Buy Property in Spain

Now is a great time to buy property in Spain if you’re looking for a vacation home or planning a permanent move. Through the end of 2014, the average price of a home remained 30% below rates at the start of 2008, with prices in the trendier tourist areas as much as 70% below their peak. That said, the market is showing signs of life, which means this might also be a good time to invest in Spanish property. Regardless or your reasons for buying, you’ll want to make sure you do plenty of research and hire trustworthy agents to ensure that you find the property you want at the best possible price.

Steps

Deciding to Buy Property in Spain

1. Decide why you are buying. You will be looking for different things depending on whether you are buying property as an investment that you will rent out, to use as a vacation home, or to live in permanently.
   • Investment – Buying as an investment means you will be looking for properties that increase in value and which can provide rental income. Generally, this means you will be best off buying in vacation hot spots like the coasts and islands, or in big cities like Barcelona, Valencia, and Madrid. Although country homes have been rising in value of late, investing in the countryside can prove difficult because it can be hard to find people to manage your property.
   • Vacation home – You will want a home that is easy to lock and leave. You don’t want to spend all year dealing with a home that you spend only a few weeks at. Apartments and villas in developments are generally the best option for this, as the grounds will be cared for and the presence of neighbors will help to keep your property safe. Buying in popular tourist areas will also make your property easier to rent if you want to earn income when you are not using it.
   • Permanent home – You will want to look for a home and region that fits your budget and offers the quality of life you desire in terms of local infrastructure, facilities, and accessibility. So while you may long for a country home, it may not be reasonable if you also want to be near stores and other expats. You will also need to consider the local schools if you have children, and access (TGV and airports) if you wish to travel or entertain guests.
2. Be aware of the costs of owning property. Alongside price of the property, fees and taxes, there are annual taxes you will have to pay whether you move to Spain, rent your property, or use it as a vacation home.
   • IBI (Impuesto Sobre Bienes Inmuebles) is a property ownership tax set locally that ranges from 0.4% to 1.1% of the valor catastral – the administrative value of the property, often lower than the market value. Owners might pay as little as 100 euros 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 per year.
   • Wealth Tax – Over a certain amount, the net worldwide assets of residents and the Spanish assets of non-residents are taxed. There is a 700,000 euro deduction per person (500,000 in Catalonia) and a 300,000 euro deduction for the property of residents. Tax is then calculated on assets above and beyond these deductions, with the rate ranging from .2% to 2.5%. For the rate table, see here.
   • Personal Income Tax – Non-residents pay this tax based on the property they own in Spain. Those who don’t rent out their property and have no other Spanish income pay 25% of 2% of the valor catastral of the property. A property worth 500,000 euros, for instance, would pay 25% of 10,000 euros, or 2,500 euros. Non-residents who rent out their property must pay taxes on the income generated, generally 25% of the gross income earned in Spain.
3. Make sure you can legally move to Spain. If you are a national from another EEC (European Economic Community) country, then you already have the right to move to and work in Spain. However, you will need to acquire a residency card if you are retiring to Spain, moving to Spain and not working, or are a non-EU dependant of an EU national. If you are from outside the EU, you will need to apply for a residence visa in order to immigrate to Spain, and a work permit if you want to work there. The most common types of visa are:
   • Resident Visa to Retire in Spain – This visa allows you to live in Spain without working. You will need a valid current passport, proof of adequate financial resources to live in Spain without working, a medical certificate from your doctor verifying that you do not suffer from contagious diseases, drug addiction, or mental illness, and a fee of $38 to $160, depending on your nationality.
   • Resident Visa to Work in Spain – To get a working visa, you will first need to be hired by a Spanish company. They will contact the Spanish Immigration Office to request a letter approving your work permit and residency visa. When applying for your visa, you will need this letter, a valid passport, a Police Records Certificate from the country you currently live in, a medical certificate, and a fee of $38 to $190, depending on your nationality.
   • Residence Visa for Investors or Self-Employed – You can acquire this visa if your source of income will not involve being hired in Spain. In addition to the application forms, you will need a valid passport, a Police Records Certificate, a Medical Certificate, evidence of proper degree or academic title if necessary for your work, evidence that you are financially sound, and a work or investment project document showing the type of business you will conduct, projected gains, and positions to be created (if applicable), as well as a list of the authorizations and permits required to conduct your business.
4. Consider the impact moving to Spain 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.
   • 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 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. Resident non-citizens may also purchase Spanish health insurance (cost depends on income) by visiting a social security office in Spain.
   • Sometimes circumstances change, and you might find you want to return to your home country. Before committing yourself to purchasing a home in Spain, make sure you have sufficient funds to make the move back home.
