HOW TO BUY A HOME IN SPAIN Understand why Spain is a good real estate choice. Spain is one of Europe’s most attractive countries, with much to offer those who settle there, as the hundreds of thousands of Britons who have bought a Spanish property in the last three decades can bear witness. In recent months, there has been a slowing down of the property market, owing in part to the over-purchase of some Britons acquiring too many off-plan properties and then having problems completing on them. This has led to a surplus of apartments and villas. Other issues that have been well-publicised in Spain revolve around the granting of illegal licenses for property development in certain parts of the country and corruption at the highest levels of local government. However, property in Spain will always be popular with British buyers who are looking to relocate or who are buying for lifestyle reasons. While investors may choose to look elsewhere in the world, Spain remains one of the best countries in the world for a relaxed way of life. Consider the different regions Spain provides for a buyer. Spain still has much to offer the property purchaser, from small apartments and fincas to palatial frontline beach properties and golf villas. Popular locations in Spain include: THE COSTAS Since the 1960s, when Britons first started travelling to Spain, the Costas have been among the most popular destinations. During the 1970s and 80s, Marbella, among other resorts, became very shabby, and it took the arrival of Mayor Jesus Gil for it to clean up its act. Many areas along the Spanish coastline have since followed suit, and today things have changed very much for the better. The Spanish islands – including the Balaeric and Canary Islands, have long been popular tourist destinations, and are proving to be great locations in which expats can settle. In the Canaries in particular, the climate stays warm and sunny throughout the year, but anywhere in Spain is likely to be warmer than the UK for most of the year. SPANISH CITIES Also, in recent years there has been more interest in Spanish cities as destinations for leisure property, as well as being a good investment to rent out to tourists on short city breaks. The arrival of low-cost airline flights to many of Spain’s cities has opened up the tourist market, while student properties near universities are also popular investment properties. THE BALEARIC ISLANDS House-hunters should consider Mallorca, Menorca, Ibiza and Ibiza’s little sister, Formentera. The four islands have very distinctcharacters. Mallorca is the grownup of the family, with its Opera House, the castle in Palma that King Juan Carlos uses, and its international smart set. MENORCA Menorca has a much drier climate, with a cooling breeze that takes the edge off the baking heat of the summer. The island has always pursued an independent path, thanks to its production of leather goods and gin. IBIZA For a while, Ibiza had a reputation for cheap tourism that did nothing for its image. However, there has been a crackdown in the last couple of years, and now it is following Mallorca’s example of improving what it offers to those buying a home there. FORMENTERA This is an ideal getaway destination. It is quite possible to cycle around the island in a day, passing a mixture of attractive new developments and mellow old farmhouses. COSTA BLANCA One of the most popular Costas with British buyers, but is by no means a ghetto for fish ‘n’ chips and Robin Hood pubs. Its popularity with expats from across Northern Europe makes the Costa Blanca a cosmopolitan and varied place to live. This is reflected in the diversity of the town along the coast – from the brash but established bright lights of Benidorm to the classy sophistication of Moraira and the family resorts of Javea and Denia, there are so many different types of towns along the coast and also running parallel to the coastline inland that there really is something for everyone on the Costa Blanca. Consider the ease of transportation available. If you want to visit your property, you need assurance that you can reach it easily. Alicante airport has served the area for years, and is now supplemented by the low-cost flights landing in Valencia at the northern end of the Costa. This gives tourists and property buyers great access to the region throughout the year, and with the Mediterranean motorway running alongside the coast for virtually the whole length of the Costa Blanca, moving around within the region is also easy. COSTA DEL SOL This is probably the best known of all the Costas, the Costa del Sol runs from Nerja to Gibraltar. Its name reveals the secret of its popularity. It really is the Coast of the Sun, with a climate that has drawn people from the four corners of the earth for some 40 years. In fact, there are times when visitors to Marbella must wonder whether they are in Spain or some international resort set on its own. There is an enormous amount to see and do along the Costa del Sol. This is an area of tourist resorts and white villages, and it is the latter that many people fail to visit. Casares and Manilva are just two excellent examples. The Costa del Sol is an amalgam of so many cultures and lifestyles that the only way to appreciate it is to go there. BUYING