Thursday, October 14, 2021

Should you buy or rent property in Spain?

 

The Spanish property market has many quirks, and it pays to do your research before buying. Factors to be aware of when buying Spanish property include property scams, high capital gains tax, and fluctuations in the property market.

The added uncertainty caused by COVID-19 means that now could be a risky time to buy in Spain. The country’s rental market is also in flux.

Before the pandemic, regional governments were looking to introduce stronger rules around people buying holiday lets, after rent prices increased significantly in areas popular with investors.

Each of Spain’s 17 regions has the power to set rules around foreign buyers purchasing properties to let out. The most stringent rules are in the Balearic Islands, where only Spanish residents can apply for buy-to-let licenses, and Madrid, where new measures include only allowing stays of up to five days.

If you’re considering a shorter stay, renting in Spain could be a more suitable option once you factor in Spain’s high levels of capital gains tax, which could offset any benefits of buying in the short-term.

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Saturday, May 30, 2020

The Costs of Buying a House in Spain

It can be a daunting prospect buying a home in Spain. A Place in the Sun Currency  has helped thousands of people to buy their property in Spain successfully. Here is his checklist of the main costs involved and the different elements you need to be aware of to buy safely.

Is Brexit afftecting the property market? Find out here.

What costs are involved in buying a property in Spain?

The costs involved in buying a property in Spain vary, depending on several factors: if it is a new build or a resale property, the actual purchase price of the property, and whether you are a cash buyer or buying with a mortgage.

You should generally allow 10-15% of the purchase price to cover all taxes and fees.

These include:

    • For a resale property, transfer tax (ITP) needs to be paid; this is usually levied at 8% across all of Spain (including the Spanish islands), but in Costa Blanca (except Murcia), this will be 10%
    • Notary fees - typically €400-€900
    • Land Registry fees - roughly half the cost of notary fees
    • Independent lawyer fees could be €1,000-€2,000
    • Valuation fees are around €350
    • Stamp duty is 1.5% of the mortgage deeds
    • Lender's commission is typically 1% of the capital loans (if you are buying with a mortgage)
    • VAT of 10%, instead of ITP if the property is new-build, 4.5% in the Canary Islands.
  • Stamp duty for a new build is around 1.5% of the purchase price.

Are there any ongoing costs?

There are also ongoing costs for any property in Spain, such as IBI (similar to a community charge), home insurance, maintenance, and utility costs. If you decide to buy to let, or plan to let your home out to tourists, you will attract an income, which can be good in popular areas of Spain.

It is important to remember that more and more local authorities require you to apply for a licence to let any property out to tourists, so you should consult your agent about this before buying a property for this purpose.

Remember that Income Tax will need to be paid on any rental income, whether you are resident in Spain or the UK.

Renting property to tourists. The ins and outs.

Beware hidden costs!

In addition to these extra costs, as a non-resident, you will need a tax identification number (NIE) to buy property. This is issued by the General Directorate of the Police, and must be used on all tax returns and communications addressed to the tax authorities.

This should be processed before completion and you are not able buy a property in Spain without one.

Maximise your budget

With all these different costs to factor into your budget, you need to ensure you are getting the most for your money when transferring funds to Spain. An experienced currency specialist can discuss your budget, exact requirements and the different costs with you and help protect your money from adverse currency rate fluctuations.

You can protect your money by taking advantage of a Forward Contract, locking in the exchange rate when favourable and at a time that suits your needs.

You can also set up a Regular Payments Plan, to ensure you know exactly what you are paying for any ongoing payments and know when they are going out.

By making use of the specialist knowledge of a currency trader, you can maximise your budget and plan with price certainty, always knowing how much you are paying in both sterling and euros.

Further reading: The Three Essential Steps to Buying Property Abroad >

If you are planning to buy a property in Spain and would like to discuss your plans with a currency expert, open a free account with A Place in the Sun Currency. 