5. Consider the different regions Spain provides for a buyer. The region that is right for you is a subjective decision. You may be looking for the sun, sand, and expat community of the southeast coast, or prefer a quiet rural area. Be sure to research the regions carefully, and then visit the areas you think sound promising before you start searching for property in earnest.
6. Look at the east coast for beautiful beaches and thriving expat communities. The regions of Catalona, Valencia, and Murcia contain a long stretch of coast that has been called Spain’s California because of its mild climate and beautiful beaches.
   • Catalonia – Prices Medium to High – This region includes Barcelona and the Costa Brava – the coast north of the city where the Pyrenees run down to the sea – and the Costa Dorada, the flatter coast south of Barcelona. The area is well-developed and efficiently run, with beautiful beaches and an attractive countryside of farms, orchards, and vineyards. The winters are mild.
   • Valencia – Prices Low (south coast) to Hight (north coast) – The Mediterranean coast south of Catalonia features a mild year-round climate, beautiful beaches, and a large expat community, particularly along the Costa Blanca, which runs from Denia to Pilar de la Horadada, south of Alicante. Its popularity with expats from across Northern Europe makes the Costa Blanca a cosmopolitan and varied place to live. However it also means higher taxes on new properties.
   • Murcia – Prices Low – This area includes the Costa Calida, which lies south of the Costa Blanca. The climate is very dry, and the region is not highly developed. However, both the cost of purchasing property and the cost of living are very low, making this an attractive retirement location.
7. Consider the southern portion of the peninsula for a mix of beaches and historic cities. Andalusia is extremely varied, with three stretches of coast that each have markedly different characters, and a variety of famous cities such as Seville, Cadiz, and Granada.
   • Andalusia – Prices Medium to High – Andalusia is home to the Costa de la Luz, Costa de Almeria, and the Costa del Sol. This last stretch of coast is hugely popular among British expats due to its warm climate. The Costa de la Luz is both cooler and much less developed.
8. Try the islands of Spain for beautiful locations with high tourist appeal. The pricey Balearics off the coast of Spain and the more low-key Canaries off of Morocco's southern coast are perhaps more different than they are alike, though these island destinations share the distinction of being popular vacation and retirement destinations for Spaniards and foreigners alike.
   • Balearics – Price High – Though expensive, these islands feature temperate, but seasonal weather, beautiful scenery, and high-quality housing stock. The largest, Mallorca, features great marinas, an opera house, and an international crowd. Menorca has a drier climate, with a cooling breeze that takes the edge off the baking heat of the summer. Ibiza has a reputation as a party destination for tourists, which means it is a good place to buy a property to rent out. Formentera is the smallest island with a mixture of attractive new developments and mellow old farmhouses.
   • Canaries – Price Medium – Though a bit isolated and far distant from the rest of Spain, the Canary islands have the warmest summer climate in Spain, a varied topography including mountains and sandy beaches, a large international community, and lower taxes when purchasing property.
9. Go northwest for cheaper prices. The northern interior of Spain tends to be hotter and drier, while the northwest coast is cooler and wilder. As a result, both offer good value, particularly Galicia.
   • Galicia – Price Low – Though the weather is cooler and the winters less mild than the more famous southeast, the northwest Atlantic coast has grown more popular recently due to lower costs, fewer expats, and a more rural feel.
10. Look to cities for culture, history, and ease of access. Homes in Barcelona retained their value better than the coasts in the recent downturn, while the property markets in Madrid and Valencia have recently begun to recover, making them good sites for investment. A variety of other cities like Segovia, Granada, Cordoba, Ovieda, Sevilla, and Vigo offer beautiful architecture and a high quality of life. Four cities, however, stand out as popular places to buy:
    • Barcelona – Price High – The Telegraph recently listed Barcelona as one of the top 20 places in the world to invest in property The second largest city in Spain and its cultural capital, it boasts a beautiful old town, a mild Mediterranean climate, and access to nearby beaches.
    • Madrid – Price High – The capital of Spain and the third largest city in Europe, Madrid is rich with history and things to do, though it does get rather hot during the summer.
    • Valencia – Price Medium – Known as the “California of Europe,” Valencia has mild temperatures, great cuisine, a rich history and beautiful architecture. It also offers easy access to beautiful beaches.
    • Malaga – Price Low – At the heart of the Costa del Sol, Malaga offers a charming old town center, low prices, and has recently been rated the best Spanish city to live in.
11. Do research. The best way to narrow down where you might want to live is by researching various areas exhaustively. Use the internet, magazines and books related to purchasing homes in Spain. Be sure to research:
    • The property market in the area. If you are buying as an investment, you will want to avoid areas with declining values.
    • The nature of daily life in the area.
    • The downsides and risks in that area. Is it isolated? Are taxes relatively high compared to other areas? Is it developed enough for your tastes?
    • Lawyers and agents who you might work with during your purchase.
12. Visit the area. The ideal way to do this is to rent for a few months in the area you are considering. If that is not possible, even a week dedicated to exploring the region and talking to ex-pats about their experience can be hugely helpful. Be sure to treat this as a fact-finding mission, not a vacation. Your goal is to get a feel for daily life and to meet the people who you will work with in buying property.

