Buying property in Spain
Homeownership in Spain
Homeownership in Spain is high: around 80% of residents own their own homes, and many do so without a mortgage.
Spain has suffered considerably from the global financial crisis and the consequent crash of the real estate market. House prices fell by as much as 30%, but in the last few years the market has become more stable.
Prices in Spain have been rising steadily since 2016, and although the outbreak of COVID-19 hit the market in 2020, official figures show that average prices rose in the second quarter of the year. Sales prices rose by 2.1% year-on-year, with new-build prices up 4.2% and second-hand home prices up 1.8%.
Understandably, the number of home sales fell significantly. Government statistics show that international buyers buy around 18,000 to 25,000 properties in Spain every quarter. However, in the second quarter of 2020, that number fell below 10,000.
The full economic impact of COVID-19 on the Spanish property market has yet to be seen. Real estate experts predict that house prices could fall by 5-10% in the short term.
Should you buy or rent a property in Spain?
The Spanish property market has many peculiarities, and it pays to do your research before buying. Factors to be aware of when buying Spanish property are scams, high capital gains tax, and fluctuations in the property market.
The added uncertainty caused by COVID-19 means that now can be a risky time to buy in Spain. The country's rental market is also in flux.
Before the pandemic, regional governments wanted to introduce stricter rules for people buying holiday homes, after rents rose significantly in areas popular with investors.
Each of Spain's 17 regions has the power to set rules for foreign buyers who buy properties to rent out. The strictest rules apply to the Balearic Islands, where only Spanish residents can apply for a buy-to-let permit, and Madrid, where new measures include a maximum five-day stay.
If you are considering a shorter stay, renting in Spain may be a more suitable option if you take into account Spain's high capital gains tax, which can negate the benefits of buying in the short term.
Can expats buy property in Spain?
Buying a holiday home may be more complicated than it used to be, but Spain is a very welcoming country for foreign buyers which limits the scope for common blunders when buying a home.
The rules for buying a property in Spain as an expat are relatively simple. Before you buy anything, you will need a financial number, which you can obtain by taking your passport to a police station. This is usually processed on the same day for Spanish or EU citizens, but can take a few weeks for others.
Spain also offers a Golden Visa scheme for foreign property owners. Under this scheme, you will receive a residence visa if you invest more than £500,000 in Spanish property. Golden Visas are primarily aimed at pensioners and holiday home buyers, but are especially popular with investors from outside the European Union.
In the first half of 2019, Spain approved 848 Golden Visas, with Chinese (272) and Russian (187) investors making up the majority of successful applicants. In total, this meant that 4,941 people received a Golden Visa since the scheme was launched in 2013.
The Spanish property market and property prices
The full impact of COVID-19 on Spanish property prices has yet to be fully understood, so it is only possible to give a general indication of what is happening to the market.
Pre-pandemic analysis by the Global Property Guide showed average property costs per square metre for 14 of Spain's 17 autonomous regions.
The figures, based on the third quarter of 2019, showed that average house prices in major cities rose 5% to €1,649 per square metre, while properties in the Balearic and Canary Islands saw an 11% increase to €1,604 per square metre.
The most expensive places to buy in Spain are San Sebastian, Barcelona and Madrid. Prices in these three areas ranged from €3,000 to €3,600 per square metre.
Madrid was the most expensive place to buy land in Spain, with prices of €338 per square metre. The Canary Islands (€245), Catalunya (€184), Andalucia (€171) and Valencia (€158) completed the top five. Castilla y Leon is the cheapest place to buy, with average land prices of €66 per square metre.
Costs of buying a property in Spain
The cost of buying a property in Spain varies from area to area, and many are negotiable - for example, there are no fixed fees for lawyers or estate agents. Buyers must pay the bulk of the costs, which are generally as follows:
Property transfer tax: 6-10% (existing properties) / VAT (or IVA) at 10% (new properties)
Notary fees, title deeds tax and land registration fees: 1-2.5%
Legal fees: 1-2% (including VAT)
The seller usually pays the estate agent fees in Spain. Estate agents usually charge their fees as a percentage, usually around 3% of the final sale price.
Financing the purchase of property in Spain
Some overseas buyers buy without a mortgage, but it is possible to get finance to buy a house. Spanish banks and international banks offer mortgages; some also offer specific deals for expatriates from certain countries.
As an overseas buyer, you may only be able to borrow with a lower loan-to-value (LTV) than Spanish residents, meaning you will need to make a larger down payment. Spanish residents can generally borrow up to 80% of the assessed value of the property, but non-residents may be limited to 60-70% LTV, depending on the type of mortgage.
Mortgage lenders will only enter into a mortgage agreement once you own a property. It is important to include a clause in the purchase contract that allows you to withdraw if you are unable to obtain a mortgage.
In Spain, any debt attached to a property is transferred to the new owner when the property is sold. This means that it is crucial to ensure that there are no debts attached to the property, or that if there are any, they are covered by the terms of the contract.
Finding a property in Spain
Through ConnectHouses you can find properties in various regions that are offered through ConnectHouses partners.
This way you can be sure that you are in contact with an estate agent who knows how to help you and has all the knowledge to answer your questions about buying a home in Spain.
