Buying a Property in Spain

Thousand of properties are bought and sold on the coast every year - and the numbers are increasing. For most people, buying a house is a major investment which is complicated enough in their own country. In Spain, the legalities of property purchase may be particularly daunting if you are a foreign resident and unfamiliar with both the laws and the language.

Use a Lawyer

This is the crucial first step. The second is that he or she speaks your language. A good lawyer can guide you through all the steps of house purchase, from ensuring that the purchase contract is correct through negotiating payment terms, taking care of the title search and ensuring that your house is registered in the property registry. A lawyer is cheap insurance against possible future problems and will only cost you around one to one-and-a-half percent of the purchase price, plus VAT currently charged at 16%. It is standard practice that a lawyer will ask for a pre-payment, called a provision de fondos to cover expenses and fees.

Reputable Estate Agent

A professional, long-standing real estate agency - like Atlas Pro Consulting, will be able to provide invaluable information and advise about the local market, property trends and future developments plans which may affect where you choose to live.

Deposit

One you have found your dream house, the most important next step is to secure it by paying a deposit. This is generally €6.000 and will be held in a client account by the agent. A further percentage of around 10% is normally paid directly to the seller within a week or so of reaching an agreement.

Community Costs

If the property is on an urbanisation or part of a residential complex, then you will automatically become a member of the Community of Property Owners, responsible for general maintenance, gardening, etc. Make sure that all fees are paid up to date and that you are aware of how much your annual community costs will be.

Title Search

Next, your lawyer must check at the local Property Registry to ensure there are no outstanding liens or mortgages against the property, or whether it has been embargoed for non-payment of a mortgage or taxes.

Your will receive a copy of the entry for the property in the registry books. This Nota Simple shows who owns the property and includes a detailed description with boundaries. Some properties are held in the name of an offshore company, which used to be common practice as it avoided Spanish transfer and inheritance taxes. Sometimes you will receive two Notas Simples, one at the begining of negotiations for the purchase and again inmediately before you sign the contract.

Check the Town Hall

Property in Spain is subject to an annual municipal tax - IBI - and the seller should provide you with up-to-date receipts, which will state the exact amount of this annual tax, as well as the "Valor Catastral", which is the official value of the property as assessed for tax purposes and necessary when you prepare your annual tax return. There may be additional rates, such as for rubbish collection or other services.

Costs of Notary and Registry

The approximate cost for the notary and registry is 10% of the purchase price. Costs shall be slightly less as the purchase price increases as they are not calculated as a percentage.

Plus Valia

A Municipal Tax known as the Plus Valia is assessed on the difference in value of the property now and the last time it was transferred. This varies according to the time elapses since the last transfer.

Spanish law suggests that the Plus Valia should be paid by the seller, but the practice of assigning all taxes and fees to the buyer is so firmly established in resort areas like the Costa del Sol that it is more usual for the buyer to pay the Plus Valia, though this is a point which your lawyer can negotiate. In any case, the purchase contract should state whether the seller is paying all fees and taxes.

Property purchases are also subject to a transfer tax of 7% iff you are buying from an individual. If you are buying from a promoter the tax is VAT and is also 7%, but in these cases there is an additional 0.5% document tax. If you are purchasing from a non-resident, Spanish law requires you to withhold 3% of the purchase price and pay it to the Spanish tax department, Hacienda, as a guarantee of payment of the seller's Capital Gains Tax. (If the tax amount is lower than the deposit, the seller can later claim the difference from Hacienda).

The Contract or "Escritura"

Approximately a month after you have made your deposit, you can expect the completion of the sale to take place. The contract must be in Spanish, although you can obtain a translation if necessary. A legal property purchase contract in Spanish is called "Escritura de Compraventa" and is signed by both parties in the presence of a Spanish Notary Public who will keep the original copy of the contract in his files.

The contract should describe the property and its location in detail, as well as the identity of the purchaser and seller.

If the purchase is financed with a mortgage, the bank representatives are present in order to pay and sign the mortgage.

The final step is to take your copy of the Escritura to the Property Registry and have it officially registered, at which time you will obtain your Escritura Pública, the title deed.

The property is now legally yours....