Buying Property in Spain

MORTGAGES,  HOME OWNERSHIP , PROPERTY TAXES IN SPAIN

1.1). Each plot of land containing the property is subject to the rules and regulations of the local municipality, in addition to the those of the regional autonomy. This means that the ultimate use of the land is predetermined (e.g. building with x stories, maximum number of storeys; green areas, roads, maritime zones etc. Therefore, the first step would be to investigate in which zone the land/property is situated. This can be undertaken at the local Town Hall. If one purchases, for example, a 4th floor re-sale apartment, in a building located in an urban centre, which was built many years ago, the investigation regarding municipal legality would most likely be superfluous, as it would be practically impossible that such real estate property would exist unofficially, or that it could violate the municipal zoning laws. But in this case, it would be advisable to investigate the planned use of the area such as future surrounding developments.

If the plot of land has a property under construction or recently built, and generally with new developments, as well as with rustic land or land with a low building density, it is essential to get information about its municipal zoning in order to determine whether or not the planned use for such property is compatible with the purchaser's plans.

separate consideration should be taken with regard to the land adjacent to the seashore. Additionally, with regard to these types of properties, one should consult with another official body i.e. "Demarcación de Costas" (Coastal Authorities) whose offices are located in the provincial capital, as it controls panning permission for coastal zones Meanwhile, the planning information provided by the Town Hall will inform the purchaser whether or not the plot in question is located in such as zone. An advisable additional step that should be taken is to obtain a report from the Demarcación de Costas, to protect the purchaser, because in the case of a dispute between the two authorities, the Coastal Authorities' decision rules.

Building Regulations in Spain

Rustic Land Regulations in Spain (Suello no urbanizable)

Land falling into this category is also outlined on the General Plan; as already mentioned rustic land is largely found in the countryside, usually some distance from the local town in whose area it belongs.

Unlike urban land, where the rules are laid down by the local town hall, it is the regional government who makes the rules regarding the minimum size of the building plot in rustic areas. In this case the authority comes from Valencia and the law requires a minimum area of 10,000m². and in Murcia 5,000m² but where in many areas the minimum is now 20,000m²

However, rustic land may be sub categorised into three distinct types namely Protected, Restricted, or Building land. It does not always follow therefore, that because the plot is 10,000m² or greater that it will be possible to build. These categories are shown on the General Plan available in the local town hall and should be checked before any agreement to purchase is made.

Rustic land tends to be much cheaper per m² than Urban land, the problem is you need to buy many more square metres in order to have a plot large enough to build.

Area of Occupancy

This is always fixed at a maximum of 2% of the plot size
For example: on a plot of 10,000m2 it is possible to build the ground floor to a maximum of 200m2
Total Construction
This is always fixed at 4% of the plot size i.e. - on a plot of 10,000m2 it is possible to build two floors each of 200m2 making a total constructed area of 400m2.

It should be noted that these are the maximum areas of occupancy and construction however they exclude a cellar, (which may be the same area as the ground floor,) terracing, porches/pergolas and a swimming pool.

There are other rules governing the maximum height of the building. Rustic houses are restricted to two floors. Rules vary as to the height of sold boundary walls typically 1 to 1.80 metres.

Ascetic appearance

As you might expect, in order to maintain a traditional country house effect, properties built in rustic land should be designed to fit in with the country style. Such houses are commonly known as fincas. and are often clad in natural stone.
Rules regarding ascetics are laid down by the Town Hall and therefore vary from area to area. Benissa Town Hall for example has particularly stringent rules concerning the direction of the roof-line, types of windows, number and dimensions of arches, etc etc. Other towns may have less rigid restrictions.

Ownership of the real estate property

2.1). In Spain there is a registry, known as Registro de la Propiedad, which records the rights and obligations affecting each and every piece of real estate property in the Country. This means that all the significant information related to the ownership and burdens of a real estate property is chronologically and permanently registered in a database. This is a meticulous system offering absolute protection to whoever needs to validate such rights before a third party, and offers exact and irrefutable security to the purchaser/owner. And such is the case since, although there is public access to this database, only certain technically qualified people, known as Registradores de la Propiedad, may amend the contents of the database using documents and records of unquestionable authenticity.

