Live the dream. Imagine all that blue sky and sunshine, beautiful countryside, spectacular coasts. Laze away the days beside the pool with a cool drink in hand. Stroll off for an extended lunch and siesta followed by a late barbeque in the balmy evening air in a garden shaded by palm trees and bougainvillea. Enjoy the Mediterranean diet, olives, tomatoes, fish and garlic, the simple things in life. But first buy that perfect white washed property in Andalucia. How to buy your property and some of the pitfalls of purchasing a property in Spain.
Although the Covid-19 outbreak has caused the number of property sales in Spain to fall considerably, from an average of 18,000 – 25,000 international purchases per quarter to below 10,000 in the second quarter of 2020, the value of property has increased by 2.1% year on year with new build rises of 4.2% and pre-owned property showing increases of 1.8%. These average figures are exceeded in areas popular with international purchasers such as the Costas in Andalucia. Property therefore still represents a good long-term investment.
In the short term, property experts are predicting that house prices could fall by between 5 and 10%. Whilst that is bad news for property owners wanting to sell, it is good news for investors.
Whether you are buying property as an investment or as a first or second home, you need to be aware of the costs of your property purchase. Fees vary from area to area and the fees to estate agents and lawyers are negotiable. Buyers pay the majority of property purchase costs that include:
- Property transfer tax of between 6 and 10% of the value of the property or IVA (VAT) of 10% in the case of new properties
- Notary costs, title deed tax and land registration fees of between 1 and 2.5% of the purchase price
- Legal fees of between 1 and 2% including IVA
The seller usually pays the estate agent fees who generally charge a percentage of the final sale price, typically between 3 and 5%.
One of the first things you should consider is how you are going to finance your purchase of a property. Transferring money between banks in different countries can be expensive.
One solution is to have an account with a currency exchange company.
Using a currency exchange company means you can take advantage of favourable exchange rates over a period of time, or, if you do transfer a large chunk of money, you will pay less commission than if you had simply transferred between banks.
One practical step you can take is to open an account with a currency exchange company. They do charge a commission but often balance that with a good exchange rate.
There are six things you should look for with a currency exchange company;
Ease of use
Safe and regulated
One currency exchange company that meets that criteria is Wise (was TransferWise).
Money without borders - instant, convenient, transparent and eventually free. Wise are powering money for people and businesses in their increasingly global lives - to pay, to get paid, to spend, in any currency, wherever you are, whatever you’re doing.
Although selling a property in Spain has become more regulated in recent years there are still unscrupulous estate agents who will sell you property that does not have all its paperwork in place or has a debt attached too it or has other potential problems. Remember that, in Spain, it is very much a case of ‘buyer beware’. Estate agents tend to tell you what they think you want to hear in order to secure a sale. For that reason, although it is not legally required, a lawyer to represent you, the purchaser, is strongly recommended.
In recent times, some people have purchased property in Andalucia without having had a physical viewing, a practice encouraged by the travel restrictions imposed during the Covid-19 epidemic. This not only applies to those buying ‘off plan’, i.e. before the property is finished, but also to people buying a property on the strength of a video. Whilst a video may give an initial impression of the property it cannot, or will not, show you where the water flows in from the roof terrace when it rains, the pig farm at the bottom of the garden, the rising damp beneath the sink, the collapsed drains, or any number of other potential problems that can only be discovered on a personal viewing.
Once a suitable property is found, the first step is to negotiate a price with the seller. Normally this is done via the estate agent. Remember the estate agent represents the seller. The higher the price you pay, the greater the commission the estate agent receives.
At this stage, in some areas, Almeria for instance, estate agents ask for a reservation deposit to be paid to remove the property from the market. The amount can be between 3000 and 6000 Euros and the purchaser is ‘protected’ by a reservation contract or document de reserva. This contract requires that you pay a deposit to reserve a property for a specified period of time – usually 30 days. At the end of this period you either back out and lose your deposit or proceed to a more substantial contract that commits you to buying, such as a deposit contract or a private sale contract. If you proceed, the vendor is contractually obliged to sell you the property at the agreed price.
Non Spanish buyers will almost certainly be asked to sign a reservation contract when buying from a developer, and estate agents may also try and get non Spanish buyers to sign a reservation contract when buying resale property. Estate agents want a commitment as quickly as possible. If you have signed a reservation contract and paid a non-refundable deposit of 6,000 Euros you are more likely to proceed with the purchase. The deposit makes a change of mind more costly, so on average fewer people change their mind if they have paid one.
