THE CORRECT WAY OF BUYING A PROPERTY IN SPAIN
If you are considering buying a property in southern Spain this is probably one of the best times in decades to do it .Spain is finally coming out of the economic recession and prices are starting to rise for the most desirable properties.
Many properties that are on the market can be bought for 2/3 of what their current owners paid for them years ago.
But before purchasing a property in Spain we would strongly advise you to familiarise yourself with the process and to take the best independent and professional advice available.
We will give you clear helpful information and advice on what you need to know. However, as every case is different, we strongly advise you to contact a local independent lawyer who can assist you throughout the process as well, and who will ensure that your money and your rights are fully protected.
1.- Choosing the property, signing a reservation document and paying a deposit.
You should always use a reputable Real Estate agency working in the area to help you choose the perfect property to meet your requirements and expectations. Using an agent will save you time, money and unpleasant surprises.
Once you have selected a property, it is advisable to pay a deposit and sign a reservation document. The deposit, or down-payment, is usually a small amount (between 3,000 and 6,000Euros) that is held by the seller’s lawyer or estate agency and which is used to guarantee the purchase and take the property off the market, as well as freezing the price. It is important to stress that, should the purchasers decide not to proceed with the purchase, they will not get the deposit back, except where there is express written agreement otherwise, such as where the purchaser does not obtain the necessary financing or where problems arise of a legal or urban development nature that advise against the purchase.
To this effect, we strongly recommend, that before signing a reservation document with an estate agent or directly with an individual seller, they always send the said document to their own lawyer that can check it and give it the approval from a legal point of view. Although the specific conditions of the agreement will be fully defined in the private purchase-sale contract, some fundamental aspects will already be set out in the reservation document, such as deadlines, price, expenses and who is responsible for them, etc. and these must be respected thereafter.
The deposit is normally paid by cash, credit card or bank transfer.
2.- Opening a bank account in Spain
You will need a bank account in Spain to pay the utilities invoices and if you obtain finance to buy the property, you will also need a bank account for the mortgage monthly repayments. You can use any bank in Spain. Before opening an account it is important to be informed of the service charges for depositing funds, receiving or sending transfers, clearing cheques, etc. as we know from experience that there are huge differences between banks.
3.- Appointing a local lawyer to help you with the legalities
Your local lawyer has the tools, contacts, knowledge and experience to verify the legal capacity of the sellers, developers and other intermediaries. Local lawyers not only know the applicable and updated legislation, but they also know the area and any potential problems, as well as having an insight on the advantages of one option over another, so their knowledge will prove to be very useful.
There are excellent lawyers in the area that can help you to safely acquire your place in the sun, but please use your common sense and do not do things that you would not do back at home. Independence is the key here. Your lawyer should not have business connections with the agent or developer or the vendor as that could lead to a conflict of interest and be a source of problems. When accepting a recommendation, please verify that they are truly independent and that there are not commercial or business ties between them.
4.- Survey of the property and negotiation of the terms of the contract
Before making any down-payment or signing any reservation document, the owners or their representative must provide the purchaser with the property’s documentation, so that the operation’s viability from a legal, urban development and fiscal point of view can be checked. It is difficult for individuals with limited knowledge on Spanish law to do it on their own so it is always advisable to let a professional do it for you.
5.- Signing the private contract.
The private purchase/sale contract or the purchase option contract is generally signed within two weeks or a month following the initial reservation down-payment, and it usually entails a payment of 10%, 20% or 40% of the purchase price where the owner is an individual, if the property is a new build or acquired off-plan from a property developer. The deposit that has already been paid as a down-payment is normally included in that percentage.
The contract will include the details of the agreements reached between the parties and the conditions of the purchase/sale, even though some of them may be overlooked as they are merely an obligation in line with current Spanish law.
At this point, it is very important that the clients notify their lawyers of any commitment or condition that they may have agreed with the seller or their representatives, or with the estate agents, so that this may be reflected in the document. Once the contract has been signed, both parties are under obligation to respect the contract in the agreed terms and conditions. Do not take anything that has been mentioned or offered for granted. The only way to be 100% sure that you would eventually get everything you expect is by reflecting it in the contract.
In the case of purchasing a home that is under construction, other intermediate payments are usually made between signing the contract and signing the deed, which generally coincide with certain phases of the building work (foundations, structure, roof, tiling, etc). Make sure that there is an official architect certification stating that the works have reached that phase.
