Buying property in Spain can be a nightmare for expats who don’t know and follow the rules. Unlike in the UK, your sales consultant for new properties in particular is likely to work on 100% commission. If he doesn’t sell he doesn’t earn any money. That being the case you will be under a lot of pressure to buy. Also, the estate agencies often work on a higher percentage of commission than we do here, often between 5% and 10% on the sale price of the property.
Buyers must be aware that Spain doesn’t enjoy a very good reputation when it comes to property transactions. Purchasers can, through no fault of their own, face deception, negligence, and a lack of due diligence in a sector lacking proper controls.
After going out to Spain on a couple of inspection tours we eventually decided to buy property somewhere in the Benimar / Benijofar / Rojales area on Spain’s Costa Blanca.
We chose a new build, a model called the Jazmin, which was promised to be ready in 12-13 months but took 17 months. In Spain this is quite good, because 12 months can often turn into 36 months.
A non-refundable deposit is always required when buying a new property in Spain, which is about 3000 euros. This has to be paid in euros, so a Spanish bank account is required. This can be opened with as little as 10 cents. I will speak about the Spanish banking system later.
Due to the promise of a 12-13 months build we, in due course, sold our bungalow and gave notice in on our jobs, deciding that we would rent an apartment and familiarise ourselves with the Spanish way of life prior to moving into the new villa. Of course everybody knows that Spain is warm in winter, only, it is not! We rented an apartment that was designed for summer and we suffered in the winter, having to borrow heaters, buy extra blankets for the bed etc.
Prior to moving into your new villa a snag list is created, which in theory has to be agreed between you and the builder and sorted out within 30 days of you moving in. In practice, you end up doing the minor problems yourself and getting another builder in to sort out the larger problems. The reason is, if you take the builder to court, it can take up to 3 years to hear the case and the Judge inevitably is sympathetic towards the builder. If you win the case the builder either changes his name or waits until you take him back to court which again can take 3 years. As I mentioned earlier, buying property in Spain often isn’t without its difficulties.
You are now in your villa and are on your builders’ water and electric, which means that you have to pay for it to the builder but he controls it and can turn it off or on whenever he wants. And if he doesn’t pay, the water or electricity company will turn it off.
Looking back we now say that if we could choose buying either a new property or a villa which was not new we would definitely go for non-new. Yes, there are a lot of benefits to being able to decide from the start what features you want in your new property. But, there are downsides to owing a new home. Buyers are at the mercy of the builders, who, having taken some of your money in the form of a deposit or incremental payments go as fast or as slow as they want. Delays in moving in can cause a lot of frustration, and additional accommodation costs. Also, some structural problems do not show themselves for what can be many months, even years. Serious structural problems which aren’t remedied by the builder for whatever reason e.g he disputes it is his fault, or he goes bankrupt, can cost you thousands of euros to put right yourself.
Purchasing an existing property means that hopefully any initial faults will have already been put right so you should not have any hefty bills to pay.
The downturn in the Spanish economy has resulted in house prices falling between 35% and 50% since the credit crunch began. This is bad news for sellers, but good for buyers.
As at May 2012 property was selling for around the same prices as 11 years previous, and there are some bargains to be had.
For example, on a British TV show where people are looking to buy a house in the sun, a property in Villamartin on the Costa Blanca was up for sale at £97,000, and it was suggested it would eventually actually sell for a little more than £80,000. This wasn’t a one bedroom apartment, but a pretty spacious 2-bedroom bungalow which included a studio apartment underneath it. This bungalow was located quite close to one of the golf courses in Villamartin, a sought after area for British expats.
Unable to Pay Your Mortgage?
If you find yourself out of work or otherwise unable to pay your mortgage on your property, then, just as in the UK, you must not let it slide. Communication with the bank is essential, as if you do not pay your mortgage – or contact them – they are likely to wait for only about three months before starting legal action against you.
