Buying An Off Plan Property In Spain
An Overview
1. First Contact: Real Estate Agent ('REA')
2. General Practice
3. Off Plan Pricing
4. Off Plan payment Structure
5. Completion
6. Community
7. Overall Purchase Costs
8. Finding the Right Home
Buying a New Property/Off-Plan?
Buying an Apartment, Townhouse or Villa?
The following information is only supplied as a general guide, in spain, as in any country, always seek professional advice before entering into any contract.
- to open a spanish bank account (compulsory when purchasing property in spain)
- instruct a lawyer to conduct the purchase on you behalf
-
be able to make an initial deposit of up to 6500 euros (approx £4000)
1. First Contact: Real Estate Agent ('REA'')
The
majority of property purchases in spain are made through a real
estate agent.
@ spainrealestate.co.uk we promote a quality portfolio of excellent
properties available for investment. We are not lawyers, nor do
we intend to be, and as such spainrealestate.co.uk strongly recommends
to all our clients that they instruct a lawyer who can give qualified
legal advice and conduct the property purchase on their behalf.
We only offer advice on lawyers whose services have been recommended
to us via prior clients
our mission is to sell properties with professionalism and offer
an individual, personal service to all our clients.
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2. General Off Plan Practice
Developers take monies from purchasers to finance the stages of construction of their properties and given the sizeable deposits these entities sometimes demand from the purchaser prior to completion, the government enacted a law whereby all down payments made before the completion of the property/development have to be secured either by bank guarantees or insurance policies. This is the assurance that the buyer will retrieve his invested capital from the developer should the project stall or fail.
- it is important to check with the
developer and your agent to ensure that these assurances
have been provided for. - the consumers protection act 1984,
extended by general contractual conditions act 1998,
is an ample piece of legislation enacted following a mandate of the spanish constitution to guarantee and protect the rights of consumers. - buying property in spain from a developer is easier and safer then buying from a private seller
- predominantly, the practice of purchasing property in Spain is governed by the 'off-plan' development structure which in essence, involves purchasing typically an apartment (ranging from studio to three-bedroom penthouses), prior to the actual construction of the project with stage payments made over generally, a two-year construction period.
- purchase is made after consultation with the project development staff themselves, who would show you extensive plans and often have an artists impression model of the actual development in order to help clients visualise the finished development.
- developers are restricted by several laws to what, when and how the offer of their product is conveyed to the prospective purchaser.
3. Off Plan Pricing
Properties as a rule, are priced at approximately 30% below market value, which can be attributed to:
- the two-year construction period (also the time over which your investment will mature)
- the intangible aspect of the investment ie purchase made via a plan
It is standard practice in spain, for developers to re-evaluate the market value of a new project periodically throughout construction, this is also dependent upon the unit rate of sale within the project and translates to approximately three price increases between the start and finish dates of the development. Clearly, maximum return on investment will be achieved if investment occurs following the projects initial release.
4. Off Plan Payment Structure
The vast majority of new developments follow a similar cost structure* which comprises:
- 2-4% (of property price) due as an initial reservation deposit
- 10% due upon signing of the contract (inclusive of initial reservation deposit)
- 30% divided into stage payments made over the two-year construction period
- 60% option to take on mortgage or final balance due
Although this structure
is standard, it can vary depending on the size of the project, furthermore,
some projects request larger payments over the construction period,
e.g. 2%-15%-15%-70%.
The initial reservation deposit secures the purchase of the property
selected prior to the exchange of private purchase contracts and
demonstrates that there you have a real intention to purchase. The
deposit usually amounts to between £2000-£4000 and forms
part of the 10% payment due upon signing of the contract. If at
this stage the purchaser chooses not to continue any further with
the purchase the initial reservation deposit is non-refundable and
the property goes back onto the market at its original purchase
price. The full purchase price is specified (note: prices are exclusive
of 7% VAT (IVA)) and the overall cost structure is outlined with
all payments fully detailed along with estimated delivery date.
contract signing takes place approximately 4-6 weeks after the initial reservation, this can be conducted in person, via your lawyer with power of attorney or even on your own accord by fax. This document sets out the agreed terms and conditions of the transaction and sets out the date for final completion before the notary public.
