Buying a property in a country where you don't speak the language and are not familiar with the legal system may seem a bit daunting, but it's quite simple really. This guide is a reference to the terms and laws that you will come across whilst looking for and buying property on the Costa del Sol. Just a word of advice to all those would be Spanish property owners - the Spanish way of life is what we call laid back and sometimes so are the developers/builders and the legal profession in Spain. So be prepared to wait for things to happen!
BUYING OFF PLAN Developers in Spain normally offer the first phases at lower than current prices (i.e. re-sales), before the development starts and even before the “Licencia de Obra” (Licence to build) has been granted. This not only means the developer has finances coming in quickly, but helps them line up financing with leading banks, and minimises their capital risk.
ONCE YOU HAVE FOUND YOUR DREAM PROPERTY.
It is normal on the Costa del Sol that once having found a property that you want to purchase that you would put down a holding deposit. This then takes the property off the market, freezes the price and show the vendor of your intention to go ahead and purchase the property. The holding deposit could be anything between 1000 euros and 10% of the purchase price. Normally, it is 1% of the sales price and your agent, in their client's account, holds this or it can be handed over to your lawyer's clients account. It is typical however that when buying from a developer that you will leave a deposit of between 3000 and 6000 euros with the developer directly.
Once you have put down your holding deposit I would advise you to instruct an English speaking Spanish lawyer (abagado) and give them all the relevant details to the purchase of the property which would then allow them to make the appropriate searches to determine if the property is free of any liens, mortgages, encumbrances etc. This basic search should not take more than a few days.
The next steps will depend if you are buying from a developer of a new project, which may take months or even years before completion, or if you are buying a resale property from a private individual which would typically have a shorter completion time of between 4 and 8 weeks.
From a developer offering a new development; after deciding on the unit in the development of your choice, you will be asked to pay over the minimum holding deposit there and then and to give basic details such as home address, copies of your passport and telephone numbers. The developer will then complete a Reservation form with you which gives the details of the developer, the project and the form of payment for the outstanding amounts due on the unit before completion date.
The next stage payment, which is known as the Private Contract Stage, will typically be within one month of signing this Reservation form and will be only when the correct building licenses have been obtained by the developer (which allow them to legally build the project). It is important to note that even though the developers may not have the building license at the time you walk through their sales office doors, they may have attained the necessary paper work to initialise the selling of their new project. Most developers now offer bank guarantees that assures the buyer the return of his invested money if the project should fail to complete. If the building license is in place at the time of signing the Reservation agreement, you will be asked to sign the Private Contract usually within 30 days of your initial holding deposit.
This is a document that sets out all the details of the agreement, such as payment terms and who pays what share of the taxes involved. This however is not the final document of the sale. In the case when buying a resale property from a private individual the exchange of private contracts or the signing of an option to buy would normally tale place about 2 weeks after the formal acceptance of an offer when your lawyer would have by then completed their searches.
The contract would set out all the agreed terms and state a date for completion. It is usual for the buyer to pay a 10% deposit at this stage which is non-refundable and the agreement becomes binding between the buyer and the seller, with the 90% balance due on the agreed date of completion. This means that purchasers are committed to paying the balance of the purchase price and the vendor is committed to transferring the property to the purchaser. If the buyer fails to complete on the sale then he will lose the amount of his deposit.
When buying from a developer you will pay in the region of 25 - 30% of the purchase price and the Private Contract will state the remaining payments due before completion. If you cannot read the Spanish contract - the only legal one - you ought to get a copy in English, or in a language you can understand. The Escritura de Compraventa contract does not fully assure your title until it is registered with the Spanish Property registry, thus making it an Escritura Public, a public document. It is in fact, the same document, but now registered and with the stamp of the Registro de la Propiedad on it. I would also recommend that the purchaser never pays the deposit directly to the seller, but into a lawyer's client account.