The account is free, there's no obligation to trade, and opening an account gives you access to your own experienced trader, who can guide you through the whole process and discuss the best currency strategy to suit your needs and get the most for your money.

Source - https://www.aplaceinthesun.com/articles/2015/12/the-costs-of-buying-a-house-in-spain

Brexit and Spanish Property




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Friday, May 29, 2020

How To Buy A Spanish Resale Property

It pays to be organised when buying property in Spain. Here is an overview of the steps you need to take to go about buying a resale property in Spain in an organised way.

Once you identify a property that you want to buy things get serious. If you were to give up at this stage you would lose nothing but the time and money spent so far on the search. Irritating as this might be it would have no lasting consequences. However if you proceed to buy and get the purchase wrong you run the risk of losing a substantial amount of money, either through capital losses or extra costs, and you could end up with a property in a foreign country that is nothing but a burden to you. But if you get the purchase right, which means buying the right property for the right reasons and in the right way, you will end up with a property that enriches your life, both financially and in terms of enhancing your happiness and quality of life. Since that is the whole purpose of your purchase – to enrich your life – you need to get everything right during the buying stage.

All of the serious problems that foreign people run into when buying property in Spain are avoidable and are caused by a lack of understanding of the process and the risks. It follows that you can avoid these problems if you understand the conveyancing process and go about purchasing in the correct way. And as you approach the buying stage never forget that correcting mistakes made in the conveyancing process can be difficult and expensive, so do everything in your power to get it right from the start.

No matter how well you understand the process there is no substitute for seeking help from qualified professionals, as much of the work can only be done successfully by a qualified Spanish lawyer. Furthermore whilst we cover the main issues that are likely to affect all buyers it is important to realise that every case is different and there are exceptional issues that might need resolving in your case. Only a competent and independent lawyer can advise you as to what is necessary in your case.

Due to important differences in their respective conveyancing procedures we will look at resale properties and off-plan properties separately. First we will look at the conveyancing process when buying a typical resale property, and then point out any differences that need to be understood when buying off-plan.

Buying a resale property

Overview of process

An overview of the conveyancing process in Spain is as follows. You make an offer and then negotiate with the vendor until you reach an agreement, after which your lawyer will carry out the necessary due diligence and check the appropriate contracts. Once you get the okay from your lawyer – but never before – you sign a private contract with the vendor and make an initial payment as specified in the terms of the contract. This is the point of no return after which backing out becomes difficult or impossible without significant financial loses. You will then have time to prepare for the signing of the deeds before Notary – normally between 1 and 3 months – in which time you make arrangements such as getting your funds in place. Come the appointed time you sign the deeds before Notary and take possession of the property. The final stage involves inscribing your title in the property register, paying any relevant taxes and setting up utility connections.

In reality you may find that some stages, for instance negotiations and due diligence, can be done in parallel (at the same time) rather than in series (one after the other) or that the whole process seems to be a lot more messy. However it is important to understand the ideal sequence of events and the logic behind this, which is essentially to protect your interests. Perhaps the most important point of all is that you should never sign contracts and make any non-refundable payments until you get the all clear from your lawyer after an adequate due diligence.

It is worth pointing out that, in general, you need to take more precautions when buying from a non-resident than when buying from a vendor who is resident in Spain. It is relatively easy for non-residents to leave Spain without settling their outstanding debts, such as taxes related to the property, and some of these debts can become the new owners problem. The tax authorities and other debtors can pursue Spanish residents for their debts, but as it is far more difficult to pursue foreigners in another country they tend to go after the vendor’s previous asset – i.e. your new property.

Preparing to make an offer

If you find a property you want to buy you will need to make the vendor a serious offer, which will be the basis for your subsequent negotiations. But before making an offer you should prepare your negotiations strategy and identify and prioritise the information you will need to proceed with the negotiations.