2.2.). The simplest, fundamental right related to a real estate property, recorded in the Property Registry, is the actual ownership of such property. That is why the first fact that stands out when one consults the Registry, is the identity of the owner of the property in which one is interested. However, in Spain, like in any other country, there are circumstances that could modify, condition, restrict, etc. the rights an individual may have, including the one of real estate property ownership. For example, one could think of a mortgage in favour of a bank, or a right of way, or an embargo declaration in favour of the Tax Authorities, etc.. All these circumstances are stated in the Registry, but the analysis and interpretation of this information could be quite complicated to someone not versed in the matter. This is why it is advisable, even more so in the case of a foreign investor who is not too used to this system, to let a abogado (solicitor) handle this type of verification.

Purchase of real estate property by a non-Spanish resident

3.1.). Once a suitable property is found and the above mentioned verification has been undertaken, the property must be purchased from its rightful owner by means of a purchase agreement. Such purchase agreement must be a document signed both by the buyer and the seller before a notary public, and it is called an escritura de compraventa or public conveyance deed. It is precisely to this document that the law grants the characteristics of authenticity previously mentioned and, once signed by the seller, the purchaser and the notary (in a simultaneous act) is entered in the Property Registry. Once completed, the ownership (or purchase) is unquestionable and the position as new owners of the real estate property is irrefutable.

3.2.). Nevertheless, it is common practice to take some preparatory steps, prior to the Public Conveyance Deed, such as paying deposits in order to reserve the property, etc., initially signing only private contracts between seller and buyer, the preparation of which should be left in the hands of a trusted abogado. These contracts, which logically would oblige the parties, generally have the purpose of starting the purchase process eventually culminating in the previously mentioned Public Conveyance Deed and its subsequent registration. In order to sign these contracts, as well as to sign the Public Conveyance Deed, it is possible to be represented by an abogado, to whom notarial power of attorney has been granted (a power of attorney signed before a Spanish notary public is just as valid as one signed before a Spanish Consul or Ambassador in any country, or even the one signed before any notary public in any country other than Spain).

Important matters to mention about contracts

 With the private contract, in cases where there is such a document, or with the public conveyance deed, it is important to control all the various points. Once again, it is convenient to leave this job in the hands of an expert.

The following are some important matters to consider in order for the foreign investor to be well informed :

In Spain, the seller frequently proposes the possibility of officially declaring a price which is lower than the real one. In this manner, some sellers try to lower their capital gains tax, since is based on the difference between the amount originally paid by the seller at the time he/she purchased the property and the amount received on the current sale. However, it is easy to understand that not only is there the normal risk of violating a Tax Law, but also if one eventually decides to sell such property, one would find that since the declared purchased price was too low, the taxes to be paid for capital gains would be higher. Furthermore, an additional concern would be that when the Tax Authorities review the value given to the real estate property purchased, if they detect a substantial difference between what is declared as the price and the approximated market value of the property, one could suffer additional tax claims as well as more severe economic sanctions.

 It is important to pay special attention to the section of burdens: Meaning the burdens, loans and mortgages affecting the property in question. All contracts or deeds must mention that the property is sold free of burdens and encumbrances and free of occupants or tenants of any kind. Omitting this section could bring most unpleasant consequences to a buyer, if once the purchase transaction is completed, the buyer discovers that the property is burdened and the seller is no longer responsible. In cases where the real estate property is purchased with a burden (e.g. a mortgage that the buyer will continue paying, etc.), this would have to be specifically mentioned expressing the exclusion of any other burden.

Also one must check that the current expenses attached to the property have been paid by the seller, and up to date at the time of completing the sale. To do this, one must ask and get from the seller the corresponding receipts of at least the last two billing periods.
Those expenses are:
a) Each year's Land rate taxes (Known as Impuesto de Bienes Inmuebles or I.B.I)
b) Community fees
c) and, where applicable, services such as water, electricity , rubbish collection, telephone, etc.

Expenses related to property purchase:

Local tax on the increase in value of the land (also known as Plus Valía). One must not confuse this tax with the capital gains tax. It is calculated based on the theoretical increase in value of the land, regardless of whether or not there is construction on it. Generally, the longer a person has owned a property, the higher this tax would be, since all the annual revaluation scales would be applied on the land. Due to its characteristics, this expense corresponds to the seller. Nevertheless, it is not unusual for both parties to agree that the purchaser would pay all expenses, including this one. Therefore it is advisable to ask the Town Hall what is the amount due for this Tax in the specific case, before agreeing who would pay.

