So you're thinking of buying a property in Spain?
Good idea. I'm sitting here on the Costa del Sol, looking out over a lovely sunny green landscape, with the sea behind me and the mountains in front. It hardly rained at all between 7th December and 20th February. Got to admit it's made up for it in the last week though, but hey! we need the water and know that the sun and warmth will be here again soon. You too can have some of this.
Buying in Spain is really not very different from buying a property in Scotland in that everything is negotiable. The bad side of that is that there is no 'big brother' looking out for you, it's in a foreign language and once the deal is done you can't go back and change things. So, you miss the property you really wanted because you needed to be sure there was no huge debt attached to it. There are plenty of others available so don't be bullied by anyone, including your partner, into signing before you have all the answers you need. Look after 'number one'. It's what everyone else will be doing at the end of the day. Get things confirmed BEFORE you sign up and pay your money. It's what you would do here! Below is a list of the processes and probable costs. Become Informed.
Best way to find out about a location, how to get there, what properties are available, who is marketing them, who is offering to advise, who is offering money, where the schools are and a million other useful things. But remember, they are all selling something! - Cost £0.00
What price range
How much are you going to spend on the property? How much will be yours and how much borrowed. A second mortgage on your Scottish home should be easier to organise than a mortgage in Spain and keeps the repayments in the same currency and economy as your earnings. - Cost of checking £0.00
Many scheduled and chartered flights from all the main airports in Scotland, plus linking flights to London with some of those ridiculously cheap deals. A direct flight saves hassle though so its economy v energy! Estate agencies will also offer 'free' flights, but these can be linked to buying a property through them. Do you want to be kidnapped by being obligated to them for the 3 days there or be able to do things in your own time? - Cost £0 - £250+
Don't leave your brain on the plane! At all times use common sense. You are not going on holiday, your going to spend what could be the largest amount of money you ever will do in your life. It's business. Should also be a pleasure, but don't switch off into holiday mode. You can do that once you've bought. Be alert and check everything that happens and that you are told. Take notes, photos, business cards, leaflets, everything that could confirm and remind you. Be realistic. If it is too good (or convenient) to be true, check it again!
Do hire a car if at all possible as that gives you freedom to roam independently. Driving on the 'other side' comes surprisingly easily. If you know that you want to want to buy in a particular town or village however, it may be better to avoid parking problems and use taxi, bus or train (all very handy at Málaga airport) to get there and hire only when you need a car. - Cost £2.50 by direct bus to Marbella to £50+ by taxi to Estepona.
Try to stay as close as possible to where you want to buy the house so that you can experience the best and worst of the area. Hotels are good and plentiful, as are the Hosteles and Pensiones that can be excellent value-for-money without the frills. You are going to be out looking at property all day and sampling the local restaurants and bars, so why pay for fancy facilities? Better still, rent a self-catering apartment and that will show you really what living there is like. Charges usually per room not per person, especially when nothing else included. - Cost £15 - £500+ per night.
Petrol is cheaper than UK and diesel even more so. Car rental depends upon the car and try a good local agency as they are usually cheaper than the international ones. Most will let you pick-up and drop at the airport. Food is plentiful and cheap from supermarket or restaurant. But, like anywhere, there are economy and deluxe alternatives. If with an estate agent, they will drive which will let you concentrate on looking around. They may also buy you meals and generally stick with you almost 24 hours a day to make sure that you don't go off with another agency! Cost - depend upon how far you go and how much you eat!
Everybody in property can get paranoid, imagining that somebody is trying to con or cut them out of a deal. Be alert, but keep a sense of proportion.
Don't spend all your time looking at property, also talk with advisors early on, of whom the main one should be a lawyer. Make sure he/she speaks English and that he has adequate assistance who also speak English. Also that he specialises in property, but doesn't act of the developer of the place you are going to buy! Professional ethics and standards vary much more than in UK. Again, be alert. - Cost - Assume 1% of the full buying price.
The lawyer should also assist you as to how you want to own the property. Just yourself as an individual, or through a Spanish or Off-shore company set up for that purpose. It may be that the seller owns in this way and you are buying his shares. You need accurate and current advice on this with reference to your own circumstances. With the significant changes that are occurring now in international tax and financial clarity, the wrong decision could be very expensive in the future.
Becoming officially Resident in Spain can also make a difference. If you are resident you will be able to get a larger % mortgage from the Spanish banks and it will make buying cars and other items much easier. You can also avoid some taxes specially targeted at non-residents to catch tax evasion, but have to pay other normal Spanish taxes.
Get your NIF, which is your fiscal identity number as soon as possible and again your lawyer will be able to arrange this. Without it, you cannot buy anything of note nor even open a bank account.
