The purchasing process
Always select an established and reputable real estate agent who will find you the right property and be able to guide you through the preliminary negotiations with the seller.
Choosing the right lawyer
It is advisable to use a lawyer based in Spain who will provide the legal guarantees for the purchase of the property, ensuring that Spanish legal requirements are met. Your lawyer should run a check to ensure that the property is bought free of encumbrances, liens, charges or debt and that all payments of local contributions and community charges are paid.
Property searches
The property searches may vary depending on the kind of property that you have chosen to purchase. Using a lawyer from your home country could substantially increase your legal fees and most certainly will delay the sales process.
Reservation deposit and contract
Once you have found the right property, the purchase process begins with a reservation agreement, which takes the property off the market and also freezes the purchase price. The deposit to pay at this stage is anywhere between 3000 and 12000 euros. Before arriving in Spain, ensure you have funds available. The best way to pay the reservation fee is by credit card or in cash. It is not advisable to pay by cheque, especially if drawn on a foreign bank account, as it can take approximately 14 days to clear at a Spanish bank. Such a delay could cost you your property.
Exchange of private contracts
Within 28 days of signing the reservation agreement, the private purchase contract is to be signed between the purchaser and the seller (or their authorised representatives). During this time, the lawyer should have completed the investigations and searches of the property and will have arranged with the seller the procedure for cancellation of any outstanding debts. It is customary practice at this point to pay between 10 and 50 percent of the purchase price. Funds should be lodged in your own Spanish bank account. Your lawyer can arrange for an account to be opened for you. Marathon Estates has negotiated some competitive rates with local Spanish banks for our clients.
Formal completion and exchange at the notary
A property sale is formally completed in Spain when the title deed (escritura de compraventa) is signed before a Public Notary in Spain, the agreed final payment is made and possession of the property passes to the new owner. In the case of new construction it can take up to 18 months before completion and usually payments are in stages of two to four months, for example by bills of exchange, cheques from the Spanish bank account or transfers.
Registration
Once the title deed is signed, the notary will fax a copy of it to the local land registry. Your lawyer will pay on your behalf all the relevant transfer taxes and will deal with the formalities of registering your title deed. Final registration of the title deed may take several months. Your lawyer will arrange for the transfer of accounts with utility services, such as water and electricity, through your Spanish bank account.
Purchasing a property on a new development
When purchasing a property on a new development, the developer should provide bank guarantees against each payment made on account of the purchase price. Many developers offer these bank guarantees free of charge, others make a percentage charge.
New property is handed over without water or electricity connection. This can however be arranged through the lawyer. Connection of such services can take up to four weeks following completion therefore we suggest that you do not make any plans to use the property during this period. Under Spanish Law, the developer will issue you with a ten year construction guarantee.
Costs
There are in principle three fees and two taxes to pay when purchasing property in Spain.
You should budget that the costs involved purchasing a property in Spain are approximately ten to 11 percent of the purchase price. If you have a mortgage there is an additional cost of two percent to the property purchase price.
The fees
1) Legal fees: The standard fee is between 1 and 1.5% of the purchase price, plus VAT (IVA) currently charged at 18%. This fee applies whether you are buying or selling.
2) Notary fees: The notary charges according to a fixed scale and depending on the official value of the property. His charges may range from 300 to 1200 euros
3) Property Registry: generally 60-80% of the notary fee
The taxes
1) On a resale property, Transfer Tax (ITP) at 7% for property until 400.000 Euro and if the property cost more than 400.000 the transfer tax of the difference is 8%, for example the purchase price is 450.000 Euro, then the buyer needs to pay 7% of 400.000 Euro and 8% of 50.000 Euro. On a new development the VAT (IVA) is 8% plus Stamp Duty at 1% of the property price. VAT is payable with each instalment, whereas Transfer Tax is payable on completion. A VAT rate of 18% is applicable when buying commercial premises, plots of land or garage spaces.
2) Plus Valia: This is a tax paid on the increase in value of the land since the previous sale and is fixed by the local Tax Authorities. It is calculated on the size of the land. By law, the vendor is obliged to pay this tax, however it has become customary to negotiate this, and it is not uncommon that the purchaser settles this amount.
Other costs to bear in mind are as follows:
• Wills
• Changing of utility contracts and arranging their payment by direct debit
• Fiscal representation
• Community representation
• Insurance
• Water and electricity connection charges
Mortgages
There are almost no exchange controls in Spain and therefore whether resident or not, you can obtain a mortgage or a loan against your property from any bank in the world. Spanish banks are willing to give mortgages to non-resident purchasers of property in Spain. The period of the mortgage depends upon age but can extend to a maximum of 20 years. The amount borrowed is 60 to 70% of the property’s value, depending on your income and assets. You will need to provide proof of your capacity to repay the mortgage and most banks will look for earnings per month in excess of three times your expected monthly mortgage repayment.
Documents required by the Spanish bank to apply for mortgage:
4) Last three payslips
5) Last tax return
6) Bank reference to include telephone, fax number, name of manager and account number
7) Last three statements of your bank account
8) Statement of current assets and liabilities
9) If employed, letter from employer stating length of employment and salary etc., if self employed, profit and loss accounts signed by a Chartered Accountant
Wills
You should make a separate Spanish will dealing exclusively with your Spanish assets in order to avoid time-consuming and expensive legal problems for your heirs. As a foreigner, you will usually find that Spanish authorities do not oblige you to follow the Spanish law of compulsory heirs. You can leave your property to whomever you choose, as long as your own national law permits it.
Bear in mind Annual Property Costs
1) Community fees
2) Local Real Estate Tax
3) Annual Income Tax
4) Property Wealth Tax
5) Utility Services
6) Insurance
Selling a Property
1) Capital gains is due on the sale of a property and the tax is calculated as the difference between the value of the property at the time of its acquisition and the value at the time of its sale. The tax rate is 19% for non-residents.
2) If the vendor is a non-resident in Spain, the purchaser will need to retain 3% of the purchase price and pay it into the Tax Office Treasury on account of the potential liability to Capital Gains Tax. Your lawyer will inform you about existing exceptions.
3) Plus Valia: This is a Municipal tax on the increase of the value of the land, which is normally paid by the seller.