Bear in mind that the bank`s solicitor’s fees along with court expenses can add up to thousands of euros, as costs are often based on the property’s value. That is the last thing anyone in debt wants, as if it is not bad enough having to clear the arrears.
If your personal finances have changed then let your bank know, and try to re-negotiate your loan with them. They might agree to you paying interest only (carencia) over a year or two, which should hopefully see you through the worst until your financial situation improves. Or, the bank might be happy for you to extend the length of your mortgage period which would reduce your monthly payments.
Solicitors In Spain
When selecting a solicitor to represent you on buying property in Spain be careful about taking on a recommendation from the builder. The builder may offer special incentives to use somebody he knows, like a discount on the charges, or it can go through quicker etc.
Solicitors like a retaining fee of approximately 150 euros per annum and about 500 euros for the handling of a purchase or sale of a property. They also handle other jobs such as getting an NIC number (similar to our National Insurance number). The fee for this is approximately 100 euros. You need this number to buy a car, and property. Your solicitor can also get you a Residencia, but the necessity for this (benefits) are not as great now. In the past you paid a lower tax on the sale of property and got a higher interest rate at Banks. The solicitor will set the level declared as the purchase price of your villa as extras are not vatable. The amount declared is currently vat rated at 7% . On the selling of your property the taxation is based on the profit made between the buying and selling price, if you are moving back to the UK. If you sell and buy in Spain then there is no taxation.
Professionals involved in property transactions in Spain are wonderful at suddenly remembering at the last minute that “such a thing” needs to be added to the bill, and before you know where you are your expenses have rocketed. Try to get everything fully in writing at the beginning so you will not get any nasty surprises. I know of one person who used an accountant to get back the 3% holding on the sale of his apartment at a cost of over 500 euros, then without prior consultation a solicitor became involved at an additional cost of over 400 euros. So the expected bill was almost doubled and there was little the vendor could do about it.
Local Municipal Authorities set their equivalent of the UK’s council tax.
There is a council tax which comes into effect with new property when the builder hands over the responsibility to the council. Prior to this a minimal charge of roughly 100 euros per year is made and when the council takes full charge then they ask for approx 250 euros per year. There is a collecting agency for the council tax and you can go into their office and pay it, or pay it through the bank. You are reminded of this, well in advance.
One thing to note with the council is that they are not responsible for anyone hurting themselves (by falling) outside your property. To cover yourself you need to take out an insurance which is normally part of your fees when a community is formed. I will not go into this too much, but a community is a legal requirement and presidents, vice presidents etc are required to be elected to sort out pool maintenance fees, who can and cannot build in that area (extensions etc) this fee is roughly 1000 euros per year.
Just like in the UK, buying a property in Spain does not always go smoothly. Hopefully you will get everything the builders promised, have a very short snag list, and get problems resolved quickly. But, do not bank on it, whether you are buying property that is new, or not.
Property and Wills
One important point for expats now living in Spain. Do not assume that your will which you made in the UK is good for Spain. Laws vary from one country to the next, and it is vital that your money and property go to whom you intend it to go upon your death.
This is why you should seek legal advice in Spain so that you save any unnecessary expensive legal procedures due to wrangles because your will isn’t accepted under Spanish law, or more likely has loopholes. All expats should ensure they have a will, and secondly update it from time to time to take account of additional assets owned.
We British are almost obsessed about “getting on the property ladder” and owning our own home. In much of the rest of Europe, however, renting is more the standard practise. Some owners will rent out their holiday homes on long lets. And, just like in the UK, there are properties from small apartments to villas which are bought by landlords just for the purpose of renting out.
Don’t dismiss renting out of hand. It can be a good step in to finding out about the type of home you are eventually wanting to buy. It also allows you to get to know an area before moving in permanently.
If you are considering renting, make sure you do your homework so as to avoid paying money up front for such things as lists of properties supposedly for rental, but are in fact often already let.