Spanish homebuyers guide

 

Spanish Homebuyers Guide

by Michele Di Sei

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Spanish Real Estate Market, How Did We Get here?, What to expect?

Since 2007 real estate market in Spain has been falling apart. The real estate offer was incredible surpassing the demand. Too many buildings everywhere, even where they were not demanded.

Even with out money, everybody wanted to make real estate investments. Who would not invest with a high fast profit margin?. You could earn a lot of money in a few months. You even did not need to inscribe the deed in your name. So many times people did not pay taxes on those earnings. Too good to be true.

Banks in 2006 start cutting mortgages. The years before they where lending money easily, without question. Without worries.

Everybody new, economy was going to fall, so everybody try to sell properties at he same time. Result: market collapse. And of course prices start falling.

The economy was orientated on construction, labor was oriented in construction, so when construction stopped, everything stopped.

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During last 7 years, owners, constructors and banks have been loosing money on their properties.

Its clear owners are loosing as a 200.000€ property is now worth now 100.000€. Some constructors are loosing a lot of money because they did not sell the properties so they own money to the banks.

But of course Banks are loosing also a lot of money, as constructors that could not pay their debt, gave buildings to the banks. So banks own many properties.

A lot of them. In the last 4 years they don´t now what do to with them. They made huge discounts, they sold entire buildings to foreign investors, but still they have to sell a lot more.

So the government created a terrible public bank (SAREB), This public bank was supposed to deal with most of non sold properties from private banks.

Incredible but true. So public money ended up helping private banks. A solution?, for Banks mostly. The SAREB ended up with the worsts properties and loosing a lot of money. Citizens will pay for it.

Spanish Real Estate market at the moment is a mix bag. With different options, prices, locations, and still dangerous investments.

I will resume the most demanded Real Estate requirements our Clients are asking for and where not to put your money in: – Because there is a lot of properties offered to choose from, and the most important factor is location. Try to understand the importance of location in the area you are looking for. If you do not know which ones are worth, please contact a professional so you don´t make a bad investment.

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– You can choose to buy a big old property or a smaller but new one. Location also determine many times the property age. But if you can buy always as new as possible. The demand for modern apartments is higher and more valued than old properties.

– Don´t buy to big, as rental market is also seeking for modern and small properties. Even if you are going to live on it, it is nice to know the market demand. You never now when are you going to sell, so making a nice investment is always interesting.

– Some areas are already recovered and some prices are raising already. As I told you before, location is what determine the difference. City centers in Barcelona and Madrid, or Marbella on the Coast are the areas recovering faster.

– Lastly but most important, don´t buy properties in bad locations, far away from cities and services, far away from good communications. If they show you a property surrounded by a lot of empty ones on sale, start running…

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Spanish Homebuyers Guide Buying a home in Spain does not have to be a daunting process. It is really a matter of understanding the steps and being well informed of the legal and technical jargon.

Whether it is a new build or a resale the basic procedure is the same, just with different timescales.

Below is a brief outline of the purchase procedure, followed by other useful information and an explanation of services necessary or available.

The Contract Once you have found the property, the Estate Agent will often ask for a small reservation fee, usually 3000 Euros, to take it off the market whilst a private sale/ purchase contract is drawn up. This forms part of the balance of the deposit due.!

This private contract, between buyer and seller, should contain details of the agreed purchase price, the deposit payment, provision for payment of the outstanding balance, any extras, e.g. furniture, the intended completion date and all other relevant terms and conditions.

A specific clause (called an arras) may be included with a financial penalty should either party default on the terms of the contract. In the case of the seller they would return the deposit and forfeit an equivalent sum, i.e. give the buyer double the deposit. If the buyer pulls out they lose the deposit paid.

It is important that your Spanish lawyer checks the contract before it is signed to ensure it protects your interests. To be legally accepted in Spain the contract must be written in Spanish. Sometimes it is produced in dual language but you can always ask your lawyer for it to be translated. Always check if there will be an additional charge for this service as it may be more cost effective to have it translated privately.

Once the contract is signed by both parties and you have paid the deposit there is then a binding agreement between buyer and seller.

Land Registry All property sales or purchases should be registered in the Land Registry Office in Spain. They keep details of the property and record financial charges and other matters which may affect the Title Deed. It is important to make sure the vendor is 5

the legal owner of the property and any relevant taxes or outstanding mortgage are paid before signing the new Title Deed on the day of completion.

This information is detailed in a document called a Nota Simple, which is ordered from the relevant Land Registry Office.

In the case of a new build, the builder must have a building license and planning permission for the construction. Given the length of time the planning process takes, sometimes the permissions will still be in the application stage at the time the private contract is signed. Your lawyer should check this and may suggest an additional clause to protect any monies that you may have paid in the event that the licence and permissions are not granted.