Finding the Right Property

1. Know how much you can spend. Get your finances in order and investigate a mortgage. You will need to do this in advance so that you can move quickly when you find the property you want. There are three options: remortgaging your current home (i.e. taking a home equity loan), borrowing from a bank in your current country, or arranging a mortgage on your Spanish property through a 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 – This is typically the cheapest and easiest solution. Releasing equity in your current home means that the second home can be purchased for cash, without the need for another mortgage. However, this is only feasible for those who own their first home outright. Also, you may lose your home if you cannot make your payments.
   • Loan in your country – Most banks that lend for purchasing in Spain will have offices there, meaning you are technically borrowing in Spain. However, it can be easier to work with a local bank. You will also need to consider the type of currency you take the loan in. If you will be living off of income in your home country, then it is a good idea to take the loan in that currency to avoid exchange-rate fluctuations that might increase your repayments. If you will be generating income in Spain – buy renting your property, for instance – then consider taking out the loan in euros.
   • Loan in Spain – Taking out a mortgage in Spain can simplify repayments, save you on the bank commissions charge for international transactions, and allow you to take advantage of low interest rates. However, a Spanish mortgage will increase initial costs, since the stamp tax you pay upon purchasing a new home will be based not on the loan amount, but on the value of the mortgage including interests and costs. This will increase the stamp tax from .5% to 1% to somewhere between 1.5% and 2%.
2. Be aware that taxes and fees will increase the listed price by around 15%. When evaluating properties, you should budget 15% on top of the agreed purchase price to cover the various fees and taxes that must be paid.
   • Legal fees – Many lawyers charge 1% of purchase price or more. It is generally more cost-effective to hire a lawyer by the hour. A typical transaction should cost 1,000 to 2,500 euros.
   • IVA (Spain’s equivalent of VAT) – This tax is 10% for residential properties that have never before been occupied, plus 1% stamp duty. The stamp duty is 1.5% in Valencia and 2% in Murcia. In the Canaries, the IVA is 4.5%
   • ITP (Impuesto sovre Transmisiones Patrimoniales) – This transfer tax is due on re-sale property. It is generally 7%, but may be as high as 10%, depending on the region where you are buying and the price. For the ITP for various regions, see here.
   • Notary and property registration fees – These range from .5% to 1%.
   • Land registry costs - The cost to register is usually around 1%.
3. Decide the type of property you want. There are a variety of different types of home available in Spain, from small apartments to large villas. What you are looking for will depend on your budget and how you intend to use the property.
   • Villa (vivienda unifamiliar) – These are relatively large detached properties with a home and grounds. They are great permanent homes, but function less well as vacation homes, since the grounds entail a good deal of maintenance year-round and their value results in higher taxes.
   • Apartment (apartamento) – Apartments are the most widely available type of property in Spain. They are ideal vacation properties, as they are easier and cheaper to manage. It is also easier to find apartments close to town centers.
   • Modern semidetached (casa adosada) – These properties are most often built as parts of large new developments, and typically feature two stories and a small private garden. They are good both as permanent homes and vacation homes, offering the privacy and space of a villa with the relatively low upkeep of an apartment. They are still rare outside of highly developed areas.
   • Village house (casa de pueblo) – These village homes are typically semi-detached townhouses. They offer a lower price, village ambiance and shops and stores in walking distance. However, they usually also need a good deal of work, particularly on the kitchen and bathrooms. For those looking for vacation homes, they are also less than ideal as it can be difficult to find property management companies in smaller villages.
   • Country house or farm house (cortijo / masia / casas rural / finca) – These properties are less expensive than coastal properties. They offer good value and idyllic surroundings. However, particularly for those who are not fluent in Spanish, they can also be isolating. They are not ideal as vacation homes or rental properties, as upkeep and management at a distance is challenging.
4. Consider the state of readiness you are looking for. There are different rules and taxes in Spain depending on whether you are buying off-plan property, new construction, or resale property.
   • Resale property – These properties are generally safer investments, as you don’t have to worry about whether or not they will be completed. Taxes upon purchase are also generally lower. However, you should be prepared to spend money on repairs and updates, particularly in the kitchen and bathrooms.
   • New construction (obra nueva) – This is the most expensive type of property, although recently rampant construction in Spain has led to a market with too many homes and not enough buyers, bringing down the price. The biggest advantages are that unlike with off-plan properties, you know exactly what you are getting, and unlike with resale properties, you won’t have to do any remodeling.