It is convenient that your lawyer manages those payments on your behalf for several reasons:
It is crucial that your lawyer requests the relevant guarantees from the developer with every payment made. In Spain, property developers and builders that receive down-payments for homes under construction are obliged by law to guarantee the amounts received up until the work has been completed by means of a bank guarantee or insurance policy. This way, in the event that the building works are not completed, the purchasers will recover all the money they have invested, plus the statutory interest.
Your lawyer will have to provide the Notary Public at completion with not only a bank certificate showing that all funds invested came through the bank system but also with a copy of each and every payment made (transfers, cheques, drafts, etc) as it is required by anti money laundry laws.
When buying a brand new property from the developer you may be offered a standard contract. It is therefore important that a lawyer familiar with the local legislation checks that no abusive or unfair clauses or conditions are included.
6.- Obtaining a NIE (Foreigner’s Fiscal Identification Number)
The Foreigners’ Identification Number (N.I.E.) is a personal, fixed and unique number that is used to identify foreign taxable subjects who, logically, do not have the tax identification document that all Spanish people have. All foreigners with economic, professional or social interests in Spain are under obligation to apply for a N.I.E. before the relevant body of the Spanish Mº del Interior (Home Office).
7.- Signing the purchase agreement title deed and delivery of possession
The purchasing process ends when the public deed of purchase is signed by the purchaser and the vendor before the Notary Public. At the moment of signing, the vendor grants the purchaser the title deed of ownership and the purchaser hands over the rest of the agreed price.
Before completion you will have to transfer either to your Spanish bank account or to the account of your lawyers in Spain the funds to cover the price and the taxes and disbursements that will arise. Due to the control policies on investment and the obligation to certify the payment methods and the source of funds, it is convenient to transfer the funds to the clients account of your lawyers.
If you need finance for the purchase of the property, it is important to present the mortgage application at the bank with enough notice. The process of examination and approval requires some time and could delay the signing. If a deadline for completion has been agreed, as it is most common, the delay in obtaining the mortgage can cause you problems.
If you buy from an individual or a finished property from a developer, we suggest you to start organizing the mortgage immediately after you pay the reservation deposit.
In case of properties bought under construction you should begin the process at least two months prior to the completion date. If the vendor is a non resident, the purchaser has also the obligation to withhold 3% of the agreed price and pay it directly to the Tax Office on account of the potential Capital Gain Tax of the vendor.
The purchasers are responsible for depositing this figure in the given account of the Spanish Inland Revenue so it is very important to make sure that this procedure is properly done.
When buying a brand new property from developer, we recommend that you never sign the title deed until the developer has obtained the First Occupation License from the Town Hall and you have accessed the property and reported the snag list. The developer should undertake in writing to make these repairs within a reasonable time frame.
The deed of purchase is signed before a notary. Notaries in Spain are public officials and, consequently, they are independent from the parties. They publicly attest that the parties have agreed the transaction and that they have done so in keeping with the law but they will not do the checks that your lawyer must carry out and definitely they will not look to negotiate anything on your behalf. So going with the developer to the Notary without using a lawyer has proven not to be a wise move. Prior to the signing, and once the lawyers have sent the minutes for the preparation of the deeds, notaries request up-to-date registry information about the property, to verify that there are no last-minute encumbrances or foreclosure entries, and immediately after the deed is signed, they send the Property Register an electronic copy of the title deed, so that the Register has a record of the new owners straight away.
It is convenient to mention that the Spanish system is different to the Anglo-Saxon as every new deal brings a brand new title deed. The old title is not physically transferred to the purchasers but kept by the previous owner, although that title will not have any validity as the new owners will be already registered at the Land Registry.
Throughout the signing process at the notary’s office, purchasers have to be always accompanied by their lawyer, who prepares the deeds, oversees the documentation, checks that everything is in order and acts as an interpreter. If there are professional or personal reasons that prevent the clients from going to the notary’s office on the indicated date, we will attend on their behalf to sign the deed. In this case, the clients would need to provide us with a power of attorney beforehand.
A power of attorney can be signed:
Before a notary public in Spain, which is the simplest and most economical option as it would be in the region of 50 €.At any Spanish Embassy or Consulate abroad. In this case your lawyer might have to draft the clauses and send them together with the translation to the Consulate. Please note that an appointment is required and sometimes it might take some time to get one.