Title Deed To complete the purchase, both buyer, seller and their legal representatives are required to be present at the same time to sign the Title Deed (Escritura) in front of a Spanish Notary (Notario Publico). This person, who is a legally trained expert, will check the documentation and identification of all parties before it is signed.

It is at this time you will be required to pay the balance of the purchase money and all additional taxes so if there is a Spanish mortgage involved in the purchase then this will also be signed for in the Notary at the same time as the Title Deed with the bank manager present. You will then be given the keys to your new home.

You are recommended to visit the property before going to Notary to check that everything is in order.

Once the formalities have been completed at the Notary, your lawyer will pay the necessary fees and taxes and present the Title Deed to the Land Registry Office for registration. This process can run into several months before the official stamped Title Deed (Escritura) is available to you. For this reason you should make sure that you are given a Copie Simple of the Title Deed at the time of signing as this is required to put all the utility bills etc into your name.

Power of Attorney If you will be unable to attend the completion it is possible to give power of attorney to your Spanish lawyer or another trusted person to act on your behalf. The document, drafted by your lawyer in Spanish, must be signed by you in front of a Notary. You should always check what the power of attorney allows your representative to do.

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Fees and Costs You can expect to pay the equivalent of approximately 10% of the purchase price on taxes and fees. This money must be available on the day of completion.

NIE Certificate - Tax Identification Number Any person purchasing a property in Spain is required to obtain a tax identification number. You will need a certified copy of your passport, obtained from the Notary, to accompany the application form. This service costs approximately 50 Euros per person in Spain but much more costly if done in the UK so it is worth considering making the application very early in the process, whilst still in Spain. Your Estate Agent or lawyer will advise you more about this requirement.

Spanish Bank Account This will be needed to arrange direct debits to pay the utility bills, etc. You will initially open an account as a non-resident and sign a declaration that your tax liabilities are in your home country, i.e. United Kingdom. Even if you are not intending to return you will be required to provide a UK address but can elect a Spanish address for bank statements and correspondence.

Mortgages Spanish Banks will allow you to borrow against Spanish property and a mortgage can usually be arranged. This is most often to a maximum value of 70% of the purchase price but can be more depending on the type of purchase and your financial status.

These funds are made available on the day of completion. As with the property purchase a mortgage is subject to taxes and fees of approximately 2% so always ask the bank to provide you with a quote.

Bank Valuation A valuation will be carried out by a specialist firm associated with the bank if a Spanish mortgage has been applied for. In other cases, it is very unusual to have a property valued. The Spanish law regulates the responsibility of the vendor for structural defects in the property, protecting to some extend you as the purchaser.

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Spanish Will When you purchase a property, in Spain, it is recommended that you make a Spanish will that is independent of the will made in your home country, which can help avoid a great deal of trouble and expense. The will made in your home country should be carefully worded in order to respect the terms of your Spanish will. It is necessary to sign your will in front of a Notary and this can be done simultaneously to signing the Title Deed on the day of completion if prior arrangement is made with your Spanish lawyer.

Fiscal Representative Non-resident Spanish property owners are liable for annual wealth and income tax.

Those resident in Spain are liable for income tax. In either case a Fiscal Representative will represent you in front of the Spanish Tax Authorities and do your tax returns.

Bank Guarantee When purchasing a new build, the builder should offer a bank guarantee for all the stage payments made during the purchase. The guarantee is issued by the bank after each payment is made. However, due to the costs of those guarantees, some builders tend not to offer such guarantees and this can put you at risk if the property is not completed, e.g. due to financial difficulties faced by the builder.

Declared Value It is common practice for the sale and purchase price to be understated by the vendor, enabling them to reduce their tax liability and reducing your stamp duty fees.

However, if you decide to sell in the future, you could be liable for Capital Gains tax on additional profit if the declared value is much higher .

Plusvalía This is a local tax, which varies from property to property and from Town hall to Town Hall. This tax should be paid by the vendor unless stated otherwise in the purchase contract.

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It is important to have clear from the outset the real costs you will face when you buy property in Spain. It is equally important to be clear about the ongoing costs you will face as a property owner in Spain.

It is your responsibility to be informed and do your own numbers, rather than rely on the claims of others. Here I explain all the different types of costs, but bear in mind that the actual cost will depend on your particular circumstances.

Costs of buying property in Spain As a buyer of property in Spain there are a number of costs and taxes over and above the property price that you will have to pay. Depending upon whether you are buying a new property from a developer, or a resale property from a private individual, you will either have to pay VAT & Stamp Duty, or a transfer tax. The different cases are explained below, along with the other costs and taxes that are common to both cases.