Modernising very quickly and most have English speaking staff and offer competitive mortgage deals. They can still be very offhand in a frustrating way, however. Many UK lenders are now also based in Spain or Gibraltar. You'll need the bank first though for expenses and deposits so check them out. Remember that they are there to make money from you. Convenience to where you will be living is probably best and it is easy to change banks if you have to. - Costs - there will be regular transaction charges and these can be higher than UK.
There are costs of setting up a mortgage and one bank's (Cam Bank) schedule is shown below. But remember that everything is negotiable, even if it means saying "No thank you" and going elsewhere.
|OPENING COMMISSION||2% OF THE MORTGAGE|
|LAND PROPERTY REGISTER FEE,APPROX.||300€ euros|
|NOTARY FEES.||APPROX. 450€ euros|
|TAX.... (I.A.J.D.)||APPROX. 1% OF THE MORTGAGE|
They can save days of research and thousands of pounds by knowing the special offers and which lenders are keen at the time. But remember they are there to make money and will only do so if you borrow through them.
Money Transfer Agencie
If UK was in the € euro ….. there would be no need for them. If the amount you are going to transfer is large enough, they can be much more economic than simple bank to bank transfer of the price.
Local Surveyor or Independent Property Valuer
Not many of us around and ideally he shouldn't be an estate agent as there could be some conflict of interest at some time, no matter how professional they are. He can advise on problems and be ready to inspect a property quickly. The right one should be independent of all banks, owners, developers, etc and only act for you.
Take the time to ask for advice, listen to it, think about it and act upon it. Most times it comes from experience of what has happened to others before. It need not cost you anything, but can save you £1,000's. Chose your level of risk. Do it all yourself in innocence or accept help and advice and at least have somebody else to be shouted at if anything goes wrong!
Put a value on your own time. If somebody else can do something for you in half the time and with double the accuracy, seriously think about what you could be doing while they are doing that. Delegate and out-source as in any business. Again though, be alert.
Everything is negotiable. Everything! So don't just accept the first offer. Ask, compare and question. Be alert!
They need to make the deal go through as that is the only way they will get paid. Most agents are hard working, knowledgeable and conscientious. Some in the larger agencies are on call 24 hours a day, 7 days a week and making big money. So they don't want to waste time. At the end of the day, they are there for the commission they will only get if they are the first person to introduce you to the seller and the property and you buy it, even
if it has problems or is not what you were really looking for. NOTE 8
Ask questions all the time and get the important answers confirmed in writing and/or by somebody else. Suing afterwards is not nearly as good as avoiding the problem in the first place. The uncertain agents will show you as many properties as possible, whilst those more experienced will have targeted you at a few that they consider most suitable for you. Be aware though that the agents decision process may be more towards the ones that give him the highest commission rather than meeting your needs or your pocket. Arrange to meet agents, but on your own terms. You need them as they know all the 1,000's of properties available and you can't possibly find everywhere on a 2-3 day trip. They need to have basic details of what you want and some time to research a list of matching properties so
The Agent should be informed and keen to help. So they should be as they will be seeing you as a commission of up to 10% of the price should you buy through them! Remember, even though they will be wanting to generate goodwill and answer all of your questions honestly, they get nothing if the deal collapses. You need the whole story and not just the convenient part.
Despite the terminology used locally, the seller is their client not you as he is the person who pays their commission. Remember though that it is you that actually gives the seller the money to do so as it is added to the price in the first place!
Many properties are listed with more than one agent and the prices quoted can vary substantially. Sometimes the owner does a deal with the agent that the owner will accept a fixed price and the agent can keep whatever he negotiates above that. Try to talk with the owner when you are viewing the property and find out what is their base price. Everything should be out in the open if possible.
Don't be bullied by agents or owners. Theirs is not the only property in the Costa.
You've decided on a property. Now what? The agent will most probably have a provisional contract that will summarise the deal. You will be obliged to pay an immediate deposit of up to 10% of the price, but don't sign anything until you've talked it over with your lawyer.
If it's not written in the contract its not in the deal. If you want it to be subject to a survey or you getting a mortgage or your lawyer checking that the person selling really is the owner and that you will take on none of the previous owner's debts, make sure that it is written there.
Negotiate as to who is responsible for costs. Don't agree to pay the plus valia tax as that is a local capital gains tax and you haven't made any gain (yet)
Don't get involved in 'black' and 'white' money. Make sure that the whole price is declared. Otherwise, all you do is take over somebody else's tax liability, possibly save yourself a few euros in transfer tax and then risk being found out by the tax authorities and heavily fined. They are very active in checking that properties are registered as being sold at realistic values and have the power to charge you extra tax and fines if they feel that it should have been sold for more. You can appeal, but life is short and the taxman can go on forever!