Review your budget

Unless you have more than enough money to buy the property it is always important to review your budget (based on the property in question) before you proceed to make an offer. You may be able to negotiate the vendor down from the asking price but don’t count on it, and don’t make an offer you can’t afford. People often find that the property they set their hearts on is the one that most stretches their budget, and if this is the case you should go over your finances once again and identify if there are any unknown variables that might put the property out of your reach. This is a very important point as if you are over optimistic about your finances when you pay an initial deposit you may lose your deposit if you can’t then complete.

Be realistic about all the transaction costs if you wish to avoid unpleasant surprises. People often use a 10% rule of thumb for estimating the transaction costs but this might over or under-estimate the costs in your case by up to 2%. Try and estimate the costs as accurately as possible before you start the negotiations as they may have a bearing on what you can afford to pay. Also, never forget that you will have to furnish the property, so keep the costs of this in mind as you proceed.

Mortgage

If you need a mortgage to help finance the purchase this will have an big impact on the price that you can pay. Though 80% mortgages are possible it is more likely that you will only get 70% of the value, and the mortgage valuation that determines the amount you can borrow may be disappointingly low. If you need to use a mortgage you must consult with a good mortgage broker before you make an offer, and then proceed on the basis of conservative assumptions. You will also need to have a valuation carried out before you know exactly how much money the bank will lend you, so if you are using a mortgage you need to include this issue in your negotiations agenda.

Refurbishments

Be realistic about the need for refurbishments. For obvious reasons you should avoid buying a property that you can’t afford to refurbish property, which means thinking about this issue before you make an offer. If you judge that significant refurbishments will be necessary, but you don’t know what they will cost, then you will need to build this into the negotiations agenda.

Survey & valuation

If you want to have the property surveyed or valued before you commit you will need to build this into your negotiations agenda. Though an extra expense it is always a good idea and may put you in a stronger negotiating position, which is why many vendors reject the proposal. Unless you are absolutely convinced that the property is in excellent condition you are strongly advised to have a survey carried out. Decide at this stage whether it is something you wish to push for.

Lawyer

As was explained in the chapter on getting ready to buy you should have already selected an independent lawyer to work with. As there is still a chance that the negotiations will come to nothing you may wish to wait before hiring this lawyer and making the first payment. However the sooner you get your lawyer involved in the checks the better. If you are confident that you will proceed to buy then now is the time to hire your lawyer, which means starting to pay legal fees. In any event you will have to do this at the very latest once you have reached an agreement in principle with the vendor and before you sign any contracts.

Negotiating with the vendor

Going into the negotiations you should have your agenda, objectives and strategy clear.

Your agenda should cover all the issues you want to bring into the negotiations. Your objectives are what you want to achieve, for instance your target price and the maximum price you are prepared to pay, and you strategy determines the rational behind your starting offer and the speed and size of any increments you will concede. You should base your strategy on what you know about the property, the state of the market, and the vendor (nationality, personal circumstances, hurry to sell). With the best preparation in the world, however, there is no escaping the fact that rising markets favour the vendor (they are more inclined to wait for a better offer than yours) whereas falling or stagnant markets favour buyers (as vendors are less confident that they will get a better offer any time soon). This is as true of Spain as it is anywhere.

Generally speaking Spanish vendors can be the hardest to negotiate with. The Spanish tend to take a bloody minded attitude to the price they want and hold on until they get it, no matter how long that takes. As a group they are also in a better position to hold out than is typical of foreign vendors, who may be more impatient to liquidate their assets in Spain. The Spanish also tend to demand higher under the table cash payments (to avoid taxes), which buyers need to avoid or minimise.

Negotiations over price are not helped by the lackadaisical way in which properties are valued in Spain. Vendors often name the price they want based on what little they know of the market. They may have heard that Pepito Perez sold his house down the road for X so they ask for X plus 20%, convinced as they are that their property is much more attractive. Many estate agents in Spain simply accept the vendor’s price rather than argue for a more realistic one. All of which means that asking prices can be somewhat arbitrary, so it is important for buyers to have a reasonable idea of going market prices to guide them during negotiations.

