Buying in Spain - Printer Friendly Version

Property Purchase

More and more people these days are turning their thoughts to buying a property abroad, with the south of Spain by far the preferred destination. They may simply be choosing to swap the cold and damp of Britain for a permanent retirement home in the sun. Alternatively they may be looking for the ideal holiday apartment, town house or villa, with the intention of spending time there themselves, and renting out for the remainder of the year. Finally, the more commercially minded may have the intention of making a straightforward property investment which, if sensibly selected, can yield a return on capital many, many times that available in more conventional UK-based investments.

We are constantly being approached for advice on this subject from people who know that we have experience of each of the above buying situations. In each case it is evident that the one thing that is holding them back is a fear of getting it wrong in what is (correctly!) seen as a complex situation involving many unfamiliar technical procedures.

Here are some of the general factors that you need to consider if you are seriously contemplating a purchase abroad.

A retirement home in the sun

If you are thinking of buying what will become your future permanent residence, then you are probably best advised to consider an existing ‘second-hand’ property (known in Spain as a Resale property), in a well established location, whether it be a town apartment, villa or town house in an existing development, or a charming ‘finca’ or ‘cortijo’ in a remote rural environment. In this way you can judge how the property integrates into its environment, assess shopping and other facilities, and be fairly confident as to how it will be actually living there. We have experience of many of the major estate agents along the Costa del Sol , and will gladly advise you as to which you can trust. More importantly, we also know which agents to avoid! The number of estate agents in this area has proliferated alarmingly over the last few years, and it has never been more important to know who you are dealing with.

A holiday home which can also be let

Probably the largest category of enquiries is from the potential purchaser who has some cash to spare and fancies acquiring a holiday property in the sun, which he can also let out when not using it himself.

Fortunately the figures work out very well. You can expect to cover the financing costs on such a property during six months of the year, leaving you free to enjoy the property yourself during the remaining six months. You probably won’t use it yourself for quite as long as that, leaving you with a healthy overall profit to be made.

Some people will use their property quite heavily in the summer – high season – period; others will choose to let it out at premium rates during this period, keeping their own visits to the cooler, although still delightful, autumn, winter and spring months. We use our own property all year round, and it is quite common to spend the day in shorts and t-shirt, picking up a nice tan, even in January (although the nights can be somewhat chilly).

Either way, the choice is yours. We can advise you as to the best locations to choose for year-round letting (there are many areas which simply don’t let outside the main holiday season, making it difficult to make the sums work out). And if you find a nice property we will also be very pleased to discuss the possibility of managing and letting it on your behalf!

If you are after an immediate return on investment, and an immediate holiday capability for yourself, then you will need to look for a Resale property (see above). However an alternative and very attractive route might be to put yourself down for a property on a new development that is just starting construction. In this way you can pick up your property at a considerable discount, since the builder is keen to see his project get off to a flying start, provided that you don’t mind waiting 18-24 months for completion. The downside to this route is that you won’t be totally sure as to how the whole development will turn out. The upside is that you could, if you chose, sell the property on, just prior to completion, at a quite staggering profit, using this profit to fund a much bigger (possibly resale) property elsewhere than you might otherwise not have been able to afford. This strategy is discussed in more detail in the following section.

Investment Properties

If you have capital to invest, and are not dependent on immediate income from this, accepting a medium-term capital gain instead, then it is possible to obtain returns on capital many orders of magnitude greater than those obtained from – say – a UK Building Society investment, by way of a carefully selected investment into a new property development in Spain.

The trick is to invest into a new development in the very early stages, paying only a part of the eventual completion price up front, selling on what is in effect an option to buy the property once completed, some time prior to completion. Such “off-plan” purchasing can yield an investment return of 20-100% p.a. Our sister company’s website – www.wmpm.com – discusses this situation in more detail.

Finally there are a number of legal conditions and procedures that you need to be aware of.

Legal conditions and procedures

Two facts to get straight:

The process of buying a property in Spain is quite different to that in other countries. However a competent solicitor will handle most aspects on your behalf (although there could be problems if there is a language barrier between you and him – or her).

If you act sensibly you can forget (most of) the horror stories that you may have heard regarding property purchase in Spain . In particular the developer of a new property is now required to take out some form of insurance, or alternatively, bank guarantee, to secure all payments that you make prior to completion – put simply, if he goes bust then your money is still safe.

If you are going to buy a property in Spain do, however, follow formal procedures. Don’t be misled by the character who you might meet in a bar who not only knows of a property locally going for a knock-down price, but who also has a brother-in-law who can handle all the legal details for you, for the price of a drink, rather than troubling a nasty old solicitor. We ourselves have purchased in Spain , experiencing no real difficulties (although mañana does still apply here, as in most other transactions in Spain ), and feel confident that we now fully understand the system.

One word of caution on resale (second-hand) properties. There is a long-standing tradition of under-declaring the price agreed. This is because the stamp duty on sales is a swingeing 7%, and by under-declaring the value of a £200,000 property by 25% there is a saving of £3500 to be made. If you’re wondering how the balance making up the true purchase is made, then the answer is that it’s made in cash. Authorities differ on how to treat this phenomenon. Some will insist that you shouldn’t go along with the practice (after all, if you don’t manage to do the same when you eventually come to sell, then you will be seen to have made a capital gain that is that much greater than the true one – and will be taxed on this accordingly). However the reality may well be that the seller won’t deal unless you do go along with this, and for several years now it has been a sellers market: if you want the property then you have to agree. The key is to let your solicitor know exactly what you are doing – and let him handle it for you.

The typical process of buying a (resale) property goes as follows. Once you have agreed a price then you will quite shortly (days rather than months) enter into a binding contract to complete on a future date to be agreed (much as in the UK , but much sooner). You will have to pay a deposit which you lose if you subsequently back out. However if the seller backs out then you receive your deposit back – and as much again by way of compensation. Your solicitor will carry out a fairly simple search as to title, and that’s about it. It’s rare to have a structural survey carried out, although you can if you wish. On completion you will receive your Escritura de Compraventa, or just ‘Escritura’ which is signed by both parties (or an appointed Power of Attorney) before a Spanish Notary.

There is a complex system of land registry fees, a local Authority tax (the Plusvalia), which may be paid by the seller, together with VAT, at 7% (on new properties). In total you can expect to have to find about 10% on top of the actual purchase price to cover the above, together with lawyer’s fees.

Other factors to consider are whether to buy the property in your own name or that of a company (there are pros and cons to both), how to finance its purchase if borrowing is required, how to register your existence with the Spanish authorities (you may wish to appoint a fiscal representative to act on your behalf, and to deal with the plethora of Spanish taxes – even the Spanish don’t fully understand these. There are further considerations if you decide to actually take up residence in Spain .

Rather than rehash further, more detailed, information that is already readily available and well-presented elsewhere, we would direct you to the website of John Howell & Co , who are a London-based firm of solicitors who specialise in acting on behalf of people buying abroad, principally in Spain, Portugal and France.

Having said this, we actually believe that it is preferable in practice to use a locally based (Spanish) solicitor who will be familiar with the local nuances pertaining to the area in question, and who will also be better equipped to deal with the local Notary etc. In Spain, successful business is all about relationships – which is why we ourselves spend so much time there developing contacts and so on (well, that’s our excuse anyway). We are very happy to recommend a local solicitor who we know personally in most areas of the Costa del Sol .