   • Off-plan (sobre plano) property – This is property for which the plans have been finalized and approved by local authorities, but for which construction has not yet finished. The benefit is that compared to completed new properties, you should get a discount of 10% to 20% off the current market price. On the other hand, you will have to rely on plans and your imagination; you won’t see the actual property you have purchased until it is finished. And, you will have to wait a year and a half or more to move in, if everything runs smoothly. It is imperative that you choose an established, reliable developer to ensure timely, quality construction, and that you do a thorough inspection to locate construction problems before completing the sale.
5. Be careful if planning to rent out your property on a short-term basis. Many who buy their property as a vacation home plan to rent it out for short blocks of time (three months or less) to vacationers in order to make income when they are not there. However, this is not always legal in Spain. In many areas, there are limits on renting property short-term, as well as on marketing private property to tourists. If you fail to comply with local rules, fines can be as high as 30,000 euros. Before you buy, seek independent legal advice, speak with a property management company, or check the rules for short-term rental at your local town hall to make sure it is permitted.
6. Choose the type of property broker you will be working with. Agents can not only find you the right property, but also guide you through the legal process of purchasing it. Remember, though: estate agents in Spain are paid by the seller, so they do not always have the buyer’s interest in heart. The best way to select an agent is through the recommendations of friends and acquaintances, followed by an interview to ensure you are comfortable working together. There are several types of broker you can choose between:
   • Corredores – These are local brokers in rural Spain who know when people want to sell and who charge very small commissions – about 1% to the buyer and seller each. Few speak Spanish or have offices, but if you are fluent, it is worth spending time in an area to seek out the local corredor.
   • Buyer’s Agents – These agents are paid an upfront fee to search for properties on behalf of clients, but unlike search and find companies, they receive no commission from estate agents, meaning they are free to show properties from private sellers. They will visit and inspect potential properties, as well as walk client’s through the purchase process. They usually charge a successful search fee of about 2.5% of the sale price.
   • Foreign-Based Agents offering Spanish Property – Look for offices that have opened their own branch in Spain. They will know much more about the local market than those who simply pass clients on to agents in Spain in return for part of the commission.
   • Foreign-Owned Estate Agents – Because there are no qualifications to become an estate agent in Spain, the numbers of agents catering to foreigners – the English in particular – has exploded in recent years. There are of course good agents, but be forewarned that in many areas, they charge excessive commissions (7.5% and up) and use pressure-sales techniques.
7. Beware of property brokers that inflate commissions. There are several types of broker that you should avoid, as they add negligible value while inflating the commission you must pay.
   • Online Property Companies – Most of these companies do not have offices in Spain or their own listings. Instead, they are marketing companies that list agent’s properties in return for a cut of the commission. As a result, they often charge inflated fees. Also, many listing are out of date. Other attractive properties are not actually for sale; they are listed only so the agent can acquire interested parties’ contact info.
   • Introducers – These are people – generally expats – who befriend local visitors and offer to introduce them to trustworthy estate agents, in return for part of the agent’s commission. Be warned: they are most likely to introduce you to aggressive agents seeking high commissions.
   • Search and Find Companies – These companies do not list their own properties. Instead, they will search for properties that meet a client’s specifications, drawing up lists of properties to be examined. They work by splitting the commission with local real estate agents, which often leads to inflated fees.
   • Multi-Listing Networks – Foreign agents and Spanish agents alike often participate in networks whereby they can show clients one another’s listings. When shown a listing, always clarify if it is from another agent, and if so, whether the commission will be split or simply increased, as is often the case.
8. Hire a lawyer. It is best to hire a lawyer before you set out to inspect possible purchases. Otherwise, you may find yourself pressed for time and be unable to properly interview and research the lawyer you choose. You will want a lawyer who is fluent in English and Spanish, and who specializes in Spanish land law (urbanismo). They can help guide you through the purchase process and inform you of the tax implications.
   • If choosing a lawyer in your home country, be sure that they have experience working in Spain.
   • If you choose a lawyer based in Spain, as for their registration number, which you can use to see if they are registered with the local bar association (Colegio de Abogados).
9. Visit the properties you are interested in. You will want to visit the property to ensure that you like both the home and the area where it is located. If it is an existing structure, consider hiring a property inspector to walk through the building with you. Take careful note of any repairs or remodeling you will need to do. If you are purchasing off-plan, be sure to carefully consider the plans and completion schedule and to talk with both the developer and locals to ensure that you are working with a reliable company.