Where you are making a reservation deposit at a development then it is all right to pay over to them the amount and then for your lawyer to take up communication with the developers directly. Most developers are very reputable and are not in the business of running off with a small reservation deposit.
Before you pay the final instalment on your property I would strongly advise you to go over to Spain and arrange with your Estate Agent, or whoever you purchased the property through, a visit to your apartment/villa to carry out an inspection/snagging list. Once you have done this, give a copy to the Estate Agents and forward another to your solicitors, who will forward it to the developer/builder. Do not complete the sale until the developer has carried out all or most of the remedial work.
You are laying out many tens of thousands of pounds when purchasing your dream home in the sun and dont rely on someone else to do the inspection for you. The cost of a cheap flight can be less than £100 return so get over there and do it yourself!
The standard of finishing from Spanish Builders leaves a lot to be desired and I am speaking from personal experience here. So be warned! Once you are happy with everything then you can instruct your Solicitors to complete the sale.
THE TITLE DEED (ESCRITURA)
The time between the signing of the Private Contract and the Title Deed (Escritura) varies depending on the following. If the villa or apartment is physically constructed and both parties are ready with all the documents and the balance of the purchase money is available, then completion can take place within a matter of days of the signing of the Private Contract. However, if a new building is being purchased which has not yet been constructed, completion will take place on the signing of the Escritura before the Notario and the handing over of the keys by the developer which may be months or possibly years away. It is the signing of the Escritura in front of a Spanish Notario which makes it legally binding and is the vital element of ownership because the Escritura can be registered in the Property Registry and the transfer of ownership is certain at this stage. You can make a power of attorney allowing another person, such as your lawyer, to sign on your behalf if you cannot be present at the signing of the Escritura in front of the Notary. The Notario or Notary is an official of the State who makes sure that contracts are legal. The Notario is a public official, not a private lawyer. His duty is to certify that the contract has been signed, the money paid, and that the purchaser and the seller have been advised of their tax obligations. He does not verify the accuracy of the statements made in the contract. He only certifies that the parties have signed it properly.
MAIN TAXES AND COSTS INCURRED WHEN BUYING A PROPERTY
When buying a property on the Costa del Sol you will incur various taxes and fees relating to the property. As a guide one can estimate a total purchase cost of around 10% of the sales price. This cost can be broken down into two taxes and two fees. There will also be legal fees to be paid on the transfer of the property. depending on what type of property one is buying will depend on the type of tax levied on the property. In general terms IVA tax - Value Added Tax - is levied on purchases of newly constructed property. It will normally be charged at 7% of the purchase price. In addition when buying a newly built property 0.5% stamp duty will be payable. When buying from a private individual you will be liable for a transfer tax of 6% which goes to the government. So in summary, from a private individual there will be a transfer tax of 6% and 7.5% will have to be paid when buying from a developer.
The second of the two taxes is the Plus Valia tax, which is a tax, based on the increase in the value of the land since its last sale. This tax can vary from the case of an apartment on a new complex where little land is involved and has been developed recently, to a villa with a large plot of land that hasn't changed hands in say 30 years. The Plus Valia is based on the official value of the land and is always lower than the market value.
The two fees include the notary fee for notarising the deed and the registry fee for its registration in the official registry.
Notary: You will pay the notary a fixed fee from an official scale depending on the amount of land, size of the property and the price paid. One could expect to pay approximately 0.5% of the purchase price (i.e. for a transaction of 150,000 euros this will be approx. 750 euros).
Property Registry: This fee will take care of registering the property at the official Property registry and will be approx. 0.25% of the purchase price (i.e. for a transaction of around 150,000 euros this will be approx. 375 euros).
Legal Fees: These will depend on the lawyer chosen who will charge a conveyancing fee of 1 to 1.5% of the purchase price.
Withholding Tax: Anyone purchasing property from a non-resident, or company, must withold 5% of the purchase price, this sum to be paid to the tax authorities on account of any liability by the vendors to Capital Gains Tax that you have to pay for the profit obtained when you sell the property. Capital Gains tax is 35% of the difference between the original purchase price and the selling price. This is a complex area whereby the advice of a good lawyer is necessary.
