After the excitement of the property hunt, red tape and beauracracy will come as a bore, but due diligence at the purchasing stage will save you getting stung later on. The best advice you can follow is to find a good lawyer who speaks your language fluently. However, it is always wise to be aware of the processes and to have a good understanding of what is being done on your behalf.
1. Get your budget straight
It is essential that you factor in the hidden costs of buying property in Spain when calculating your budget. Spanish VAT is currently around 7% for new homes and 6% on pre-owned homes while stamp duty will cost between 1 and 2%. The property registration office will charge a fee of around EUR 300 to change the deeds into your name, and then there are notary charges for the escurita publica to take into consideration. On average, it is wise to set aside 10% of the cost of your new property for extra fees and charges.
2. Consider Annual Costs
When thinking about your budget, take into account extra annual costs. The first cost to consider is the IBA which is an annual tax charged by the town hall. You are also liable for wealth tax based on the value of your property and property owner´s income tax based on your income from the property. Discuss both of theses taxes in detail with your agent from the outset. If you are investing in a buy-to-let property which you intend to manage from home, consider the costs of maintenance which can be contracted out in your absence. If you are buying in a community development remember that you will incur shared costs to cover maintenance.
3. Think about taxes
If you plan to spend six months or more of the year in Spain you are legally required to apply for a residence permit, although this law is set to change. There are tax advantages to being a resident when buying property in Spain. Firstly, as a resident you will not be charged inputted income tax (charged annually at 0.5% of the catastral value of the property) on your principal home. Second, residents only pay 0.2% of their home value for wealth tax and the first EUR108,000 is exempt. Non-residents get no relief and must pay 0.7% in tax. Third, when you sell the property, capital gains tax (plus valia) is charged at 35% for non residents but only 20% for residents. If you are a resident who is over 65 and has lived in the property for more than 3 years you will be totally exempt from paying capital gains tax. If you decide not to become a resident you must find a fiscal representative who lives in Spain.
4. Get your finance sorted
Ideally you should arrange a mortgage as far in advance of buying as possible. This will give you time to shop around for a good deal and you will avoid being forced to settle for bad rates. The mortgage market is competitive in Spain and interest rates vary, but are generally much lower than in the UK. If you are buying off plan, you may find that the constructers already have an agreement with a certain Spanish bank for all mortgages and you are left with little choice. If not, you would be wise to shop around for the best deal. Don't accept the first offer. Ask for a copy of one bank's offer and then take it to a different bank to see if they can improve the offer - they often will. Then take the improved offer back to the original bank - you may get a pleasant surprise!!
5. Get the all-Clear
Before signing any documents or parting with any cash you must obtain the 'nota simple' certificate from the property registry for your chosen home. With this you'll find out if the property is free of debt, if it really belongs to the seller, and if the description of the property matches what the buyer has been told. In Spain, debts are usually tied to a property rather than to the owner of the property. This is why you must study the nota simple carefully, and take sound legal advice.
6. Sort out the paper work
If the property is a new construction, you should get: a registry listing (nota simple) of the full plot of land, the CIF and full name of the construction company and the construction permit (licencia de obra). The seller should also provide a deed of declaration of a new construction, an occupancy permit and a certificate of rateable value of the property. If the property is a re-sale, you should get: a registry listing (nota simple) of the property and a copy of the title deeds (escritura), receipt of payment of the IBA for the last year, a receipt of payment of the tax on the increased value of Urban Land and a certificate stating that any community charges have been paid. The seller is also obliged to provide recent utility bills.
7. Sign a pre-agreement
A private contract must be in place between a buyer and seller until the public deed of purchase is ready. It's usually a simple document in which the seller expresses their intent to transfer the property to the buyer, and the buyer expresses their intent to buy at the price and conditions agreed upon. At this time, the buyer also gives to the seller a percentage of the agreed-upon price. The typical agreement in Spain is if the buyer backs out of the contract, they lose the deposit; if the seller backs out, they have to pay double. Sign the agreement in the presence of a notary and seek legal advice first.
8. Sign a contract
A public contract must be signed in the presence of a notario with all parties present. This process is called the 'escitura' and it is the confirmation of the property transaction. Before you sign anything get a qualified lawyer who speaks both Spanish and your language to read through the contract. A notario is a government official who is not a substitute for a lawyer and has no responsibility to check or approve a contract.
9. Make it official
Your lawyer should help you to register your new property with the land registry immediately after the final contract has been signed (Escitura). Once you have submitted the Escritura for registration, it may take 1 - 2 months for the process to be completed. Your lawyer should also register you as new owner of property with the Catastro which is the local government's registry of property and owners. This will ensure that you receive all correspondence relating to the local property tax.
10. Snag an off-plan property
After completing on an off-plan property it is essential that you or a qualified professional perform a snag. The snag is basically a thorough inspection of the property which highlights any faults or deficiencies such as missing door handle and faulty or unfinished fixtures and fittings. After a certain period, the builder is no longer under obligation to repair or finish any work and you will be liable for the cost of the job, so the sooner you can perform the snag the better.