Notary's fees. In most cases, are within the range of 275 - 550 euros will be paid by the buyer,

Land Registry expenses.
The amount is usually similar to that of the notary's fees. This is a purchaser's expense.

Impuesto de transmisiones patrimoniales y actos jurídicos documentados

 (abbreviated ITPAJD) or stamp duty. In purchases between private individuals it is 7% of the purchase price, as declared on the public conveyance deed; and in purchases where the seller is a company or real estate agent, this tax is substituted by the I.V.A. (Value Added Tax) which is 7%. This is also an expense to be paid by the buyer.

Mortgages
Mortgages are available from most of the major Spanish banks and savings banks [caja], International banks Also many new properties under construction on the Costa Blanca are already mortgaged by the developer as a means to raise capital to fund the construction. A purchaser, under the direction of an abogado [Spanish lawyer] can take over such a mortgage when purchasing such a property
By agreement with the bank holding the mortgage the amount of mortgage taken can be increased up to a maximum of 80% of the valuation of the completed property
This is probably the cheapest way for an individual to obtain a Spanish mortgage, as the set up costs will have been already paid by the developer. Sometimes re sale properties are also offered for sale with a Spanish mortgage in place, your abogado, should check out the terms and conditions applying to the mortgage, if you are to consider taking it over

Important Note:

Spanish mortgages are attached to the property and written into the escritura de compraventa [tile deed], not to the person who takes out the mortgage, which is one of many good reasons to always use an abogado (solicitor) when purchasing.

Cost of arranging Spanish mortgages

Unless you are purchasing a property with a mortgage already in place [see above] the cost to arrange a Spanish mortgage will be between 1% and 1.5% of the amount advanced.
Apart from the valuation fee from around 200 euros, you will have to pay the notary costs, taxes, property registration and legal fees of the lender, these will all be itemised on you mortgage offer, and they will all be paid by the bank on your behalf.
You will also be required to take out building insurance and life insurance to cover the amount of the mortgage, you can take either straight life insurance, or an endowment style policy with the appropriate life insurance attached, which will give you a cash lump sum when the policy matures.


How much can I borrow?

As a general guide a non resident will be able to borrow 60% - 70% of the valuation of a property, residents can borrow up to 80% of the valuation, (With some key ready and new developments mortgages of up to 100% are available) the key to obtaining the maximum mortgage offer, is in achieving the maximum valuation, which is the job of the tasador (valuer).

 There are independent tasadors, some banks will accept valuations from a variety of companies, others have their own tasador, but the resulting valuations can vary considerably.
You can usually borrow up to 3 times your gross annual income, but generally the monthly repayment should not exceed 30% of your net disposable income.
On purchases of land the maximum will usually be around 60% of the valuation, which also applies to county houses constructed on land classified as "rustic"
On land which you own outright, an approved architects project, with the building license paid, can be mortgaged at up to 60% of the valuation of the completed project [construction and land]. This figure is more than sufficient to cover 100% of the building costs of normal residential construction. Lenders will not finance construction on land that already has a mortgage attached.

Employed:

Last 3 wage / salary slips.
Last Income tax declaration [P-60 in the UK] or evidence of latest annual tax assessment.
Copies of current bank statements.
Bank reference letter from your employer confirming date of employment and proof of income. [not always essential but helpful, especially if you want to achieve the highest possible percentage]
Copy of passport / certificate of residence

Self employed:

Latest income tax declaration.
Copies of the accounts for the last 2 / 3 years
Chartered accountants company report, confirming your annual personal drawings from the company
Copy of your passport / residencia
Personal bank statements.
Bank reference letter

You will also need:

In relation to a specific property, the nota simple from the property registry, offer letter or sales purchase contract, we will provide the relevant document
N.I.E. ( national identification number number) from the local police station, which your abogado will arrange.
You will also need to open a Spanish bank account, which we can also help you with.

IMPORTANT NOTE

The information above is for guidance only. For your protection our recommended collaborators insist that all property purchases, deposits etc. are made through a recommended abogado (solicitor) experienced in property conveyance, who will confirm whether the property is fully legal and that the relevant local and national rules and regulations have been applied.
NEVER PAY A DEPOSIT DIRECTLY TO THE VENDOR