If you are reading this article, you may be considering acquiring a property as an investment or as a family residence in the Spanish market.
When we think of buying a property, many mandatory events come to mind but, what exactly are they? In this guide, we summarize the process of efficiently buying a property in Spain to make your job easier.
If you do not have time to read the entire article, you can see the following infographic that we have prepared that summarizes the steps.
- Search for the Property
Searching for the property is where you will likely need to invest the most resources, especially time and energy. Searching for a property involves researching the market where you plan to invest, getting to know its streets, its neighbors and comparing prices. To reduce the risks, it is advisable to have the help of a Real Estate Advisor who knows the area where you want to buy well. Investment advisors, such as Geräh Real Estate Partners, keep statistical data about the purchase and sale of real estate in different areas of Spain, in order to correctly calculate the profitability of a real estate investment. You can ask us about a particular area and we will inform you in a timely manner.
Once we have found the property that we wish to buy, and before engaging in any outlay of money, it will be necessary to:
- Evaluate the physical characteristics of the property, verifying the square meterage, degree of conservation, luminosity, height, views, etc. Again, it is helpful to have an expert, either a Real Estate Advisor, Architect or Quantity Surveyor, independent of the seller.
- Evaluate the legal situation of the home through the corresponding Property Registry. We strongly recommend having the support of a Real Estate Advisor or Lawyer independent of the seller, for example one recommended by a friend of yours, to answer the following questions:
To whom does the house belong?
Are there charges or encumbrances on the home? If yes, require the seller to pay the pending amounts, or use it as a negotiation tool.
In the case of residential properties, are there tenants? If they exist and the rental contract is registered in the Land Registry, the lease contract will remain in force and the buyer of the property will acquire the rights and obligations of the seller (former lessor).
- Formalize the purchase-sale contract
The purchase of a property is formalized in a public deed by signing the purchase-sale contract before a Notary. Said contract must be clear, simple and contain the following information: accrediting title of ownership and charges, description of the home, total price, form of payment and date of delivery of the home. Prior to the public deed there may be two steps, not being the Mandatory Reserve:
Reservation: This payment is usually made to the Real Estate Advisor who mediates the purchase-sale process. The amount paid, on average, is around 1% of the price of the home. This reservation will be accompanied by the buyer’s price offer, formally starting the negotiation process. Within a period of time (normally 24-48 hours) the seller will accept the offer or issue a counter-offer. In any case, the reservation does not establish a purchase or sale commitment until an agreement on the sale price is reached.
Arras Contract: This contract is signed between the buyer and the seller and constitutes an obligation of one party to buy the home and the other to sell it. On average, the amount delivered as a deposit is usually less than 10% of the final sale price. The deposit is usually made in person under article 1454 of the Civil Code, in such a way that if the buyer rescinds, he will lose the deposit, and if the seller rescinds, he must return the duplicate deposit. The deposit contract must also include accurate information about the home.
We recommend that these documents be reviewed by a Lawyer or Real Estate Advisor independent of the seller. Real estate consultancy companies such as Geräh Real Estate Partners have a group of professionals capable of carrying out all these verifications.
- Payment of taxes on the purchase of homes
Once the property is purchased in Spain, we will have the privilege of paying the corresponding taxes. There will be two:
Property Transfers or VAT?
The type of tax paid will depend on whether you buy a new home or a second-hand one. In the first case, VAT will have to be paid (maximum 10%), while in the second case the Property Transfer Tax will be paid, which depends on each Autonomous Community. If you want to know how much the ITP is in the Autonomous Community where you plan to buy, I invite you to see this summary:
Documented Legal Acts (AJD)
The AJD is also transferred to the Autonomous Communities and is paid for the legal documents necessary to close the transfer of the home. It is calculated as a percentage of the deeded value that changes according to the community. For example, if a home is purchased in Madrid through a mortgage loan, this tax will be between 0.4% and 1% of the total amount of the mortgage liability (including the amounts insured by interest, penalties for breach or other similar concept).
Prior to the steps described, if you buy the home as a foreign citizen, you must apply for the Foreigner Identification Number (NIE).
Do you now have a clear idea of the way to buy a property in Spain? We hope so, we invite you to continue reading the blog for more information. If you need help to verify that you are making the right investment, contact us now, we will be happy to help you.