Stage payments are divided over the construction period, usually resulting in 8-10 payments and may in some cases, be relative to progressive construction stages. (note: your investment is at risk if you default on any stage payments)
Upon delivery of the property, the purchaser has the option to:
- take a mortgage for the remaining 60%,
- make part of the final payment and transfer the remaining amount to a mortgage.
- make the final payment in full.
Very often the new project
management in conjunction with a particular bank in spain arranges
a mortgage which you can choose to contract. however, there is always
the option to arrange your own mortgage, with several banks offering
very pretty competitive interest rates.
spain real estate .co.uk can assist you in selecting a bank and
opening up a bank account.
5. Completion on an off plan property
The purchase is formally completed when:
- the public title deeds of purchase-sale are signed before a notary public
- the agreed payment of the price has been paid
- possession given to the buyer.
Unless agreed otherwise, the public deed always stipulates that the property is sold free from charges and encumbrances, liens or debts and is up to date in all its payments of local contributions and community charges and is free from tenants and occupants. (note: these would not apply when purchasing a new property). Your appointed lawyer will have:
- completed all the necessary legal searches and investigations on the property
- ensured all legal guarantees for the purchase of the property and that all spanish legal requirements have been met
4 or 5 days after completion, the deed is collected from the notary's office, with the original deed, all the relevant transfer taxes are paid in the different tax offices and eventually the deed is taken to the land registry in order to procure formal registration of the title to the property. Registration is not mandatory, although highly recommended. Depending on the 'land registry' of the area, registration may take from 15 days to 3 months. The land registry will then give notice to the lawyer that the registration has been completed and the deeds are available for collection. Land registry fees are then paid, during this interval the purchaser can have a copy of the records by requesting from the notary public a 'copia simple'.
The lawyer will arrange for the transfer of existing accounts or a new connection with the local suppliers of utility services and organise a direct debit from your current account.
6. Community
Approximately 90 percent
of property sold in spain, in some shape or form is part of an 'urbanization'.
• this is usually an enclosed complex in which a number of
similar properties are located, they often have a communal pool,
garden and underground parking.
• when the developer has finished all construction on the
urbanization it is handed over to the 'community'
• all owners of property within the complex form part of the
community and usually elect a management committee who oversee the
formation of the rules and regulations concerning
the urbanization and also agree what should form the basis for the
annual community charges
i.e. costs of pool maintenance, gardener etc. and then administrate
the management costs of
the development.
• all members have equal rights and set rules and regulations
governing the upkeep of the community areas and facilities.
• there may also be provisions for satellite television, additional
constructions/facilities. community expenses currently are quoted
as being approximately £800-£1000 per year.
7. Overall Purchase Costs
Buying a property in Spain involves a large amount of paperwork, with this comes a number of costs. As a guideline, it is normal practice to add 10% to the declared purchase price of the property to cover this. A breakdown of this cost follows:
Transfer Tax
(ITP)
Before a title deed can be registered into a new owner´s name,
or a deed issued for a newly constructed building, transfer tax
has to be paid by the buyer, it can come in two forms and are calculated
on the declared purchase price on the title deeds:
- 7% IVA (VAT) and 0.5 -1% stamp duty (AJD) is payable on a new property bought from a developer or promoter
- 7% is payable on a resale property
- 16% is payable on the purchase of land.
If you buy a new property and intend to have a pool or garage built, try and have it included with the sale of the property, as if you build later, you will attract tax at the higher rate of 16%.
Land Registry Fees
In order to have the property deeds inscribed in to your name at
the registrar you can expect to pay between 120 and 300 euros, the
scale is fixed by law and is approximately 30% lower than the notary
fees.
Notary Charges
These are also set on a fixed scale by law and you should expect
to pay around 300 euros as a minimum for lower priced properties
to 900 euros for higher priced properties. This can rise quite dramatically
if other factors are included i.e. a mortgage.
Legal Fees
Probably the best investment you will make, buying without a lawyers
advice could cost you dearly
- normally charged at 1.5% of the purchase value increased by VAT(IVA) currently charged for legal services at 16%.