Estate agency commission

Estate agents’ commissions are another important issue to bear in mind when formulating your negotiations strategy. In the UK estate agents earn a percentage of the transaction price but in Spain vendors sometimes present estate agents with a non-negotiable net amount that they want from the sale. They then leave it up to the estate agent to charge whatever commission they can get away with on top of this figure. Estate agents, who normally control the negotiations by virtue of intermediating between both parties, sometimes add on 10% or more, in the hope that they will end up with 5% or more. So, in some cases buyers assume they are discussing the price with the vendor when in reality they are simply negotiating the size of the commission with the estate agent. Spanish vendors are more likely to ask for a net amount whilst foreign vendors are more likely to agree a percentage fee of the final price with the estate agent (as they do at home). So if the vendor is Spanish there is a chance that the estate agent has a powerful incentive to defend the highest price possible, as every Euro above the vendor’s net amount goes straight to the commission.

The practise of adding a commission on top of a net price is far less common these days, as the Spanish property crash reduced the power of vendors to set the terms. These days a standard commission as a percentage of the sale price is far more common.

In the bad days of the boom years (2000 – 2007) when it became popular for foreigners to buy in rural areas, some agents were known to charge commissions as high as 35% on cheaper properties.

Issues to negotiate

The key issues to negotiate with the vendor are as follows:

The price

For obvious reasons you want to agree the lowest price possible.

The undeclared value

The amount of the price (if any) to be paid under the table and not declared in the deeds, often called ‘B’ or negro. This used to be a common practise in Spain, especially with Spanish vendors, with as much as 50% of the sale price undeclared and paid in cash, though 10% to 20% was more common. Since about 2010, however, the practise went into steep decline. Anti-terrorism and money laundering  drives by the authorities now make it difficult to handle large sums of cash. And since boomed turned to bust and buyers took control of the market, you don’t generally have to accept any undeclared payments if you don’t want to. The best advice is to refuse to pay any of the price in cash that is not declared on the deeds. As a buyer,  you want the full price to be declared on the deeds.

Many vendors, especially Spanish vendors, still ask for a percentage of the price in cash (referred to as ‘B’ or negro) but you should resist this as far as possible. It is a fiscal fraud that mainly benefits the vendor whilst the potential liabilities accrue to the buyer. Unfortunately it is still a common, if declining, practise in Spain, and sometimes it is just not possible to buy the property you want without paying a percentage under the table. 5% to 10% of the price may be manageable, but the more you pay, the greater the risk you take. Never agree to pay any B-money if the property has sitting tenants, and be very careful before agreeing to any B-money if you are taking out a mortgage. The overall message is avoid paying any part of the price under the table if at all possible.

Which contract to use

The type of contracts you will sign before the deeds (more detail below in the section on contracts). You may agree to skip the private contract altogether and go straight to the deeds.

Deadlines

Before you sign a private contract you will need to agree a deadline for signing the public deeds before Notary. It is common to agree a deadline of 1 to 3 months after signing the private contract. Anything less than a month makes it almost pointless signing a private contact and you could consider proceeding straight to signing the deeds before Notary

IBI payments in the year of sale

Payment of the local rates (Impuesto sobre Bienes Inmuebles – IBI) in the year of sale. This can be a complicated issue depending upon how the local authority charges the rates (annually or quarterly) but fortunately the amounts at stake are usually no more than a few hundred Euros. If the vendor agrees to pay the IBI for the year then you need to reimburse the vendor for the months that correspond to your ownership. However if you agree to pay the IBI for the year then you can deduct the IBI that corresponds to the vendor from the price of the property. The important point is to clarify this issue with the vendor in advance. Note that from the summer of 2016, vendors can pass on a pro rata share of the IBI council tax to buyers even without any prior agreement.

Who pays the Plusvalía

The plusvalía (Impuesto sobre Incremento del Valor de los Terrenos de Naturaleza Urbana) is a municipal tax on the increase in the value of the land upon which the property is situated. For an apartment that has recently changed hands this tax will be low. However for a detached property with land, in a prime residential area, that hasn’t changed hands for many years, the plusvalía could be quite substantial.