NEW BUILD FROM A DEVELOPER (OR BANK) VAT & Stamp Duty (IVA & Actos Jurídicos Documentados – AJD) These taxes apply for residential properties being sold for the first time (never previously occupied), or for commercial properties and plots of land. This is a national tax, so VAT is the same wherever the property is located (with the exception of the Canaries, which have their own version of VAT).

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At present VAT (known as IVA in Spain) is 10% on the purchase price of residential properties (villa, apartment, etc), and 10% for commercial properties and plots of land.

VAT on new homes in the Canaries is known as IGIC (Impuesto General Indirecto Canario), and currently stands at 4.5% The Stamp duty (known as AJD) is 1% of the price of the purchase, but might go up in some regions, so be sure to check on the latest rate. Both VAT and Stamp Duty are paid by the buyer, and if any deposit is paid before completion of the sale, such deposit will be subject to VAT at the moment of payment of this deposit. In this scenario there is no transfer tax to pay.

RESALE FROM A PRIVATE INDIVIDUAL Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP) This tax applies if the property is deemed to be a second or posterior transfer (i.e. not the first time a newly built home is bought), and is paid by the buyer. If any deposit is paid before completion of the sale it is not subject to ITP pro rata. However the full amount of ITP still has to be paid upon completion. In this scenario there is no VAT to pay, and stamp duty is already included in this tax.

The Transfer Tax rate is ceded to the autonomous regions, who can choose to apply the general rate, or their own rate.

The general (national) rule of ITP is 7%, but many of the autonomous regions have applied higher local rates. The rate you pay depends upon the autonomous region where you buy (for more information see Transfer tax on resale homes – Impuesto de Transmisiones Patrimoniales (ITP)) Income Tax Provision When Buying From Non-residents If the seller is not a Spanish resident, the buyer has to withhold 3% of the purchase price and pay it to the tax authorities (application form 211). If this is not done the property will be considered by the tax authorities as the asset backing the capital gains tax liability of the seller. This condition is very unlikely to apply when purchasing from a developer.

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Costs that affect both new build and resale property purchases Agency Fees Estate agency fees or commissions are paid by the seller, unless otherwise agreed. If the buyer uses a search agency then search fees are paid by the buyer.

Despite the ability of the internet to bring together buyers and sellers without the need for an agent most people still use agents to find property in Spain. However you should be aware that agents charge between 2% and 15% of the sale price, depending upon the region and type of property. Unless the buyer has specifically agreed to pay the agent’s fee this cost will be built into the sale price.

Legal Fees You are strongly advised to hire a lawyer to help you during the buying process. Your lawyer drafts and reviews contracts on your behalf and can explain all the legal and administrative issues you face. Your lawyer should also carry out any necessary due diligence (checking ownership claim of the seller, charges on the property, permits, etc.) and arrange all the required documents to complete the process (property registration, tax payments, etc.).

A lawyer – Abogado in Spanish – will charge you according to the service you require. This will vary according to the complexity of the purchase. Many charge around 1% of the purchase price in legal fees. Be warned that some lawyers charge 1.5% or more of the sale price, which is a rip off. Even 1% can be unreasonably high given the work that is involved in a straightforward purchase of an expensive property with no legal complications. Your best option is to try and find a good lawyer who is prepared to charge on an hourly basis. Legal fees for a purchase without any complications and charged on an hourly basis should be in the region of 1.000 to 2.500 Euros.

Mortgage costs If you choose to buy with a mortgage then this will incur several additional costs.

First there will be the property valuation that the mortgage provider will require before granting the mortgage. This is paid for the by the buyer and can cost around 500 Euros. Then there will be the costs of the mortgage itself. This varies according to the provider, and even according to the particular branch. However there is usually some kind of opening fee of around 1% of the value of the mortgage. Finally a mortgage will increase the Notary expenses.

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Notary Expenses Notary expenses are nearly always paid by the buyer and are calculated in relation to the purchase price declared in the deeds of sale. To be on the safe side you should calculate Notary fees as being 1% of the purchase price declared in the deeds of sale.

In many cases however Notary fees are more like 0.5% (or less) of the price declared in the deeds.

Property Registry Inscription Fees Expenses related to inscribing the sale with the land registry are also nearly always paid by the buyer, and are calculated in relation to the purchase price declared in the deeds of sale. To be on the safe side you should calculate 1% of the purchase price declared in the deeds, though once again it depends upon the property and the area, and the fee could be considerably lower.

Other Costs Bear in mind that it may be prudent to carry out a survey of the property and that this will have a cost.

In Summary, allow for up to 15% of the purchase price in taxes and other costs.

If the buyer takes out a mortgage these costs can be somewhat higher due to an additional public deed for the mortgage and the inevitable bank charges involved. In this case transaction costs might reach between 10% and 12% of the value of the property purchased.

