Property in Spain Information Centre
BUYERS' GUIDE 2008
With 23,000 carefully researched words spread over 15 chapters, this is probably the most comprehensive online guide to buying a property in Spain...but the publishers advise all buyers to use the details as a checklist on the actions and safeguards to be taken and to use this knowledge in discussion with your own Spanish solicitor and financial advisor.
This guide is to assist you in realising your goals, budget and buying timetable. Read each relevant chapter carefully, note the legal and real estate terminology because it will come in useful during the purchase procedures. Many buyers print out the Property in Spain Buyers' Guide to compile their own hard copy reference to help provide a hassle-free purchase and early enjoyment of property ownership in Sunny Spain...
01-INTRODUCTION: BACKGROUND BRIEFING
If you are thinking of buying in Spain, you will not be alone as successive surveys shows it remains the number property buying destination in the world.
Whilst in the early years most properties were bought as holiday homes, in recent years around two-thirds have been for retirement, but as younger people are becoming increasingly affluent, the demand for holiday homes is again becoming more important. In the Spanish property market, German and English people each account for around 30% of the total; France & Benelux account for around 7% each; and Italy and the Scandinavian countries around 5% each.
Around half the properties were owned by foreigners who had obtained residencia in Spain, and the other half by non-residents. In earlier years, many foreigners bought property through an offshore company, but (with certain exceptions) the latest changes in taxation encourage foreigners to obtain residencia, and buy in their own names.
New house prices in Spain rose by 13% in 1999, 14.8% in 2000, 18% in 2001, 18% in 2002 and 17.8% in 2003. In less than a decade prices have doubled, so it is no surprise that 2007-2008 has seen a slowdown in property equity growth and a subsequent switch to a buyers' market.
For new properties, in 1987 the average price per square metre (the normal way of comparing prices in Spain) was €420, and for existing properties, €270; during the boom years to 1991 this roughly doubled to €841 and €631 respectively. But then, after the stock market crises and the rise in interest rates, these prices fell to €721 and €571 respectively by 1994. As in the UK, during 1999 average prices had once again passed their earlier record high, reaching an average of €946 for new properties. In some sought after areas it reached €1,750 per square metre.
Over the following seven years it more than doubled to around €4,000 in some prime areas. These are average prices: there can also be a huge difference between minimum and maximum prices for new properties in the same place: for example, in Villajoyosa, the minimum price/m² was five times less then the maximum. Location, Location, Location again.
These higher prices for new property are partly due to the higher standards of construction today (for example, the new Ley de Ordenación de la Edificación took effect in May 2000, which requires builders to take out an insurance (seguro decenal) against major structural faults for 10 years, and this added between 1.2% and 4.0% to the cost of property). But the main reason for higher prices for new property is the high cost of obtaining building land in some areas.
For example, in the provinces of Alicante, Castellón and Valencia over 80% of the costas have been zoned for development, and there is still huge demand for building land. It is therefore likely that over the course of the next few years, all available land will be developed, and only the “green” zones are likely to be spared.
This brief overview highlights the fact that prices on the Costas can vary tremendously; they are affected by the economic situation locally (such as the availability of land and water in relation to the demand, and hence its price); as well as in Spain generally (such as the rate of inflation, the availability and cost of building workers, and the level of taxes); and across Europe and globally (as the market is largely “discretionary” – i.e. people can choose whether to buy or not, and are not forced to buy in any particular place by reason of their work or family - demand will rise above average when the European economy is doing well, and will fall dramatically when it goes into recession.
In some areas on the Costas, at the end of 2007, prices fell by as much as 3% and may continue to level out, creating a big buyers' market as British and other northern Europeans realise Spain has become competitive with some of the so-called emerging markets in terms of price and superior when it comes to accessibility as Spain benefits from most flights per day from the UK, Eire and other cold zone countries.
It will be necessary for buyers to decide whether to obtain official residence (residencia) in Spain or not. Residence has important implications for tax and inheritance (although you are due to pay tax in Spain if you spend more than 183 days there in any calendar year, irrespective of whether you obtain official residence or not), as well as car ownership, driving licences etc. You must take tax and legal advice on this.
We would also recommend membership of FIPE (the Fundación Instituto de Proprietarios Extranjeros) which publishes a regular bulletin containing much interesting news and information, including residence and tax. Their address is given in the next section.
One general point is worth making here: many foreigners – including those who have not obtained residence – complain about the lack of telephone lines, postal services etc. But the subsidies from the state and regional governments to the local municipalities for these services is entirely dependent on the number of residents registering there - so by not registering these foreigners are contributing to the very problem of which they complain.
There are costs as well as benefits of obtaining residence, but if foreigners expect the benefits from their host country and the services from their local municipality, it is only fair that they should play their role in registering as a resident.
We have prepared this guide because the Spanish market is very different from that in the UK: two examples will help to illustrate this:
- (a) In Spain, contracts are validated by a Notary Public, when they become “public deeds” – this process only creates a valid act in law; contrary to what some people think, it does not substitute for carrying out the necessary pre-contract enquiries either yourself or via your solicitor and;
- (b) When you agree to buy a new property being built by a developer, the property will not become yours until it is completed and the necessary certificates issued. In the meantime, you will be expected to make advance payments, which should be protected by a bond or insurance guarantee.
In spite of these differences, it is quite unbelievable that during the 1980’s over half the foreigners buying property in Spain did not use a solicitor, and the figure is still around 20% - it is not surprising therefore that some people have problems, sometimes many years later!
You would not dream of buying a house in the UK without using a solicitor – and in Spain the differences make it even more necessary. This guide is intended to help you become familiar with the terminology and buying process requirements, but it cannot substitute for proper legal, taxation or inheritance advice.
We try to keep this guide up-to-date, but we cannot be held responsible for any errors or omissions, nor decisions based upon information supplied directly or indirectly.