- you can expect to pay around 900 euros on a property purchase of 60,000 euros.
Who Pays What
Spanish laws state that unless stipulated in the contract, taxes
and fees are split between the buyer and seller as follows:
Buyer pays:
- the transfer tax or IVA
- registration fees
- notary costs
Seller pays:
- plus valia tax, which is calculated on the increase in value of the land since the last sale
- notary fees in drawing up the new deeds
- the estate agents fees
These rules are not followed rigidly and it is often the buyer who ends up footing the bill for most of them.
8. Finding the right home
Where to buy?
There are 2 main factors which should considered when looking for
the right home:
personal circumstances -family size,purpose of purchase,funding
availability,time spent in the property etc
property circumstances -size of property,price,views, or interruption
of these by a future development,ease of access, orientation, investment
value, facilities within surrounding area, associated expenses etc).
- a friend, a previous visit to the area or simply the fame or notoriety of the city, town or rural area is enough to form the choice of location as to where to buy.
- ensure
the location itself a good investment, choose locations where
the rental value of
the property is high (Costa del Sol, Costa Blanca ...generally tourist resorts) e.g. in the Marbella area, villas are easily rented out in peak season for £2000 - £10000 a month, with luxury mansions available to rent at astronomical prices. - rural
areas have lower demand for rentals, although regional authorities
are increasing
financing of many rural tourism resorts to make them more attractive. - there are specific areas which have consolidated growing visitor numbers and are viewed as areas for secure investments.
Generally speaking, spain is growing from strength to strength in terms of real estate investment and predictions are that sales will continue to increase in the following years with an estimate of:
- 4 million people will invest in property in spain.
- 600,000 european families purchasing a second home in andalucia alone in the coming years.
- an ever increasing percentage clients
buying to rent, with the view to utilising the apartment
for some personal usage if sufficient rental is achieved . - it is often enough to cover the annual
expenses for the property and thus the property pays for itself!
apartments in general rent very well during peak season and if managed well can be rented
during mid-low season.
| Off-Plan/New Development |
Resale Property |
| Safer to buy off a developer - extensive consumer legislation | Risks associated with this type |
| Investment view: more likely to make a gain when selling | Already squeezed for a gain thus potential gain less predictable |
| Opportunity to purchase a brand new, modern & up-to- date property. | May be in need of extensive refurbishment |
| Offer exceedingly good value for money - with underground parking, fully fitted kitchens, alarms, jacuzzi baths | Opportunity to purchase the property often purchased furnished: instant rental |
| Issue: buying a property you cannot see | Offer advantage in terms of already built - tangible property |
| Visualisation problems: development look, apt layout apartment, view from terrace | Can touch and view the property itself |
| Criteria/Type |
Apartment |
Townhouse/Villa |
Villa |
Countryside
Villas 'Finca' |
|
Investment |
- viewed as a secure investment | - Good investment |
- Retirement property, have life savings/value
of uk home to invest - Ideal choice for buyers with a good amount to spend |
- At times ridiculously cheap |
| Maintenance | - Value for money - Low running costs |
- Little maintenance | - High | - Often in real need of extensive refurbishment |
|
Running costs |
- Low community charges - Usually spread amongst many apts |
- Low running costs | - Subsequent higher price = increased annual running costs. | - Very low running costs |
|
Property |
- Most popular property purchase in Spain - Good rental property |
- Comparability with a proper house - Comfortable to live in - Cften offer parking in front of or on the and also a private garden. |
- Best comparison with residential property in
UK - Prices can vary extensively usually dependent on location. |
- Property often sold with large amount of land - Own utilities ie well, septic tank etc |
Location |
- Within a complex - size varies from 500 apartments to 50 apartments. |
- In a complex - More private than apartments |
- Increasingly, villas are being sold off-plan
from a project developer & as part of an urbanization which contribute to reduced general maintenance costs. |
- Rural-some distance from towns or cities and even basic amenities such as a supermarket so some form of transportation is a must. |
Privacy |
- Noisy with neighbours in close proximity | - Prospect of living door to door with other property owners |
- Detached, independent and offer the greatest privacy | - This is as remote as it gets! |