Though by law this tax corresponds to the vendor (who has owned the property whilst the land appreciated) buyers sometimes agree to pay it. However this is nothing more than a surreptitious way for the vendor to increase the asking price so you should resist any attempt by the vendor to get you agree to paying the plusvalía. If the vendor is a Spanish resident then you don’t need to discuss the question of the plusvalía unless the vendor brings it up. You can just assume that the vendor is going to pay it, unless otherwise agreed, and make sure your lawyer confirms that the private contract you sign states that the vendor will pay the plusvalía. However if the vendor is a non-resident then you definitely need to bring up the matter with the vendor. If a non-resident vendor leaves Spain without paying the plusvalía then the debt is attached to your property and you have to pay it. Therefore you have two options when buying from a non-resident: 1) Have your lawyer accompany the vendor to the town hall to pay the plusvalíastraight after the signing of the deeds, or 2) agree that you will pay theplusvalía, and deduct it from the payment made at the signing of the deeds. The second option is the best from your perspective. Whatever you agree it always helps to know how much the plusvalía will be. Your lawyer can either calculate it or ask the town hall.

Extras

Any interior or garden furniture that is included in the price. If you agree to buy anything over and above the fixed elements of the property then this needs to be agreed and listed in an inventory that forms part of the contract you sign. Be warned that upon taking possession, some people have discovered that what they thought were fixed elements (for instance fixed bathroom cabinets and shower equipment) have been ripped out. Few vendors are so tacky as to do this but it does happen, albeit very occasionally. Just bear it in mind and clarify the situation if you judge that there are any attractive fixed features that could be easily removed.

Access to the property before reaching an agreement

If refurbishments are key to your decision and you need to have them costed (and, in some cases, checked with the town hall) before you can proceed, then you will have to negotiate access to the property for an architect and or builder. Likewise if you want to have a structural survey carried out. There are no easy answers to this and it all depends upon the attitude of the vendor. However if you are supported by a ‘can do’ estate agent, and if its clear that you are serious, then you should be able to reach an agreement on this issue. If the vendor will not agree to an architect’s visit before you make an offer you should at least talk to an architect and describe as best you can the property and the refurbishments that you imagine will be necessary. It’s not much to go on but it may give you at least some idea of the magnitude of the costs you will face.

If you need a mortgage you might not be able to commit to a price until you know how much the bank will lend you. But before deciding how much it will lend you the bank will insist on carrying out a valuation, which means sending an valuer (tasador) to visit the property. The problem is that many vendors will refuse to allow a valuation before you have signed a private contract that commits you to a price, as they fear a low valuation being used against them in the negotiations. If you need a mortgage you should start off by asking the vendor for permission to arrange a visit from a tasador. If they refuse then you will have negotiate a clause in the private contract that makes the agreement conditional on the mortgage you can obtain. The worst scenario is if you commit to a price, pay a deposit and then find that you can’t complete due to mortgage problems. If this happens, and you do not have a conditional clause in the contract, you may lose your deposit.

The deposit payment method

If you sign a private contract that involves you paying a deposit of, for instance, 10% of the price, then you need to agreed a payment method that is acceptable to both you and the vendor.

The options are as follows: 1) Pay the funds to the vendor, 2) Pay the funds to the estate agent, 3) Pay the funds to the vendor’s lawyer, 4) Pay the funds to your lawyer.

Paying the funds to the vendor will of course suit the vendor nicely, but if the vendor were to back out of the sale this could make it more difficult for you to get your deposit back. Therefore don’t do it. It is better to pay the deposit to a 3rd party, such as a lawyer (yours or the vendors, but ideally yours), who can be expected to pass the deposit on to the appropriate party according to the contract and the outcome. In reality it is quite common to pay the deposit to the estate agent, which is not a problem if the estate agent is professional and trustworthy. What is a problem, though, is knowing which estate agents to trust. Therefore in most cases you should avoid paying a deposit to an estate agent.