Before a notary public in the client’s country of residence, in which case the document will have to be translated into Spanish by a sworn translator and legalised with the Hague Convention apostille.
Powers of attorney include general powers that enable us to carry out other procedures beyond the signing of the deed itself, for example, it enables us to apply for the N.I.E. numbers, contract the water and electricity supplies, act as tax representatives of the purchaser before the Inland Revenue, set up direct debits for bills, obtain licences, etc., so we always advise our clients to grant power of attorney before completion, regardless of whether they can or cannot attend the actual signing. The PoA allow your lawyers to exercise those faculties in your name but does not substitute the necessary and previous specific written instruction from the client which is always required.
8.- Register of the deed in the property register, changes of ownership and taking out contracts
From the moment of signing the deed before the notary, the new title deed of ownership will appear in the Property Register as the notary will send it electronically. However, a subsequent procedure must be carried out to collect the original document from the notary’s office, to settle and pay any corresponding taxes and, lastly, to submit the deeds at the Property Register to be properly entered. If the property is not registered in your name at the Land registry you will own it privately but you will not enjoy the guarantee that the registration offers you against any third party. The registration process is usually completed in a period from one to three months.
As soon as the deed is signed, you will get access to your property. The biggest part of the job is done and you own your place in Spain. However, there are some little things to take care of that if not handled properly might cause you a headache:
Get the locks changed, at least on the main door, once you have completed the purchase and/or furnished the property.
Contract the water supply and arrange the standing order in your Spanish bank account.
Contract the electricity supply and do it for your exact needs. Contracting too much power will mean paying for nothing and contracting too little might not cover your electricity needs. Note that when transferring utility contracts that have been in place for a certain period of time, the utility companies may request a technical certificate to be issued by an electrician, plumber, etc., to state that the installation complies with current regulations.
Contract the telephone land line or the internet connection.
Register yourself as the property owner at the cadastral office in the Town hall and arrange a direct debit for the payment of rates and refuse collection fees.
Register yourself as the property owner with the Owners Association or Community of owners and arrange a direct debit for the payment of the maintenance fees.
Register yourself as a tax payer with the Inland Revenue for payment of the taxes arising from the purchase and for payment of the annual tax returns.
Get quotations with different insurance companies to insure your new property (both building and contents). Contract the insurance and arrange the standing order.
Contract an alarm system with a private security company, in case that that service is not provided by the community of owners. Grant a Spanish Will.
9.- Taxes and costs derived from the purchase
In general, the costs associated with the purchase of a property will vary, depending on the price of the transaction. They usually amount to between 10% and 13% of the purchase price, and are as follows:
The lawyers’ professional fees usually amount to 1% of the purchase price, plus the current VAT.
All notaries in Spain must charge the same rate for the same service, although the cost of notarial documents varies, depending on several factors such as the price or value of the goods involved in the transaction, the number of intervening parties, the number of pages in the document, etc., which makes it difficult to calculate the final sum of the invoice. They usually range between 300 Euros and 1,500 Euros.
Property Register fees
As with notaries, Property Registrars must keep their fees in line with certain rules that are the same all over Spain. As a general rule, their fees are lower than notaries’ fees.
Transfer Tax (Property Conveyance Tax) and Stamp Duty (for Documentation of Legal Acts)
a) Transfer Tax
This is only applied to second-hand property purchases (resale) and is paid after the public deed has been signed.
In Andalusia, the tax is calculated by stages and determined by the price of the property. The levy starts at 8% for operations of up to 400,000 Euros, rises to 9% for prices between 400,001 and 700,000 Euros, and reaches 10% from 700,001 Euros and above.
In Murcia and Valencia, however, the levy is set at a fixed rate of 8% and 10% of the purchase price, respectively.
b) Stamp Duty
This tax is exclusively charged on the purchase of new housing, not second-hand (as the latter is subject to the Transfer Tax).
The applicable rate in Andalusia and Valencia is 1.5% of the price, and goes up to 2% in the region of Murcia.
The purchase of new housing is subject to payment of Value Added Tax (VAT). The current rate is set at 10% of the price.
10.- Yearly taxes to be paid once you become the owner of a property in Spain
Once you become the owner of a property in Spain you will be liable to pay certain taxes every year.
- The Non-resident income tax (for rented properties or personal use)
- The personal income tax if you are resident
- The wealth tax (if each of you own assets valuated over 700.000 €)
- The local council rates (IBI) and refuse collection fee (Basura).