A BUYERS MARKET
If you thought that the US saw the biggest real estate bubble burst during the recession, think again. Spanish property prices have fallen by 50% since their peak in 2008. For a while, during the good years of the bubble Spain was building more residences that many European countries combined, and the financial crash has left many thousands empty, especially in the coasts and new suburban developments, where prices have dropped even further.
Apart from the normal inventory from private owners trying to sell for different reasons, there is also a very attractive range of properties owned by Spanish banks –in most cases directly repossessed from the developer and never inhabited– and by the very developers. It is not about ghost, developments but great value, highly desirable properties on consolidated urbanizations with fully functioning communities of owners.
The economic cycle seems to be finally turning across Europe and also in Spain. Home sales have increased in the last couple of years, after seven years of losses, and most economic indicators point to an sustained economic recovery, but still with many obstacles ahead. The growth in sales has not absorbed yet the inventory produced during the bubble and unemployment is not expected to fall below 20% in the next few years.
In these conditions, credit is tight for a majority of Spaniards, and property sales to foreigners reached a new record in 2017, accounting for almost 20% of all transactions. Many of these are European retirees that consider Spain again their top destination after the financial turmoil, way ahead of Italy or rural France. For American citizens, there is the added value of an Euro in clear retreat against the dollar, as we discuss in the Living Standards section.
Spain sets no restrictions to the purchase of real estate by foreigners, and it is even fomented by the need to balance the country’s finances. The purchase is a pretty straight forward process that requires just few extra requisites:
– The Foreign Identity Number (NIE), which grants any foreigner the right to purchase real estate, cars, etc, and, in general, establish any commercial or professional relation with Spain. It is also one of the first documents to be obtained once established as a resident through a non lucrative visa.
– Opening a bank account. Not mandatory but very necessary to transfer the money to buy the property and, later, to set up payment for taxes and maintenance expenses. And, of course, to carry out any financial activity once residing in the country.
In the case of a new construction (from a developer or a bank), you will be asked to sign a reservation contract and pay a small fee, at which point the property will be taken off the market for a limited period (usually 30 days). This allows time for legal checks to be carried out and a contract of sale (escritura de compraventa) to be drawn up, and for you to make the first of a series of payments (known as stage payments, because they are made at agreed stages of construction). This first payment is normally 10 per cent or more of the purchase price and is non-refundable.
In the case of a resale, once your offer has been accepted, you pay a small deposit –contrato de arras–, usually around 10% of the value. Your lawyer then carries out the necessary legal investigations. When these are complete, you sign a contract of sale, which states the price and what it covers, the deposit (generally 10 per cent) and when you will pay it, and the date of completion. Should you breach the contract, you forfeit your deposit. Should the seller breach it, they must pay twice the amount.
TAXES AND COSTS
Costs are primarily paid by the buyer and, with slights variations from region to region, they end up accounting for around 14% of the value of the property. Some are negotiable as, for instance, there are no fixed fees for lawyers or estate agents. 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 and Stamp Duty, or a transfer tax.
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. At present VAT (known as IVA in Spain) is 10% on the purchase price of residential properties (villa, apartment, etc), and 21% for commercial properties and plots of land.
The Stamp Duty (known as AJD) varies by region, and for Andalusia it was set at 1.5% in 2012. 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.
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 Andalusia applies an 8% for properties valued up to €400,000; 9% from there up to €700.000, and 10% above that.
Taxes and costs for a typical €100.000 purchase
New Property - €100.000
|IVA (VAT) -10%||€10.000|
|AJD(Stamp Duty) - 1.5%||€1.500|
|Register Fees - 1%||€450|
Used Property - €100.000
|ITP (Transfer Tax) - 8%||€8.000|
|AJD(Stamp Duty) - 1.5%||€1.500|
|Attorney Fees - 1%||€1,000|
It is universally 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 – 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. 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.
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. The registrar’s fees are established by a regulation schedule or list, which is available to all users at each registration office. 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.
THE COST OF OWNING
In our Taxes section we discussed the fiscal implications of owing a property in Spain, both for residents and non residents.
Overall, you can expect to take care of the same maintenance costs you would have in the US, like cleaning, repairing, reforming, utility bills, garbage collection and so on. These will be determined by the size and type of the property, but will always be much lower than in the States.
Unless you live in a single family construction, you will also have to attend community fees (gastos de comunidad), which will vary according to the size and variety of amenities to be taken care of. 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 HOA (Comunidad de Propietarios).
Most probably you will purchase your property in Spain in cash or will find some other kind of financial arrangement from the US. If that was not the case there are options, as Spain of one of the countries that offers mortgages for non-resident foreigners (once a resident, the financial products are the same as for any Spaniard). Moreover, conditions are nowadays as good as they have been, as rates are in their historic lows, which compensates for the tougher conditions imposed upon international borrowers.
Spanish banks’ mortgages usually cover from 60% up to 80% of the value of the property bought by foreigners. Most of them are offered at a variable rather than fixed rate, so you have to always keep in mind the impact of possible fluctuations of the rates in your monthly payments.
A very detailed guide from the corresponding government office can be found here.