a mortgage if one is necessary.
Just to clarify everything, a NIE (numero de identificacion de extranjero) is a unique personal number that is essential if you want to become a Spanish resident and work, study, own a business, open a bank account or purchase a property. A NIE can be applied for in person via the Spanish consulate or via a lawyer who has power of attorney on your behalf. Either way, it’s a fairly simple and straightforward process. All you need are the original and a photocopy of the main page of your EU passport (all pages for non-EU nationals), 2 photos for non-EU nationals, 2 copies of the Ex-15 application form filled out and signed.
When it comes to opening your Spanish bank account, it’s advisable to do this in advance of your search. Banks we recommend are Sabadell and Santander, both are large institutions located everywhere in Spain and even abroad, therefore are used to non-Spanish customers. In order to formally open your account you will need your NIE, proof of identity and proof of legal income/employment. Most banks will also ask for proof of address so make sure you have a rental contract or bills you have paid. If this cannot be provided, a joint account is an option as long as the other person is a) someone you know and trust and b) able to provide the requested documentation,
Most banks will not charge for opening an account however you will likely pay maintenance charges, either quarterly or monthly. Particular attention should also be paid to the fees that different banks charge for receiving transfers from abroad which can add thousands of euros to the cost of your purchase. To avoid a nasty surprise, you need to speak about these fees in advance with the bank where you open your account and, of course, carefully read the contract for the opening and administrating your account, which usually indicates commissions and interests.
When it comes to actually buying property, you will be asked to sign a reservation contract, a purchase contract and an official deed at Notary on day of completion. These are the most common contracts, however in order to cover all bases, as there can be others, we have listed below all possible contracts.
Option to purchase contract
You pay vendors 5-10% of the agreed price, in return vendors commit to sell you property at the agreed price within the timeframe agreed.
A deposit (€3,000-6,000) reserves a property usually for 30 days, then you either proceed to buying (deposit counts towards final price) or back out and lose it. The Spanish buyers don’t typically use this contract.
You pay a deposit (normally 10% of agreed price). If you fail to go through with the purchase, you lose it. However, if vendors back out, they pay you back double the deposit. Spaniards often use this contract when buying property.
Sign this contract once you have done all necessary checks, as you may lose deposit if problems subsequently emerge.
Private purchase contract
It is also a binding contract with no mechanism for backing out unless both sides’ agreement. However, you pay no down payment at signing it and pay the full amount at the signing of deeds before Notary.
When you sign any contract that involves payment, this should be clearly noted in the document you sign or a signed receipt. All contracts should provide unambiguous detail on the property, buyers, vendors, price agreed, deadline for signing the deeds, vacant possession, debt-free title, how the transaction costs will be paid, clauses that allocate responsibilities, need to be met for the contract to be valid, how disputes will be resolved. If you are buying with furniture and other items, it should be included in an inventory attached.
Completion of purchase
It is undertaken in offices of notary public. All parties connected to the completion must be in attendance. This means buyer(s) and seller(s) and/or their legal representative(s) or lawyer(s), bank personnel for redemption or subrogation of an existing loan, providing a new mortgage, etc.
After signing at completion, a copy of the deeds should be given by the notary. The originals are sent to the Land Registry to be registered, a process than can take a few months. After registration the original deeds and all invoices relating to the transaction will be available. Both parts of the legal side for buying a Spanish property, the preliminary and the completion contracts, are not difficult if you are well-prepared!
Once the title deeds are signed at the notary, all checks are completed to make sure taxes are paid etc., and your ownership of the property has been registered. You can arrange help for this via a lawyer or gestor (legal and accounting consultant). We do recommend however that, like with most things in Spain, you find out how much it will cost you first.
Buyers should understand that their expenses are not only a figure in the contract. There will be some additional costs. The amount does not depend on the buyers’ nationality (Spaniards and foreigners pay the same), but depends on a property itself.
If there’s a mortgage, buyers’ expenses may include a fee for loan opening (0.5-1%), valuation (€300-500), property insurance (€100-1000), possibly mortgage broker fee (0.5-1% of the loan amount).