WHO PAYS FOR WHAT?
Whether you are buying from a developer of from a private individual, you will have certain responsibilities and obligations to carry out, as will the vendor. When two parties come together in a transaction such as the buying and selling of property, there will be points within the procedure that will require negotiation. You, as the buyer, will be looking to see that your terms and conditions are presented through your agent and lawyer. Of the taxes and fees to be paid the Plus valia tax is where there can be a grey area. By law, the vendor is the one responsible for paying the Plus valia tax, since he is the one making the capital gains on the increase of the value of his land through the sale of his property. However, it has become quite normal for the buyer to pay for all expenses arising. So now it is that the Plus valia can be charged directly against the property itself just to safeguard the new owner from the possibility that the seller doesn't pay his tax. This new approach to the payment of the Plus valia by the buyer has come about by the fact that such tax bills have often gone unpaid especially by non-residents. By the time the buyer had realised this, the seller was long gone and the taxes would be tied to the property and therefore the responsibility of the new owner.
MAIN ANNUAL TAXES
You are deemed a non-resident in Spain if you spend less than 183 days a year there. As a non-resident you will be liable for two annual taxes, wealth tax (patrimonio) and income tax (impuestos sobre la renta). Wealth tax is charged on the value of all your assets in Spain but is only at a rate of 0.2% in general, so the amount payable is very small. Income tax is charged on the rental income from your holiday home and is charged at 25% without any deductions for expenses. However, if your property is not let out then you will be taxed at a rate of 25% on a deemed income of 2% of the value of the property.
(Impuseto sobre Bienes Inmuebles, IBI) The annual real estate tax on your Spanish property must also be paid. This tax, based on your valor catastral (which is the official valuation of the property), can vary widely from town to town for the same type of property, as it is a municipal tax and paid to your local town hall. So an apartment in Marbella centre would have a higher real estate tax than a similar type of apartment inland. The cost would range from 60 euros for an inland apartment to 2000 euros for a luxury villa. On a property with a catastral value of 150000 euros you can expect to pay about 500 euros. There is also a refuse tax paid anually to your local town hall and this does not usually exceed 180 euros. If you are a non-resident, the best solution for you is have the tax domiciled in your bank account. This is a standing order to the bank to pay the tax, and you can include any other municipal charges as well.
With all new property developments in Spain it is a legal requirement that the purchaser becomes a member of the Community of property Owners (Comunidad de Propietarios). The Community have their own rules which will be set out in a document known as the Estatutos. Usually each owner's percentage of costs is fixed by the size of their apartment, or plot, divided by the total area of all apartments or plots on the development. Expenses to be shared by the community of owners will depend on the services required by the community, which might for example include services such as a porter, security guards, pool and garden maintenance, lift maintenence, repairs, insurance and administration fees.
SPANISH IDENTIFICATION NUMBER (NIE)
According to Spanish Law, any person, company or association with any economic interest in Spain, including the ownership of property, must obtain a Tax Identification Number which must be produced in various circumstances:
A. When opening a bank account or depositing any assets with a bank in Spain.This applies to current accounts, deposit accounts, mortgages etc.
B. When taking out any sort of insurance.
C. When being invoiced by a supplier of goods and services. This means that if a property owner does not have an identity number, then he will not be able to contract for electricity or telephone services.
D. When drawing up a property lease in Spain, and in any transaction requiring the intervention of a notary i.e. purchase and sale of a property.
E. When buying or selling Spanish stocks, shares or bonds. You can obtain your NIE number through your lawyer.
An excellent book, well worth buying, is The Complete Guide to Buying a Property in Spain by Anthony I. Foster (printed by A.C.P. Print, Southend on Sea) which I bought at a Spanish Property exhibition here in the U.K. for £14.95. It is well worth the money as it gives you an indepth guide to property purchasing in Spain.