Estate agents in Spain
Estate agents can provide a wealth of information about the region, are bilingual and often deal with overseas buyers; they are a useful asset in your search for Spanish property. However, regulation is relatively low and unscrupulous estate agents exist, so be wary of anyone who asks for payments up front or suggests cutting corners.
Always remember that you can choose your own notary, mortgage lender and so on; you do not have to use a service suggested by the estate agent.
The process of buying a property in Spain
The process of buying a property in Spain is usually as follows. First the buyer makes an offer. If this is accepted, the buyer and seller sign a preliminary contract (contrato privado de compravento) and the buyer pays a deposit, usually 10% of the purchase price.
The buyer then arranges the mortgage he needs, although he must have already discussed his needs with the mortgage lender. The contract of sale (escritura de compravento) is usually signed in front of a notary, after which the full purchase price, taxes and other charges are due.
Viewing properties in Spain and making an offer
Once you have found a property you like, you will usually need to make an offer through the seller's estate agent.
As in other countries, the price is negotiable; the asking price is an indication rather than a requirement. Unless the price is particularly attractive or you are competing with other buyers, it is wise to start negotiations below the asking price, but not so low that you offend the seller.
Basic negotiations on the price are often done verbally. Once you have reached an outline agreement, you should have your offer summarised in writing by your notary.
Hiring a lawyer or notary
The services of a notary are not legally required to complete the sale. A lawyer to complete the due diligence is strongly recommended and required by many mortgage lenders.
The buyer is responsible for the registration of the property. Your solicitor can provide this service for a fee, and/or can notify the registration office that the sale has taken place, without completing the full registration.
Arranging a survey
It is possible to buy a property in Spain without having a house survey carried out, but this is not recommended. A house survey helps you ensure that there are no major defects to the property that may come back to haunt you later down the line.
For existing properties, there are generally two main types of survey available. A valuation report is an area measurement that gives you an independent guideline for the market value of the property.
A structural survey goes deeper, looking at the structural condition of the property and identifying any serious problems. Building surveys are more expensive than valuation reports, but they also give a more comprehensive indication of the condition of the property.
Translators for your Spanish property purchase
Many governments provide lists of lawyers and translators who speak both Spanish and another language. The British Embassy's list of English-speaking lawyers and translators is a useful resource.
Moving into your Spanish home
It is strongly recommended that you take out buildings insurance when buying a property in Spain.
Building insurance (which covers the structure of the property against natural disasters, fire and other damage) is often a requirement for mortgage lenders.
Contents insurance (which covers your belongings in the property) is not a legal requirement. However, it can be a wise investment, especially if you plan to rent out your home or have been away from home for a long time.
Utilities and telecommunications
Arranging utilities is one of the trickier tasks when buying a property in Spain. The previous owner may already have a policy that you can take over.
Waste disposal is regulated at a municipal level, with annual charges for rubbish collection. With other utilities, such as gas, electricity and water, you will be able to compare offers before choosing a supplier.
Buying land to build a new house in Spain
Spain has long been popular with overseas buyers looking for holiday homes. Sometimes the large numbers of inexperienced foreign buyers have provided unscrupulous property developers and estate agents with an opportunity to sell illegal properties.
In some cases, no building permit has been obtained for the construction and properties are eventually demolished by the local authorities. In other cases, the quality of the property is poor or not as declared, leading to expensive repairs.
The British Foreign Office has warned expat buyers to be careful and not to take unnecessary risks. They recommend at least checking:
The credentials of the lawyers or estate agents involved
The land register (Registro de la Propriedad)
Whether there is an appropriate building permit
Whether the property has no outstanding debts
Whether the property is structurally sound (this can be checked by a surveyor or an architect).
Buying a new property in Spain
The worst property scams in Spain, as elsewhere, involve unfinished or unbuilt properties. Although malicious intent is rare, caution is advised when buying a property that is not yet constructed. At the very least you should:
- Check whether the company exists and make sure the project is registered with the land registry.
- Check whether planning permission has been granted by making enquiries at the local town hall.
- Do not sign a contract you do not understand.
- Engage an independent party for any translations.
- Demand proof that all monies paid (e.g. a deposit) are properly held or spent.
- Get proof that you will get your money back if the property is not built.
- As a non-resident, you can also buy land and have a house built yourself. In this case, good legal advice is even more important, as you need to ensure that the contracts with the builders are appropriate and watertight.
Selling a property in Spain
Capital Gains Tax (CGT) can be a major obstacle when selling a property in Spain. CGT is paid on the profit from the sale of your home, and the level varies between 19% and 23%, as follows:
First €6,000: 19%
€50,000 or more: 23%
If you pay €200,000 for a property and sell it for €350,000, you will pay €150,000 in value added tax. As a result of the differentiated system, this amounts to €33,260.
You may be able to claim a reduction in CGT to account for inflation, if you buy another property in Spain, or if you are over 65 and have lived in the property as your main residence for more than three years.
Otherwise, unlike in other countries, CGT applies regardless of how long you have lived in the property. Your residence status does not affect the application of the tax, as CGT must be paid on properties you own in Spain, even if you are no longer a resident.