Purchasing the Property

1. Get the accounts you need set up. To buy in Spain, you will need insurance, a fiscal number, euros, and a Spanish bank account. It is best to set these things up in advance in order to save money.
   • Fiscal number (numero de identificacion de extranjeros) – This is your identification number for tax purposes in Spain. It can be obtained by you or an agent in Spain and takes 2 to 6 weeks to acquire.
   • Foreign Exchange Account – If your funds are in a currency other than euros, you will need to purchase euros. Using a currency broker is by far the cheapest way to do so, and may save you thousands. Contact one ahead of time to ensure you get the best rate on your transaction.
   • Insurance – If you use a Spanish mortgage, the lender will help to arrange insurance. Otherwise, you will need to purchase your own insurance through a Spanish company.
   • Bank account – Most sellers will only accept checks drawn on Spanish banks, so you will need a local account. If you have taken out a Spanish mortgage, it is easiest to open an account at the bank that lent you the money. Otherwise, be careful to discuss transaction fees for international transfers before opening an account.
2. Get a translator. If you are not fluent in Spanish, you should be sure that you have all contracts and legal documents translated into English by an independent translator. You want to be 100% certain that you understand the full content of what you are signing. You can find a list of accredited translators on the website of the Spanish Ministry for Foreign Affairs.
3. Negotiate the contract. Work with your lawyer to lower the price as much as possible, regardless of the type of construction you are purchasing.
   • Off-plan property – You will want to negotiate any input you will have into the style of construction, as well as a clause stipulating that you can withhold 5% of the price at the signing of the deeds, to be paid after the developer has fixed any problems you identify in the construction.
   • Re-sale property – Negotiate the price, the undeclared value (the amount of the price to be paid under the table and not declared in the deed – try to avoid paying it if possible and never go over 10%), deadlines, who pays the plusvalia (a municipal tax on the increase in land value, usually paid by the seller), any extra fixtures included in the price, access to the property before closing (so that your architect can start estimating the cost of remodeling), and the deposit method (it is best to pay to a third party, preferably a lawyer, who will hold the funds in escrow until the sale is complete).
   • New property – Negotiate the price, undeclared value, deadlines, the pusvalia, and the deposit method.
4. Purchase the property. This is the point of no return, after which there will be serious financial implications to backing out. Do not rush into it. Before signing anything, be sure you have had your lawyer look over it. Don’t allow developers or real estate agents to pressure you into signing without due diligence. The UK government offers a helpful checklist of things to consider before signing.
   • It is recommended to visit the property you plant to purchase and to sign all the necessary contracts in person at the notary’s office, but this is not always possible. The easiest alternative is to have someone represent you as a ‘verbal representative’ (representante verbal). Soon after the purchase, you will need to ratify the representation at a Spanish Consulate in your own country or at the Spanish notary’s office when next you visit Spain. Completing a power of attorney is also possible, though not recommended.
   • Off-plan property – Don’t sign a reservation contract (which take the property off the market for 30 days) in return for a fee (usually 6,000 euros) unless it has a clause stating that the deposit will be returned if you do not proceed. The point of no return is the payment construction contract (contrato de compraventa de vivienda en construccion). Be sure to have your lawyer do due diligence before signing. This contract is accompanied by a first payment of around 25% of the price, plus IVA. The remaining payments will be made in stages or all at once when you sign the deed, depending on how you negotiate the contract.
   • Resale or new property - Your lawyer should perform due diligence before you sign a private contract with the seller and pay the initial deposit (generally 10%). Afterwards, you will have 1 to 3 months to get your funds in place. You will then transfer the remaining funds, sign the deeds before a notary, and take possession of the property. Finally, you will register your title and pay any relevant taxes.
5. Take possession. Congratulations! Now that you have the keys to your new Spanish property, you can start the process of remodeling it and furnishing it, whether for your own purposes or to serve as a rental property.

Warnings

• This is intended as an outline guide only. You should always seek professional legal advise when purchasing property.

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