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 PURCHASING PROPERTY IN SPAIN AND CANARY ISLANDS :::
1) Buying a property in Spain does not have to be a tricky business. Over the last two years it was estimated that some 200,000 Irish people have bought spanish homes which they can visit with increased ease due to new direct low cost airline routes.
Despite media coverage highlighting corrupt practices in certain parts of Spain, potential buyers and investors have nothing to fear if they act with common sense and caution.
However when buying a property act as you would in Ireland and seek independent legal advice.
It is surprising how may holidays makers and investors throw caution to the wind when overseas, handing over cash deposits, without asking for a receipt or committing to Estate Agents without consulting a Solicitor.
These are practises that we would never do at home..
Estate Agents in Spain are not regulated and anyone can act as a intermediate in a property transaction.
Estate Agents for Developers often recommend to buyers particular lawyers who are also acting for the Developer which is a conflict of interest situation.
There are many reputable lawyers and developers throughout Spain. An independent lawyer acting on behalf of a potential buyer will investigate the Legitimacy of the development, villa or apartment before sums of money are handed over.
He will check that the construction company or developer owns the land, that they have the proper licence and planning permission has been complied with, they will also make sure that any unfavourable or biased conditions in a contract are amended and any clauses that should be contained are included. Bank guarantees shall be put in place so that monies paid are refundable. Solicitors can assist their clients in other ways, helping them to obtain what is called an N.I.E. which is a document for non residence which enables clients to open bank accounts, connect to utilities and pay local taxes. They can also through Powers of Attorney close the deal on behalf of the client so that the client does not have to travel to Spain in person to do so.
In Spain it is not compulsory to register the Title of the property but any reputable Lawyer will advise you to do so as the Vendor can resell the property to another buyer whose purchase would take precedent over yours if they register the property first. The registered title known as the ESCRITRA is the only document which guarantees proof of ownership of the property in Spain. It is signed by the parties before a Public Notary who ensures that both parties have fulfilled their obligations under the Contract. It contains a description of the property, the details of the owner and any mortgages or charges. It is not the Notary responsibility to check the details of the Escritra so it is very important that you have a Lawyer do this work for you.
REPUTABLE LAWYER
A reputable and responsible Lawyer searching for a property throught a property registry can discover that the Vendor does not infact own the property and the ownership may not have been registered. It happens that the property may appear alright on the surface, but the previous transaction has not been completed fully and that there are unpaid mortgages, charges or other impediments and that there are rights of way attached to this property, also that the property has been built on land that does not have the required planning permission.
That work has not yet been signed off because the Developer has an obligatory 10 year guarantee or has not been granted a licence by the local Government indicating that they are satisfied with the building standards or finally that the building being sold by one Company is in fact owned by several different companies or that the Company is not registered as the owner.
TAX IMPLICATIONS
Irish People should also be aware of the tax implications involved in owning a Spanish Property. There is a 7% VAT rate plus 1% stamp duty on all new properties whilst second hand properties carry a stamp duty charge of 7%. If an Irish Person is buying or selling a Spanish property from or to a non resident 5% of the purchase price must be paid direct to the Spanish Treasurer on account of the Vendors Capital Gains Tax. This enables the Vendor a non resident to clear his tax liabilities under capital gains tax which is at 35% for non residence and 15% for Spanish residents. Whilst this does not effect the purchase price, Irish purchasers should be aware that if they do not pay the 5% to the Spanish Revenue the property will carry a charge attached to it for the lower of both amounts either the percent or the capital gains tax amount.
OTHER CHARGES
These include local Town Hall Tax which is paid on the increase in the value of the property as set out by each Town Hall.
This is based on the official value of the property which is always lower than the market value and it will depend on the period of time that it has been under the same ownership.
The longer the time the more will be due.
While not substantial this can be charged to a property so that if it has not been paid off by the vendor, it should be discounted from the purchase price.
Other charges include a tax on a yearly basis which is a low as €125 for a small apartment and €1000 for a villa, again this tax is attached to the property and must be paid when the property is sold.
NON RESIDENTS
Non residents are subject to Wealth Tax which must be presented annually and tax is owed by the owner to the Spanish Revenue on the net value of any assets in Spain and inheritance and gift tax which is an acquisition tax rather than transfer tax.
The wording may be subject to income tax in certain cases, Irish owners of Spanish properties are advised to make a separate Spanish Will as it is simpler and cheaper to carry out.
Irish property holders are deemed to be resident for tax purposes in Spain, if they reside there for more than 183 days in each year.
There will be purchasers who want to deal directly with an Estate Agent.
If that is the case they should always ask the Estate Agent if they are bonded or have insurance and they should also insist that any money paid is lodged what is called Escrow Account so that neither party can have access to the account until the sale is closed.
GETTING A MORTGAGE IN SPAIN
For most people a property of Spain will be purchased by way of raising a Mortgage.
There are two options open for home owners, there is the opportunity to release equity by increasing or remortgaging the family home in Ireland leaving Spanish Home Mortgage free.
Alternatively as Spanish Banks have recognised the importance of growing number of non resident customers, arranging a mortgage secured on the second ( holiday ) home is much easier than in previous years.
While the range of Mortgage Products is limited compared with those available in Ireland and other non EU Companies, even though some products copied from these markets are beginning to emerge in Spain.
Most recent examples are mortgage terms up to 30 years and interest only repayment periods both designed to keep monthly outgoings as low as possible during the early years.
The most important type of Mortgage on offer in Spain is a variable rate which is linked to the Central Euribor rate. The difference between the Euribor and the rate charged to the Borrower is normally about 1% depending on the amount of the loan.
Lenders will generally increase the interest rate for a year at a time and review the rate for the following 12 months on each anniversary of the opening of the account.
The amount of the loan is normally restricted to about 70% of the value of the property but occasionally a higher percentage may be available. |
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