This practice is to deter time wasters. However, even if your intentions are to purchase the property, it is as well to have your solicitor negotiate the reservation contract with the estate agent. This is not a mandatory practice. You can refuse. Some agents and networks insist that you pay a deposit of around 6,000 Euros just to communicate an offer to the vendor. Always check with estate agents in advance if they have this policy and avoid dealing with them if they do.
Your lawyer should now perform due diligence. In particular your lawyer should ensure that the property has the following pieces of paper attached to it:
- The deed or title deed (escritura) to the property and the information that confirms the identity of the owner.
- Proof of cancellation of any mortgage. If it has been amortised, the document proving it is sufficient. If the loan payment is still in effect, the cancellation and expenses must be made so that the new buyer can register the property in his or her name. This operation can be done at the same time as the registration of the sale at the notary's office.
- The Spanish Property Tax (IBI) and a certificate that proves that payments are up to date. The person responsible for paying this tax will be the person who owns the property on 1st January of the year. However, the Supreme Court has established that the seller has the right to pass on to the buyer the portion proportional to the time that each of the parties has owned the house during the year in which the tax accrues.
- Payment of the Community fees. If the property is part of a community. The manager of the building or the urbanización housing estate, with the approval of the president, must present a certificate of payment of the communal fees to be paid by all residents for common expenses such as care of shared areas.
- A copy of the statutes and rules of the community of owners must also be passed on to the buyer.
- The latest paid bills for electricity, gas, water etc.
- The energy performance certificate. An energy performance certificate has been mandatory since 2013. The seller must provide the energy performance certificate or a copy thereof, which shall be given to the buyer. In the absence of this procedure, the notary will reverse the purchase and sale transaction.
- If the building has passed the Technical Building Inspection (Inspección Técnica de Edificios or ITE), it is necessary to present the certificate that certifies it.
- Certificate of habitability or first occupation. This is a requirement in some Autonomous Communities.
- Some coastal properties also need a certificate that states they are not in contravention of the Law of the Costas.
The list of other potential problems is long. Many can be avoided by having a survey performed on the property. Surveys are not obligatory and are not usually demanded even by banks offering a mortgage on the property. If you are in doubt about the structural integrity of the property then obtain a survey.
The remainder are questions to ask of the relevant person:
- Are there persistently barking dogs in the area
- Who is responsible for the road/track outside the property
- Are there any building works planned in the area (new roads, urbanisations, pig farms etc)
- Does the catastral (land registry plans of the property) accurately record the land you are purchasing i.e. has a neighbour 'borrowed' a strip of your land, has part of your land disappeared into a barranco or is it about to
- Is the property on a Camino Real or within 50 metres of one
- Can I receive a mobile signal here
- Is there Internet
- Is it mains water/sewage
- Is it mains electric, solar panels or generator
- Is there any other reason I should not buy this property?
Are you sure? They are expensive to run, especially considering the cost of electricity is quite high in Spain. If the pool is unheated then you are not likely to get in it between October and June. If neglected they rapidly degenerate into algae covered, mosquito friendly ponds and maintenance costs can be exorbitant unless you are prepared to spend a few hours each week doing it yourself.
Having arrived at a sale price, the first stage in the purchase is a preliminary contract, a contrato de arras penitenciales. This contract is legally binding and is signed by the buyer and the seller. At this point a deposit, normally 10% of the purchase price, is paid. The vendor commits to selling at the agreed price if you buy within the timeframe agreed in this contract. If you exercise the option to buy then your payment (and the reservation payment if made) counts towards the full price of the property. You lose your deposits if you fail to purchase. If the vendor backs out of the sale then the vendor will pay you an amount equal to double the deposit.
You should only sign a deposit contract once your lawyer has done the necessary due diligence and given the all clear, as you may lose the entire deposit if any problems subsequently emerge. Spaniards often use the deposit contract when buying property, unlike the reservation contract, which the Spanish have never typically used. This is the contract you are most likely to be asked to sign.
Finally the property purchase is completed in front of a notary. The balance of agreed price less deposits paid is due at this time. The contract of sale, the escritura de compravento, is signed at this stage.
Having purchased your property there are a number of loose ends to tidy up.
Utility Bills: These should be transferred into your name and direct debits set up to pay the bills from your Spanish bank account. Your lawyer should do this for you and, at the same time, make sure you are only paying from the date of purchase of the property.
Your utility bills for you property in Spain will all be paid by direct debit from your Spanish bank account. That does mean you will have to transfer money periodically. Choose a reputable currency exchange company such as Wise.