Owning Property And Real Estate In Spain

Spain has no restriction on foreigners owning property.

Spain has long been one of the world’s most sought-after property destinations thanks to its great weather, relatively low cost of living, and friendly atmosphere. It was hit particularly hard by the last recession and after a deep, dark downturn that kicked off in 2008, the market is finally bouncing back… and savvy property buyers have been watching closely for signs of a turnaround. Spain’s pariah status is gone and the country is awash with real estate bargains.

Now the official data on property sales show that the recovery is in progress… and buyers and investors are making their moves.

Unlike resort destinations like the Balearics (and other coastal and island locations), Spain’s big cities have diverse economies that are not reliant only on tourism.

Barcelona is a dream location, not just for the 1.6 million locals but clearly for the tourists and business visitors who flock there by the millions each year (over eight million in 2013). This is a strong short-term rental market and a great opportunity for buy-to-let investment.

Property in Madrid can appeal to tourists, expats, and locals, and this helps buttress investors in a market, which at this early stage still carries an element of risk. However, in Madrid foreign buyers make up a far smaller proportion of the market. Real estate here is dependent on Spain’s locals. Meanig a full recovery and return to growth will come to Madrid more slowly than to the tourism hotspots, like Barcelona. But when that growth does come, it will be less vulnerable to the ebb and flow of interest from fickle international buyers.

If you’re more interested in the resort towns, the Balearics are where to look. Majorca is the grand dame of the Balearics. Despite being a hotspot for tourism for so many years, when you know where to look, you’ll find that the 1,405-square-mile island has managed to cling to much of its charm.

The island gets an impressive 8 million visitors a year, mostly during high season. While this renders some beaches extremely busy, it brings some key advantages. For one, the island’s infrastructure is superb. The road network is excellent and the airport is large and extremely well connected, especially for an island of this size.

And while prices are inevitably pushed upwards by the number of visitors, they drop down to the range paid by Spaniards elsewhere in the country when you move towards the center of the island.

Overall property prices on Majorca are surprisingly reasonable, although developers tend to sacrifice space in favor of location, leaving their properties somewhat small.

Buying A Property in Spain

There are no restrictions on foreigners buying property in Spain. All overseas buyers must have a fiscal identity number (NIE) before they can open a bank account or complete the purchase of a property. Apply for the NIE after arriving in Spain or via the Spanish Embassy or a consulate in your country of residence. Non-EU passport holders must make the application in person, but EU citizens can give their lawyer a power of attorney to do it for them. Opening a bank account is just a question of going into a bank and doing it, all that you need to take is your passport.

Buying costs vary depending on which autonomous region you are in and whether you are buying new or secondhand. Property purchase tax is levied on resales and last year Madrid lowered purchase tax to 6% of the price paid to stimulate the market, while in Cataluña it’s a flat 10%, and figured on a sliding scale between 8% and 10% (based on price bands) in Andalucía. In the case of new property the purchase tax will be 1.5% or 2% depending on the region, plus 10% of VAT (called IVA in Spain). In addition, the buyer pays the notary fees (estimate 0.5%) and, although the seller should pay property registry fees, by convention the buyer pays. Again, this is a relatively modest amount, but it depends on the complexity of the deed (allow for about 0.5%).

What the buyer must not pay is the plusvalía. In the past it was common for the seller, particularly in the case of developers, to load this onto the buyer—but the law clearly designates it as a seller’s tax. Plusvalía is a municipal tax calculated on the increase in the value of the land between the time of previous purchase and sale. If many years have elapsed between purchase and sale it can become quite a substantial amount of money… which is why the seller might try to wriggle free of it. For clarity, when you make an offer to buy make it clear that the seller pays plusvalía.

If you are buying with a mortgage you should budget for additional costs of up to 3% to cover bank administration costs and additional notary and registry fees. Do not even think of buying in Spain without your own, independent, bilingual lawyer—not one introduced by the seller’s agent. Even if you speak Spanish, you should find lawyer who is completely fluent in written and spoken English. This won’t be a problem, just make sure you pin them down to a fixed fee before they start work. They should be prepared to negotiate around 1% to 1.5%.

Your lawyer will check that the title is good, that there are no outstanding charges or encumbrances and that any existing mortgage is paid, and you should ask to see the draft contract translated into English. As all purchases take place in front of a notary, you have to be there in person or give your lawyer a power of attorney to complete the purchase on your behalf, this is common for foreigners purchasing real estate in Spain. Post-completion, the lawyer will set up transfer of utilities to your name and can set up direct-deposit payments from your bank account.

If anyone, either the seller or their agent, suggests declaring a lower amount in the title deed than you are actually paying, say no. It was common practice in the past, with as much as 30% under the radar, but it is against the law and you run the risk of a fine. The real advantage was never to the buyer, who saved a modest amount of purchase tax, but to the seller, who could reduce their Capital Gains Tax (CGT) liability by a substantial amount. By exposing all involved—the seller, buyer, lawyers, notary, agent if there is one—to fines if under-declaration occurs, the practice has been more or less wiped out. It would be particularly foolish to do it now, at a time of low prices heading upwards. Everyone buying now should expect to make a substantial capital gain in the medium term, and if you have declared low now and prices rise a lot by the time you sell all you’ve done is load yourself with even more CGT unless you in turn find someone prepared to under-declare.

Sample Properties in Spain

Spain has long been one of the world’s most sought-after property destinations, but it was hit particularly hard by the last recession, and savvy property buyers have been watching closely for signs of a turnaround. Now the official data on property sales shows that the recovery is in progress… and buyers and investors are making their moves

So Spain offers two reasons to buy: It’s well positioned for an upside swing, and, recently, the dollar has climbed significantly against the euro, giving the U.S. dollar holder additional buying power.

For example, a three-bedroom, two-bath apartment in Barcelona, with 95 square meters (1,020 square feet) of living area has two terraces for an additional 38 square meters (409 square feet) from which you can enjoy the sea views. The asking price is 170,000 euros.

July 2014 value (at 0.73 euros per US$1): US$232,900
July 2015 value (at 0.90 euros per US$1): US$188,900
July 2016 value (at 0.91 euros per US$1): US$187,000

Currency discount: US$45,900

In the beachfront town of La Cala de Mijas, Málaga, a twobedroom, two-bath apartment with 85 square meters (915 square feet) of living space plus an additional 12 square meters (129 square feet) of terrace is on offer, completely furnished. It belongs to a complex with pools, tennis courts, and a brisk rental market. The asking price is 145,000 euros.

July 2014 value (at 0.73 euros per US$1): US$198,600
July 2015 value (at 0.90 euros per US$1): US$161,100
July 2016 value (at 0.91 euros per US$1): US$159,500

Currency discount: US$39,100