Having selected your ideal property, you will want to be absolutely certain of the legalities of the purchasing process, and particularly your rights in a foreign country. This is where Sol Homeseekers will ensure that you have expert assistance and will guide you through each step. We will explain in detail all the fees and taxes payable on a Spanish property. As a rough guide you should budget approximately 8-10% of the purchase price for all fees and taxes.
USING AN AGENT:
Choosing the right agent will help you to build your knowledge of the area and compare values of properties. Sol Homeseekers, having been in the real estate market in this area since 2000, can provide the experience and expertise to answer all of your questions.
MAKING A DEPOSIT:
When you have decided on the property of your choice, the first step is to make an initial deposit of 6,000 Euros to take the property of the market. Then you and your legal representative have 10 days to prepare the private contract, with a down payment (usually 10%) and completion within one month (standard, may differ).
Sol Homeseekers can recommend a local lawyer who speaks your language and knows the specific needs of foreign property purchasers. It is usual to allow about 1% of the purchase price for legal fees, although this can be higher if matters are complicated. Your lawyer will arrange all legal matters with regard to the purchase, completion and tax payments. On simple transactions Sol Homeseekers is able to assist you through the purchase.
EXCHANGING PRIVATE CONTRACTS:
The lawyer sets out the agreed terms and states a date for completion, normally one month. It is usual for the buyer to pay a 10% deposit on an option contract.
COMPLETE AT THE NOTARY:
On the assigned day buyer and seller (or their authorized representatives) will attend the office at the notary to sign the "Escritura de Compraventa" (Public Contract), which states that the property is sold free of charge, mortgages and tenants. The notary is obliged to obtain an up to date copy of the deed from the property registration office. After signing, the registration office is immediately notified of the change of ownership. After payment of the transfer tax, the deed will be registered (allow 2-3 month). The notary does not check the terms but only certifies that the parties have agreed to them. At this point the balance of payment is made and possession passes to the buyer.
COSTS TO PURCHASER:
Transfer tax (ITP): 7% of the purchase price. If buying from a developer this will be 7% IVA plus 0.5% stamp duty. A rate of 16% IVA is applicable when purchasing a parcel of land and commercial and garages spaces.
Property registration fees: charged by the local property registration office to change the old deed to the new deed and these costs are approximately €250 to €500 for each registration.
Notary fees: charged on a sliding scale and average approx. €500 to €1,000.
Lawyer's fees: usually about 1% of the purchase price.
COSTS TO SELLER:
Plusvalía tax: this is the local municipal tax and is based on the number of years the property was held and the change in value on the local tax records. This can vary considerably from a few hundred Euros to several thousand. This tax is generally paid by the seller, unless otherwise agreed.
Estate agent's fee: typically 5%.
If the seller is a non-resident, 3% of the purchase price is withheld and paid to the tax authorities against any capital gains tax they may owe, which is currently 18% of the net gain for non-residents.
If you are buying a property off-plan, make sure the developer has an insurance policy or bank guarantee to protect your payments should the project not be completed. The developer must also be able to provide proof of ownership, planning permission and insurance over against building defects.
If the price of your off-plan property does not compare favourably with that of similar finished or soon to be finished developments in the surrounding area then you are gaining nothing by buying off-plan.
With an off-plan purchase, you should aim to pay as low a deposit as possible. Normally the lowest is 30/70, ie. 30% deposit and 70% payable on completion. You will need to walk away from any development asking more than 40/60.
Be sure that you can sell on your contract before completion as not all developments allow you to do so and will not publicize this fact to purchasers. You will be better off with your options left open so it is advisable to avoid developments where selling on is not possible.
Some developers say you can sell before completion but have a clause in the contract stating you may sell on only when they have sold all the other apartments within the development. You may not be allowed to sell for a lower price than the remaining apartments, or they may require you to sell through the developer's sales office who will then charge huge fees for the privilege! Developers normally charge 1-2% to transfer paperwork from one name to another and this is normally paid by the purchaser.
Ideally 16 months or more is advisable from initial contract to completion. You will need to allow 4 months to sell and 12 months to see an attractive amount of capital growth.
Developments in Spain sell very quickly and normally over the course of construction the developers will increase prices four or five times. You need to get in as early as possible to maximize your profit.
Remember that on a development that has a 30%/70% payment schedule, if the price of the apartment goes up 10% then that is actually a 31% gain on capital invested. See the example below:
Purchase price = €200,000
30% deposit = € 60,000
7% IVA (VAT) = € 4,200
Total capital invested = € 64,200
If the developer puts the price up by 10% then the increase is € 20,000.
If you bought the apartment immediately when is was released at € 200,000, then your gain would be as follows:
€ 20,000.00 / € 64,200.00 = 31%
If you had bought after the increase, then you would have lost a 31% gain!!!