A PROPERTY IN SPAIN Be aware of what is involved in the purchase process. Before you begin the purchase process, you will need to obtain a fiscal number (numero de identificacion de extranjeros). You should also retain the services of a lawyer who speaks Spanish and English. In the case of an off-plan purchase, you will be asked to sign a reservation contract and pay a small fee, at which point the property will be taken off the market for a limited period (usually 30 days). This allows time for legal checks to be carried out and a contract of sale (escritura de compraventa) to be drawn up, and for you to make the first of a series of payments (known as stage payments, because they are made at agreed stages of construction). This first payment is normally 10 per cent or more of the purchase price and is non-refundable. In the case of a resale, once your offer has been accepted, you pay a small deposit. Your lawyer then carries out the necessary legal investigations. When these are complete, you sign a contract of sale, which states the price and what it covers, the deposit (generally 10 per cent) and when you will pay it, and the date of completion. Should you breach the contract, you forfeit your deposit. Should the seller breach it, they must pay you twice the amount of the deposit. Once completion has taken place, various fees and taxes are payable, and the property is then registered at the Land Registry. Some sellers of resale property in Spain will encourage you to under-declare the value of the property to the authorities, and pay a proportion of the price in cash in order to secure a slightly cheaper price. This is illegal, and is done purely so that the seller can avoid paying part of the capital gains tax that they will owe on the property. Not only is it possible to be prosecuted in the new climate of clamping down on illegal real estate practices, but you will be liable to pay the capital gains tax on the full amount of the difference between the declared value at the time of purchase and when you sell the property. If sellers insist on taking cash ‘under the table’ walk away from the deal. UNDERSTAND THE COSTS INVOLVED As a yardstick, anyone buying property in Spain should allow between 10 and 14 per cent on top of the agreed purchase price for the various fees that must be paid. The buyer pays: Legal fees (usually between 1 and 2 per cent) IVA (Spain’s equivalent of VAT) at around 7 per cent, plus stamp duty of 0.5–1 per cent, on a new property, Stamp duty at 6–7 per cent (depending on the property’s location) on a resale Notary and property registration fees of about 1 per cent If the property is located within a complex, there will be maintenance charges. These will usually cover such costs as swimming pool and garden upkeep. Learn the ins and outs of Spanish property mortgages. There are two main options for using a mortgage to fund your property purchase. These are remortgaging your UK home or arranging a mortgage on your Spanish property through a UK or Spanish lender. Bear in mind that an overseas mortgage may incur higher set-up costs (sometimes 3 to 4 per cent of the amount borrowed) and that Spanish lenders will not be interested in doing business if existing loans exceed 35 per cent of the borrower’s income, as is the case in much of Western Europe. Remortgaging offers the easiest solution. Releasing equity in a UK property means that the second home can be purchased for cash, without the need for another mortgage. However, this may only be feasible for those who own their first home outright. Several UK mortgage providers will lend funds of up to 80 per cent of the purchase price for second home purchase over, typically, a 15-year term. Euro mortgages, which are tied to the rate set by the European Central Bank (ECB), currently lower than the Bank of England base rate, may seem an attractive option, and several UK lenders offer them. However, because of the volatility of the currency markets, a euro mortgage may not be the best option for many people, who cannot afford to lose heavily should the currency move against them. The self-employed are seldom eligible for a euro mortgage, as comparatively few European lenders will consider self-certification of income. The fact that the ECB’s base rate is at present lower than the Bank of England’s does not guarantee savings on repayments for those taking out a euro mortgage. As the UK mortgage market is competitive, there are many good deals available on sterling loans, so it is wise to shop around. As exchange control is a complex subject, it is advisable to obtain appropriate professional advice before deciding to take out a mortgage in a foreign currency. Be thoroughly aware of the taxation on property in Spain. In Spain, taxes are levied by three tiers of government: central government, autonomous regional governments and local municipalities. The Spanish tax system is particularly complex, and you are strongly advised to seek professional advice tailored to your individual circumstances. Personal taxation: non-residents – Non-residents are taxed at a flat rate of 24 per cent on their Spanish-sourced income – for example, rental income from property in Spain, income from a business in Spain and interest on funds deposited with a