Immediate notification faxed to Land Registry
The notary fax to the property register a notification of the transaction if the buyers ask them to do so. This makes it impossible for anyone else to inscribe the same property in the Land Registry for the next 10 days.
Put taxes in order
Make arrangements to pay your taxes within 1 month via an authorized bank which notifies the regional tax office (Delegacion de Hacienda de la Comunidad Autonoma). You will need your NIE, a form to fill out and Copia Simple.
Registration in Registro de la Propiedad
When the taxes paid, the property should be registered at the local property registry. This guarantees that your ownership rights are fully protected. For this you will need your NIE, a copy of your passport, confirmation of ITP tax payment and a copy of the sellers IBI tax payment.
Updating the Cadastre
Inform Cadastre in your local town hall of your new title within 2 months.
The property registry office and notary do this, but they might not provide all the necessary information (your address, bank account, etc.), so have your lawyer or gestor inform Cadastre as well. You will need your NIE, ID and copia simple.
On buying property in urbanizations, you automatically become a member of the “Community of Owners” and therefore need to inform administrators of your contact details.
Changing the utility contracts
The utility companies should be informed of the changes. Make sure your Spanish bank account is in order and make sure the relevant details are changed to match your information, we doubt the previous owner will be too happy about paying your bills! It is advisable to have your lawyer or gestor handle this unless you speak fluent Spanish.
Now everything has settled down and you are officially a property owner in Spain. Unfortunately, there will always be costs associated with owning property. It’s just one of those things. So let’s take a look at what costs you will incur.
Maintenance costs (repairs, utilities etc.) are determined by the size and type of the property. Obviously, a villa with a garden and pool will require much more effort and cost to maintain than an apartment.
Owners of a property that is part of any development, building or complex with shared common zones are by law obliged to be the members of Community of Owners and pay community fees for maintenance of the common areas and any other services that the community votes for at the annual general meeting. The cost of said fee can vary from complex and location from just a hundred euros to several thousands of euros. Obviously this is something that should form part of your initial research.
Property Ownership Tax
Local tax on the ownership depends on whether the owner is a resident or not. Calculated on the basis of ‘valor catastral’ (administrative value that is usually lower than market value) set by the town hall, the tax rate varies from 0.4%–1.1% of the ‘valor catastral’ depending on the region.
The state progressive wealth tax rates start at 0.2% on assets up to €167,129 and rise up to 2.5% on assets over €10,695,996. The regional rates vary.
This tax has been changed several times in recent years. “Patrimonio” has been reintroduced during Spain’s financial crisis, but with a much higher tax-free allowance of €700,000 per person that also applies to non-residents.
It appeared as a ‘temporary’ measure, but yet there is no clear indication of when it will be abolished, if at all. Spain lags behind in making itself more attractive to foreign residents and investors, compared to Portugal, France, Czech Republic, the Netherlands or UK who took those steps some time ago.
Personal Income Tax
Non-residents who own property in Spain have to pay an annual income tax, influenced by whether the property is rented out or not.
Non-resident property owners who do not rent out their property and have no any other source of income in Spain pay income tax based on property value. The tax rate is fixed as 25% of 2% of the ‘valor catastral’ of the property. If property value is €700,000, taxable base (2%) = €14,000, tax (25%) = €3,500.
Non-residents are obliged by law to declare rent income and pay taxes on it. The taxable base and the tax rate will be determined by the laws as they apply to each person’s particular circumstances. Often non-residents simply pay a flat rate of 25% of the gross income they earn from their property in Spain.
Residents in Spain pay income tax based on their annual income. The rates vary in different regions, but recent years have brought the taxpayers positive news, and the government has planned a further reduction of tax rates.
Another expense in insurance, however we’re sure we don’t need to go into that one that do we?
Well there we are. We hope you find this guide useful and hopefully we will be the ones to find you that dream home in the sun!
In the meantime, remember to check out our properties currently available for sale, subscribe to our YouTube channel and follow us on social media, we love to show you all the life we enjoy here on the Mediterranean!
Until the next time guys, it’s adios from Verdin Property and Marbella!