Whichever 3rd party you pay the deposit to, try and ensure that they have a bonded escrow account that provides you with extra protection. Unfortunately few lawyers or estate agents in Spain have such accounts, so you may have to make do without this protection. Whichever method you agree with the vendor make sure you have the necessary bank details to make the payment on time.

 



















Monday, May 25, 2020

Make your Spain property purchase a success



Successfully buying property in Spain means doing plenty of prior preparation. As a buyer, you need to be up on all aspects of the purchase process. This can range from knowing the requirements of Spanish laws through to dealing with international finances. That’s where we come in.

Spain Property Guide is written by property experts and expats who have gone through the same process as you are now. You’ll be able to access their expertise on a wide range of topics, all gathered in one place.

Topics include:

  • Finding the right property for you
  • Navigating the Spain property buying process
  • Dealing with Spanish law
  • Currency and financial matters
  • Local Spanish customs
  • Getting to grips with the language.

With all this information collected together in a single place, Spain Property Guide is your one-stop shop for a smooth, stress-free move to Spain. Get your copy today to start the process of making your dream of living in Spain a reality.

Take advantage of the experts’ help with buying in Spain

At Spain Property Guides, we have helped thousands of people like you buy their dream Spanish property over more than a decade. In our experience of the property-buying process, we know that the most important element is having a trusted team behind you.

We know that the most important elements to buying a property are the people. You need a trusted real estate agent, an expert currency specialist and an independent solicitor.

Having these experts on your side from the beginning of the property buying process will provide you with specialist, targeted help with buying in Spain.

However, finding the right people isn’t easy. You don’t want an estate agent who will just push any property on you, or a currency specialist who doesn’t care about the risk to your money.

That’s why we’ve built up a trusted list of contacts over the years, whom we’re delighted to share with potential buyers. We know from long-standing relationships that they offer impartial, carefully considered help with buying in Spain – and won’t just push you to a sale. Within the guide you can find information directly from those expert partners and services so you get the full picture of what you need to consider when buying in Spain.

How Brexit could impact you

You’ll find a wealth of information on how Brexit could impact you as a Spanish property buyer within our guides, newsletters, articles and through our Property Resource Team. They’ll cover everything from:

  • How will Brexit affect residency laws?
  • Will I still have access to Healthcare in Spain?
  • What happens if there is no deal by the Brexit deadline?
  • Will I be free to travel back and forth from Spain to the UK?

What to buy in Spain?

Spain really does offer something for everyone – whatever style appeals to you, you will find it here. You can find fincas, farmhouses, beachside apartments, stone village houses or villas set in landscaped gardens in Spain. There’s something to suit every need and budget in the varied Spanish property scenes.

Finding your dream Spanish property

Spain is an extremely varied country, with wonderful beaches, mountains and countryside. Most Brits and other nationalities from the North of Europe head straight to areas close to the beaches. When you move to Spain, you have so many options to choose from.

It is easy to see why many expats choose to make their home in Spain close to the sea and sand. It’s also important to remember that the properties in these locations will usually be more expensive than those found inland. By driving just twenty minutes inland, you’ll find houses and apartments which are much better value and have more space. These could be in a small village or town, or on an urbanisation, built to cater for locals and foreigners alike. It’s important to assess all the options and their pluses and minuses before you make a decision on where to place your roots.

Which is the best region of Spain for you?

Spain has a wonderful choice of locations and property types, so we are confident that you will be able to find the home that’s just right for you – and maybe your family. It’s just a question of writing down what you need, how close you want to be to a town or shops, whether you want to drive or not and how much the overheads will be. To help your decision, our expert Property Resources Team are always on hand to help and you can access a range of the latest and greatest information and news about the regions of Spain.



















Should you buy or rent property in Spain?

  The Spanish property market has many quirks, and it pays to do your research before buying. Factors to be aware of when buying Spanish pro...