This web page has been published with the intention of providing people who are considering investing in property in Spain with basic information regarding the procedures involved and an insight into the markets they are contemplating joining.
Having read it through there may be questions you would like answered in greater depth. Before taking matters further therefore, it would be wise to contact Pocomed Properties to discuss the subject fully.
The question and answer guide below should provide much of the information you require to get your foot on the Spanish Property Ladder.
Why invest in Spanish property?
The Spanish property market is booming. Capital growth has been averaging around 30% per annum for "off plan" property during the construction stage and 18% for existing property. Add to this the fact that letting a finished property should also cover the mortgage costs and generate a profit.
The superb weather and an abundance of golf courses give property owners all year round letting potential. Many Northern Europeans simply go to Spain to escape the harsh winter. Flights to Spain are plentiful and cheap and the flying time is only just over two hours from the UK.
Around one million more Europeans are expected to retire to Spain over the next few years as the cost of living is so cheap compared with other countries. There is already a huge UK community in Spain.
The reasons above illustrate that there is plenty of demand for Spanish property which should result in continued price rises.
Why invest "off plan?"
This simply means buying a property from builders plans and is a very popular form of investment. The greatest capital growth can be during the construction period ( currently around 30% per annum).
"Off plan" purchase is a successful investment because:
• Your property is priced below today's market value.
• Your equity is limited to a maximum 50% of the purchase price, while you get growth on the full value.
• You can sell the property during construction.
As an example:
* A property is available for £100,000 GBP
* Your maximum deposit is usually 40 - 50% (£50,000 GBP).
* The remaining 50% only needs to be paid on delivery of the finished property -you do not need to pay this if you sell before completion.
* The property values increase to £140,000 GBP during the 2-year build.
* You then sell for £140,000 GBP - you have made a gross profit of £40,000 GBP on an investment of £50,000 GBP. (Still a huge profit even after legal fees, tax and sellers commission have been deducted).
In Spain, the developers bank usually provides a non-status mortgage ( on very good rates) for the balance remaining at completion should you decide to keep the property, which means all you need budget for is the deposit. Ongoing rental income should then cover costs and produce a profit.
Why do the prices rise during construction?
Initially, the developer needs to sell a certain number of properties to begin construction. The price is therefore very competitive at this stage. As more properties are sold, the developer's sales requirements are met and they can increase the price of the remaining properties. This affects the value of your property.
The next significant rise is usually when construction begins. During the build, the property price will be brought into line with the true market value which usually means regular smaller increases in value.
Therefore, you are benefiting greatly from the property initially being sold below market value and then increasing during the construction stage.
How much money is needed?
When buying a new property clients need only budget for the deposit plus VAT (which in Spain is called IVA, and the current rate is 7%) plus limited other costs including lawyers fees.
What property should clients buy?
At the time of enquiry we will advise clients on the current "hot spots" ( see Investing in Spain ). In general property up to _300,000 euros will be easier to resell - and currently the two bedrooms, two bathroom apartments are much sought after for rentals. Avoid expensive or unusual property. It will be harder to resell.
Always remember the most important criterion is "location, location, location". Property miles inland with no facilities nearby, poor roads and transport will be hard to sell. On the other hand, if you are within 10/15 minutes of a good beach, on or near a golf course, with the use of a swimming pool, shops and restaurants nearby and good parking, then you are much more likely to be onto a winner. Golf property provides all year round letting potential, even. Non-golfers like renting property with views of the golf course or the sea.
What investor protection do I have?
On new property, each deposit payment is guaranteed by the developers Spanish bank, which means you get your money back if the developer walks off the site or becomes insolvent.
New property in Spain comes with a 10-year guarantee, similar to NHBC back in the UK.
Your Spanish lawyer will also carry out all the necessary land registry searches and check the guarantees before letting you sign any contracts, whether you are buying a new or existing property. This ensures any payments you make will be refunded if, for example, the developer is insolvent.
Is an Inspection trip worthwhile?
Yes and No!
If you are buying a property to use for yourself, most definitely Yes, you will want to get to get to know the area and see exactly where your property is.
If you are buying off-plan or for investment purposes, then it would be nice to see the area but often the build process will not have started, so you will simply be viewing land.
More important, new developments sell out very quickly. If you choose a development from your armchair back in the UK, and then decide to arrange flights etc., the chances are you will be too late by the time you get to Spain.
Off plan investors really should be prepared to take our advice and literally buy off the plans. This will ensure you get in at the earliest possible stage, when the best choice of a plot is available.
Do I physically have to go to Spain to invest?
No. You can give your lawyer Power of Attorney to sign any contracts and be there on completion to go and meet the Spanish Notary.
What is the buying process?
• First, select a property.
• Reserve the property. This is usually done by paying a reservation deposit of around 3000-6000 euros and ensures the property is withdrawn from the market and the price is fixed. This is a non-refundable deposit should you decide at a later stage to pull out. Your lawyer should now carry out all the detailed searches and checks at the Land Registry ready for the next stage.
• Private Purchase Contract. Normally, about 30 days after reserving the property you will be expected to sign this contract. Your lawyer can do this for you (providing he has Power of Attorney). At this stage you will be expected to pay the balance of the agreed deposit.
• Completion. You or your lawyer attends the Public Notaries office to sign the Title Deeds, and to make the final payment to the seller. You then receive the keys to the property. The Notary then informs the Land Registry to note you as the new owner.
Should you have sold the property before completion, then your lawyer will have assigned your contract to the new buyer who will have to do step 4 themselves.
What about taxes?
As in the UK, the situation can at times be complicated!
When you buy a property you will pay either a Property Transfer Tax for resale properties or IVA (VAT) on new properties, at present the tax is 7% for both transactions. In addition stamp duty at 0.5%
"Plus Valia" is a tax charged when selling a property. It is a local municipal charge based on the increased value of the land between purchase and sale. This is usually quite small when selling an apartment, but can be substantial on a villa standing on a large plot.
Capital gains tax can also be charged at up to 35% when you sell a property. Specialist tax advice should besought as there may be ways to reduce this tax depending on your circumstances.
However, when you buy off-plan and sell before completion, you will normally avoid all the above taxes apart from the IVA.
In summary, buyers of property are usually responsible for IVA or Transfer Tax plus your own Lawyers' fees ( your lawyer also collects and pays the Property Registration fee and Notary costs).
Sellers of property are usually responsible for Capital Gains Tax, Plus Valia tax and any Selling Agent costs.
Why should clients use our service?
1. We can advise on property on the major areas of Almeria (Costa de Almeria) and Murcia (Costa Calida).
2. We can advise on property from an Investors perspective as well as people who are looking for either a holiday apartment or somewhere to permanently live.
3. We can oversee the whole buying process as well as recommend all the other services which may be required. (English-speaking Spanish lawyers, letting
Do you arrange Inspection Visits?
Yes - click HERE for Inspection Visits
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