Ensure that any deposit paid is put into a client account by the agent or developer and NOT given to the property owner. You are due a double refund if he pulls out and just a refund if you pull out due to real problems with the property or its title. However, if the owner has the money, sells the property to somebody else and disappears, who are you going to chase? The agent will probably be chasing the disappeared owner for his fee too! By law, developers must also put the deposits in separate client accounts.
Everything should now be handed over to your lawyer for him to do the appropriate background checks. These are many and serious.
Many bills, especially taxes, relating to the property attach to the property and not the owner. Thus the owner, whoever he may be when the taxman comes calling, is responsible for all back debts for 5 years no matter whether he was the owner for all that time or not. That is unless he can sell on to some other unsuspecting person! However, that does not apply to the water, electricity or telephone bills, but having a house with a bad history will not speed the connection or service!
You have to get all your funding sorted out. Your lawyer may ask for an advance to cover costs and fees he has to pay on your behalf. He may have been left with these by others in the past, especially from outside Spain, so be understanding. But make sure you get a receipt that details what it's for. Never assume that anything is being done by any of the advisers, agents, banks or owners if you haven't chased that week! People are very busy so remember
It's the squeaking wheel that gets the oil. Keep in regular contact with everybody to make sure that things are progressing and being co-ordinated. Better the cost of a phone call than interest or penalty payments due to delays. Or even losing the property and having to start all over again.
You should also talk with the president and the administrator of the community in which 'your' property lies. Nearly all urban properties are in one and you have no choice. They run the common areas around your property and with apartments can have a major influence on all that happens immediately outside your door. Check about back debts of the community, both to the utilities and by individual owners. A strong community will have fewer debts and probably lower annual costs than one that is sloppily run. A good community can add significant value to your property. And remember, many debts 'belong' to the property not the individual so make sure that they are all cleared before you take ownership.
Plan on the total costs of the purchase being approximately 10 - 12% of the purchase price. Huge I know, but the government get most of it . Here is a brief summary.
- If buying from a developer, IVA (VAT) of 7%. If a private sale Transfer Tax of 7% in Andalucía and 6% elsewhere.
- Stamp Duty - 0.5%, but 1% in Andalucía.
- Notary Fee - depends upon a number of matters, but say £400.
- Property Registry - a similar amount, say £400.
- Plus Valia - a local capital gains tax that varies according to the gain. Should really be paid by the seller. He is the one who made the gain!
- Lawyer's Fee - Say 1% of value
- Other advisors - varies according to whether you use them or not.
- The Estate Agents fee is usually paid by the owner. If there isn't an agent, negotiate down the price. If you have a consultant negotiating on your behalf and being paid by you, again he should negotiate the normal agents fee off the price.
- The mortgage costs mentioned above are in addition
The majority of these will have to be paid at the same time as payment of the purchase price, which is done at the time of the signing of the Deeds in front of a Notary. Your bank and lawyer and the agent will all know how it should be done, so follow their advice. On the day there is usually much waiting around, shuffling of paper across the table and cheques going here there and everywhere (the agent will usually want paid by the seller at the same time).
Remember that the Notary is only checking that things are being done according to the law The contract doesn't have to be fair, it only has to be legally correct. He doesn't act as an arbiter protecting the interests of either party.
So, now you are the owner. Your lawyer or the after-sales department of the agent should help you with contracts with water, electricity and telephone companies. Many also have services that can help you with furniture and all the small things that can turn a house into a home. OK, they may not take you to the cheapest place and they will be getting commission from the shops from which you buy. However, if they are good, their experience and contacts can 'plug' you into the system and remove a great deal of the stress. Remember to value your time and balance that against the extra that you might have to pay.
The annual costs can vary so greatly according to where you are and how the property is used that I can't give figures. The main headings which you should ask about for each individual property are:
- Community costs - usually paid monthly by Standing Order.
- IBI - Local taxes similar to the former UK rates system and levied on a value (Valor Catastral) that is placed on every property. Usually not as high as UK community charge.
- Basura - rubbish removal. Usually very low.
- Imputed Income Tax - only if you are non-resident, when it is 0.5% of the VC
- Wealth Tax - can affect both resident and non-resident. Approx. 0.2% of the market value
- Offshore Company Tax - If your property is owned by an offshore company there will be a special tax of 3% of the VC, but the other two taxes are avoided.
Come out here and enjoy yourselves. That's why you bought the place and what the Costa's and the Spanish are exceptionally good at. Much of the time it really is like Scotland with sunshine. Come and see it outside the three scorching summer months and you will see a green and pleasant land with flowers to the horizon. And try to learn some Spanish. Its good for the brain and will add greatly to your time out here.
You must check every item yourself before taking action. This is only a very brief outline of the process and there are many gaps and exceptions. Survey Spain have provided this information in good faith, but do not guarantee its accuracy and are not liable for any errors or omissions.
Campbell D Ferguson
F.R.I.C.S. Chartered Surveyor
00 34 952 923 520