Banking Costs To pay for the property, you will more than likely need to write a banker’s cheque. In order to do that, you will need to open an account in a Spanish bank and transfer money from the bank in your country. The cost of transferring the money can go up to 0,4% of the amount transferred. The banker’s cheque will most likely cost 0,5% of its amount.

Furniture Costs Once you own a property you will need to furnish it. The cost of furnishing a property depends entirely upon what you want. However as a very general rule of thumb a 2 bedroom apartment will cost around 10,000 to 15,000 Euros to furnish nicely if you buy everything new. Of course there is no limit to how much you can 12

spend, though you can also get away with less than 10,000 if you are on a tight budget (all from IKEA, for example).

Costs of owning property in Spain There will of course be costs associated with owning a property in Spain. Some of these will be maintenance costs, such as cleaning, repairing, reforming, utility bills, rubbish collection, and so on. These will be determined by the size and type of the property you buy. Obviously a large villa with a garden and pool will require much more effort and cost to maintain than a small apartment. For cleaning a figure of 10 Euros an hour is fairly typical throughout Spain.

Apart from the general maintenance costs referred to above, there are a number of costs in the form of taxes and fees that property owners in Spain face.

Property Ownership Tax (Impuesto Sobre Bienes Inmuebles – IBI) A local tax on the ownership of property in Spain, irrespective of whether the owner is a resident or not. Calculated on the basis of the valor catastral (an administrative value that is usually lower than the market value, sometimes considerably so) set by the town hall the tax rate goes from 0.4% – 1.1% of the valor catastral depending on the Spanish region.

Annual Wealth Tax (Impuesto Sobre Patrimonio) This tax has been changed several times in recent years. For the latest situation see Spanish Wealth Tax (Patrimonio) Personal Income Tax (Impuesto sobre la Renta de No Residentes – IRNR) Non-residents who own property in Spain have to pay an annual income tax that varies according to whether the property is rented out or not.

Not rented out

Non-resident property owners who do not rent out their property and who do not have any other source of income in Spain pay income tax based on the value of their property. The tax rate is fixed as 25% of 2% of the valor catastral of the property.

The tax on a property with a valor catastral of 700,000 Euros would be as follows: Property value for tax purposes = 700,000 Euros 13

Taxable base (2%) = 14,000 Euros Tax (25%) = 3,500 Euros Rented out

If non-residents rent out their property and receive an income in exchange, they are obliged by law to declare this 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 (taking into account the double taxation treaty – if any – between Spain and the country of origin of the non-resident). In many cases non-residents simply pay a flat rate of 25% of the gross income they earn from their property in Spain.

Residents in Spain will have to pay the income tax based on their income earned during the year. The tax rate depends on the level of income.

Community Fees Owners of property that is part of any development, building, or complex in which common zones are shared with other owners are by law obliged to be members of the community of owners, know as the Comunidad de Propietarios. This will entail paying community fees for the upkeep of the common areas, and any other services that the community vote for. The fees will vary according to the magnitude of the common areas, the costs of maintaining them, and the services that the community vote for. A budget for annual community expenses is approved by majority vote of all owners (or representatives) who are present at the annual general meeting of the Comunidad de Propietarios.

Insurance Household insurance will vary according to the circumstances of the owner and the type of property. However it should be born in mind as a cost that all property owners will face.

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About me Hola, my name is Michele Di Sei and as a Costa del Sol (South of Spain) Real Estate Agent with Keller Williams Marbella, who’s an expert in this local area, I bring a wealth of knowledge and expertise about buying and selling real estate here. It’s not the same everywhere, so you need someone you can trust for up-to-date information. I am eager to serve you. Here are some of the things I can do for you: Find Your Next Home You need someone who knows this area inside and out! I can work with you to find the right home at the right price for you, including all the neighborhood amenities that matter – not to mention the essential criteria you have for your ideal home Sell your Home When it’s time to move, you need someone who will advertise your home, show to prospective buyers, negotiate the purchase contract, arrange financing, oversee the inspections, handle all necessary paperwork and supervise the closing. I can take care of everything you need, from start to close.

Consult on Home Selling Tactics Oftentimes buyers don’t visualize living in your home the way you do. I can make your home attractive to its ideal audience – which can help you get top euros. Things like staging the home, making repairs or minor improvements, or even simply painting the walls can be the difference between a home resting on the market and one that’s sold fast. My network is huge and I can guarantee you, above all else service and dependability 15

If you need any further information, advice or would like to buy or sell your home in Malaga and on the Costa del Sol please don't hesitate to contact me today

(+34) 652 90 30 72 or send me an email

michele.disei@kwspain.es

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