Spanish bank. Those who own a Spanish property exclusively for their own personal use and have no other source of taxable income in Spain pay a version of income tax called imputed income tax, which is calculated on the property’s valor catastral, or rateable value. Although they do not earn an income from the property, the Spanish authorities take the view that they nevertheless derive a benefit from owning it, and should be taxed accordingly. In addition, non-residents are liable for patrimonio (wealth tax) on their Spanish assets, including property, and for capital gains tax should they dispose of an asset at a profit. LOCAL TAXES The impuesto sobre bienes inmuebles (IBI) is an annual property tax levied by the local municipality and used to fund local services. Like imputed income tax, it is calculated on the valor catastral, so it varies widely from one property to another. Owners might pay as little as 100 euros (£68) per year for a small country property, but a luxury home in an expensive development on the waterfront in Marbella might cost as much as 3,000 euros (around £2,000) or more per year. Be up to date with money matters. In 2002, Spain exchanged the peseta for the euro. The current rate of exchange is one euro = £0.78 sterling. The import and export of local currency is unlimited, but the export of amounts exceeding 6,010 euros (£4,087.40) per person per journey, in any currency, requires a declaration to the authorities. Travellers’ cheques are normally acceptable in Spanish cities and tourist areas. To avoid additional exchange rate charges, it is best to take euro travellers’ cheques. There are banks and ATMs in every city and town, and in many villages. Bureaux de change can be found in larger towns, cities and tourist areas. Virtually all credit and debit cards are widely accepted throughout Spain. SORT OUT PASSPORTS, VISAS AND RESIDENCY PERMITS. Passports and visas – EU passport holders visiting Spain for business or pleasure for up to 90 days do not need a visa. Residency – With the incorporation of Spain into the European Union, the residence card became the only formality required for EU citizens to take up residence in Spain. Spain has recently relaxed the rules on residence cards for EU nationals. They are now compulsory only in the case of pensioners retiring to Spain, people of independent means (that is, who are not working) and non-EU dependants of an EU national, all of whom must be able to demonstrate sufficient means to support themselves and, if applicable, their families in order to obtain resident status. There are two categories of residence card, the temporary residence card (valid for stays of between 90 days and a year) and the residence card (valid for stays of between one and five years, and renewable thereafter). Even those who come under a category where a residence card is not compulsory may find it useful to have one, as it can help to simplify various administrative procedures for new residents. To help with the paperwork, it may be worth employing a gestor, a consultant who specialises in guiding clients through the minefield of Spanish bureaucracy and takes care of all the relevant paperwork. Ask to see the total cost, in writing, before authorising a gestor to act on your behalf. 9Keep informed about the health of the Spanish economy. With the passing of Franco in 1975, Spain changed almost overnight from a nation whose economy was rooted in agriculture to one with a strong manufacturing and service base. Probably the biggest problem that hangs over the country from the days of El Caudillo (Franco) is a bureaucracy that thinks it is still in the 1960s. Spain’s economy today ranks around fifth in the EU and accounts for slightly less than 10 per cent of the EU’s output. Catalonia and the Basque country are the driving forces of the economy, and it is worth noting that just five of the provinces produce over half the country’s industrial output. These are Oviedo, Navarre, Madrid, Vizcaya and, of course, Barcelona. In fact, around 85 per cent of the Catalonian-based companies are located in Barcelona, making it the driving force for the country. 10Be aware upfront on the impact this will have on your life. Buying a home in Spain is a major, and life-changing, experience. Think carefully before making any decision and ensure that your family is behind you. Research is vital. Choose the area you’re most interested in, and then take several holidays there. Once you know which area and property you’re interested in buying, be certain you have enough funds for the purchase. Don’t forget to consider such aspects as the cost of moving your possessions from the UK to Spain. Don’t be rushed into making a decision, and don’t let yourself be pressured. Certainly don’t sign anything until you’re ready. Pensioners should make certain that they can have their pensions paid into a Spanish bank. It’s most important that your have health insurance in place and that you make a Will. Sometimes circumstances change, and you might find you want to return to the UK. Before committing yourself to purchasing a home in Spain, make sure you have sufficient funds to make the move back to Britain.
Posted on: Thu, 26 Sep 2013 07:40:26 +0000
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