After a lengthy period of prices plummeting and a stagnation of sales of properties in Spain, the local real estate market has gone through some consecutive months of visible recuperation.
Buying in Spain is again both a sound business and a good option for a second residence abroad.
After years (roughly from 2008 throughout to well into 2013) in which the real estate stock of properties in all areas of Spain came to lose more than half of its value, there are unequivocal signs of recuperation provoked, mainly, for various reasons:
After a long decline, the prices reached rock bottom, creating thus innumerable bargains – it is not strange to see, for instance, one bed apartments in the first line of a beach for sale at around €50,000, or big villas in good residential areas in the market at €250,000 which five years ago had a price tag of more than twice this amount.
The Spanish Government implemented in early 2014 a scheme, already tested quite successful in some other countries, by which a residence leave was granted to those foreign buyers who purchase a property of a minimum of €500,000.
This scheme, known as the “golden visa”, has attracted numerous buyers as well as investors from, to name only few, India, China, Russia and some Arab countries. These purchases have affected the market from the high end, yet however it has also regenerated the market.
The level of exchange between Sterling and the euro is again very favourable to UK buyers. Without getting to all time records of €1.49 per GBP (in the mid 2000s), at the time of publication of this note (late January 2015) the exchange is a very attractive €1.33 per GPB, facilitating considerably the purchases in Spain.
Spain has not yet completely left behind a horrendous financial crisis that has affected all levels of the country for the last five years. However, it is not anymore a synonymous of problem or risk, and the worst of the said crisis, with fears of intervention from Brussels or abandoning the euro, are felt already far behind.
And yet if it is again a good (and cheap) option to buy in Spain, it is not redundant to insist in some points that, when overseen (as many British buyers painfully experienced not long ago) lead to problems, disputes at Court and, eventually, large financial losses. The buyers must always observe some basics before entering in a transaction.
Making an offer for a property
In Spain the negotiation of the preliminaries of a purchase, the offer, its acceptance and then agreeing a price, is quite flexible. The applicable rules (the relevant sections of the Spanish Civil Code) leave to the two intervening parties all discussions, and until a preliminary or private contract is agreed (see below the Contracts paragraph) all the discussions and negotiations (and also issuing of offers) are not binding.
The buyers must be aware of two essential points while viewing properties: firstly, that no amounts should be paid before the contract is in place. It is not unusual that an agent, on receiving a call of mere preliminary interest from a potential buyer abroad, manages to get from this caller an amount (€3000 / €5000 is common) just to “reserve” the property. Providing it is not a scam (and most sadly often it is), it is highly irregular and certainly a risk, and it is not (as many agents will claim) part of the typical buying routines.
Secondly, the potential buyer should not sign any document that has not been reviewed by a solicitor. The buyer must be fully aware of his rights while entering in the agreement, and the applicable rules set clearly his liabilities if he decides later to withdraw from it. It is not widely known that, for instance, in many occasions (depending how this is stated in the contract and under certain conditions) the buyer who wants to exit the transaction must compensate the vendor.
A related point will be that the buyer should not accept a solicitor recommended by the agent or the vendor. Anyone interested in purchasing a property is entitled to seek for, and get, independent legal advice.
One point of concern of foreign buyers in Spain is to commission a survey of the property they´re buying. In most of cases it is not necessary to commission a full survey, at it is costly and delays the transaction. With a valid habitation license in place the buyer does have assurance that the property is in good state, both as a construction and legally. However, it is advisable to commission an independent valuation in some specific cases:
- When the property was built more than 20 years before the date of purchase.
- When the agent or the vendor mention a construction or structural issue.
- When there are issues mentioned in the habitation license and / or it has had problems for its renewal.
- In houses or villas detached, independent constructions with a price of more than €500,000.
- When the property has been extended or rebuilt from its original construction or planning permissions.
In general, any buyer that prefers to have a fresh valuation in place (and is ready to pay for it) can commission a valuation. There is a list of accepted and supervised valuation companies in Spain, and a buyer who decides to commission a valuation can choose any of those registered companies.
A very sensible point is that of the down payment or “holding deposit” as it´s called in the UK. Virtually all buyers experience the situation of the agent representing the vendor, asking for an amount of around 5 to 10 % of the already agreed price, to “get the property off the market”. This request, without being illegal, is not at all mandatory, as the agents do imply often in order to secure the transaction.
This payment can be done, but on two very basic conditions:
- That it is made only after some basic checks have been carried – namely ownership and legal charges of the property in the Land Registry.
- That it is agreed in a preliminary contract, setting clearly the rights and liabilities the parties do assume on agreeing it and, importantly, the consequences of either party should they wish to call the deal off after the payment is done.
Payments of “holding deposits”, or even those made under the concept of “to take the property off the market” are made regularly, but it is essential that they are formalised in a written agreement supervised by a solicitor.
Taxes and disbursements
This is the point that perhaps more concerns raises in the buyers. Apart from the price, how much will a buyer have to support for other expenses, taxes and all dues? However, the cost of a purchase on the buyer´s side is a fairly simple matter. The said buyer has only to pay the costs of, consecutively: Notary, stamp duty and Land Registry.
The Notary costs are mandatory as, unlike in the UK, in Spain the purchase of properties are not completing by exchanging contracts, but rather by signing the transmission deeds before a Public Notary, who has to review the deeds, verify the capacity and identity of the intervening parties and then witness and authorising the transaction.
The stamp duty (or transmissions duties or transmission taxes) is the tax charging the purchase sale. The tax rate will depend on the region where the property is (in Spain there are 17 regions with different tax systems) but at the moment of publication virtually all have set this rate for stamp duties at 10 % of the Council value of the property.
Finally, once the transmission deeds have been authorised by the intervening Notary and the taxes have been paid, the deeds are taken to the Land Registry, to make a note in the property´s file of the transmission and new ownership.
Only once this route of commonly known as “three seals” – Notary, taxes and Land Registry – is done, the transmission is fully completed and legal. Something virtually anecdotic, but that worries many buyers on completion is that, even after entirely finalising the above mentioned formalities, they receive as prove of their ownership only copies of the title deeds. This is absolutely normal, as the document actually signed at the Notary (and taken to the tax office and then to the Land Registry) is the only original version, which is kept indefinitively in the Notary´s records, as final prove of the transaction.
The intervening parties receive “authorised copies”, or “first copies” of the deeds, as evidence of ownership. This is to avoid forgeries of the documents or disputes: only the records of the Notaries, safely kept and impossible to forge or amend, are final prove and evidence of a transaction legally made and ultimately, of ownership.