The Good News about buying property on the Costa del Sol
Just recently, the Ministry of Development in Spain released its final data report about property sales in 2015. The report showed estate agents in Spain what we already knew – a full property market recovery in Andalucía was taking place.
The report stated that residential property sales registered in Spain exceeded initial projections, and over 400,000 properties were registered for the first time since 2010. The total number registered properties was 401,281, following a 9.8% year on year increase. You can read more about the Ministries report, and look further at the numbers to confirm what we already know – things are looking fabulous for both the property market and the tourist industry here in the South of Spain. KMS Blog – The Marbella Property Sector & International Property Buyers.
Foreign investors have been buying Costa del Sol property for the better part of 50 years. UK property buyers are back and more interested in Spanish property than ever before. There was a time when many British expats were leaving the Spanish sun behind and heading back to the UK for more stability due to an unstable economy and fears of job security. However, thanks in a huge part to the influx of foreign property buyers together with record breaking tourism and the re-emergence of a thriving property market, the Andalusian economy has been refuelled. Once again, the British are heading South in search of the sunshine and a happier and healthier lifestyle.
That said, today the British make up only a small percentage of the nationality of buyers of property on the Costa del Sol. The Scandinavians (encompassing all of the Norwegians, Swedish, Danish and Finish) make up a growing percentage together with the Irish, Arabs from the Gulf, South Africans, Indians, Chinese and of course the traditional buyers from Germany, France, Holland and Belgium. Since the lifting of the sanctions there is also an increasing flow of buyers and investors from Iran and Iraq. Only the buyers from Russia have been in recent decline.
There are a few very distinct reasons for buying property on the Costa del Sol:
1. Many property investors are now seeking to take full advantage of the record breaking tourism in Andalucía. Investing in a property specifically to let for holiday rental is today guaranteed to produce a very decent return on investment, in terms of both rental income and longer term capital growth.
2. Buyers approaching or, who have reached retirement are also buying property on the Costa del Sol to live their “dream retirement”. These buyers tend to purchase their dream retirement homes close to the sea or overlooking one of the numerous championship golf courses and in close walking proximity to local amenities. The well-publicised, average of 325 days of sunshine a year goes a long way to ensure a long, happy, active and healthy retirement.
3. Many buyers disillusioned with failing job prospects in their home countries move to the Costa del Sol to seek permanent employment.
As the Spanish economy continues to strengthen job prospects continue to grow. The Costa del Sol provides the perfect location for resort style living together with resort style employment. The Hospitality Industry alone on the Costa del Sol is always desperately seeking good, honest and reliable workers, and for those that can prove their value, permanent employment contracts are becoming more accessible. Recently, Spain came in 16th place for the best countries in the world to live and is also rated as the healthiest country to live in Europe.
This is a far cry from several years ago when unemployment was ranked as one of the highest in the European Union. In this property buyer’s guide we will cover all updated information with regards to property law, property taxes, fees, warnings, advice and much more. Much has changed and being made aware of these changes will ease the buying process. However, the absolute key to buying the right property is sourcing the right estate agent. KMS Property Solutions has been established nearly 15 years and encompasses a highly professional but friendly, multi lingual and experienced team with over 150 years combined property experience.
KMS Property – Your Guide to Buying Property in Marbella, Costa del Sol, Spain
The Costa del Sol truly offers a huge and varied selection of residential property to buy, be it a large individual villa, a spacious townhouse or a luxury apartment located in a secure and gated urbanisation close to the beach or, overlooking a golf course, or for those that like to be close to nature or enjoy equestrian lifestyle, a rustic farmhouse in “the campo”. Whatever your choice, before you buy a property on the Costa del Sol, take a look through the KMS Property website and explore the many areas as well as the many types of properties available.
Here’s a short list to help you with the initial buying process in Spain:
- First set your budget limit but allow for the cost of the purchase and taxes
- Pick your estate agent and stick with them, the sales and marketing system on the Costa del Sol, unlike other countries and indeed the rest of Spain allows all estate agents to freely access and share each other properties, so it is completely pointless and a waste of your time in looking at properties with lots of different estate agents.
- Instruct a local and well established property lawyer to act for you with your purchase. (Lawyers normally charge about 1% of the purchase price which is a small price to pay for the security in knowing that your purchase has been properly deal with and any problems or legal issues with the property have been identified and properly addressed)
- We recommend drawing up a short list from the properties you have seen that you feel may be of interest
- When finally deciding on a property to buy we recommend visiting the property at least twice before you making any final decisions • Check what additional bills form part of the property such as a community service charges (if the property forms part of a managed urbanisation), electricity, water and gas, gardeners, security etc.
- Have your estate agent or lawyer recommend a building surveyor to examine the structure if the property was recently constructed or, has recently been extensively refurbished
- Chat with neighbours and get the inside scoop on the property and the surroundings The above list is far from extensive but addresses the more obvious points before making any sort of commitment to property purchase in Spain, but when buying property in any foreign country, it is important to fully understand all of the associated costs and fees and the tax implications, both when buying and when you come to sell the property. Research is imperative here, and it’s always good advice to know EVERY THING you can before even starting to look for property on the Costa del Sol.
The Advantages of using a estate agent on the Costa del Sol
All estate agents are employed and their commission is paid by the Vendor (seller). It is essential to use the services of a recognised and professional estate agency in Spain and if in doubt look for the “REAS” approved estate agents sign on the agents office, advertising and website. Using a REAS approved estate agent will provide you with the comfort of knowing you are dealing with a professional and properly regulated estate agent.
An estate agent in Marbella for example, can provide you with detailed information about the particular region or area in which you have decided to buy. Many professional estate agents are also multi lingual and dealing with foreign buyers is part of their day to day business. Be careful not to become involved with any individual (and there are many on the Costa del Sol commonly known as “Pirates”) masquerading as an estate agent.
These individuals can normally be easily identified by the fact that they have no offices, no support staff, lack any genuine property sales experience or, real knowledge of the Costa del Sol and often suggest meeting in a café or car park. These individuals are not regulated and may try and extract fees from you in advance of any purchase.
- YOU, the property buyer, can choose your own lawyer, and as required, surveyor, architect or mortgage provider
- YOU don't need to use the services suggested by the real estate agents. Most of the time, reputable agents work in conjunction with lawyers and banks in Spain, so we often recommend our partners, but ultimately the choice is always yours.
Buying a new home “Off Plan”
Some of the worst scams when it comes to buying property in Marbella, Spain or elsewhere in Europe have occurred when buying property “off plan”.
This is when foreign investors become embroiled in buying property often in a development where construction is still to actually commence or, is under the early stages of construction. This is not intended to infer in any way that every off plan development is a scam. However, it's better to know and understand how this works, and of course undertaking the research is always essential in keeping your money out of the hands of less than scrupulous property developers. Instructing a local and well establish property lawyer is absolutely essential.
Your property lawyer will check that the development company is registered in Spain and actually has legal title to the land being developed. Your lawyer will also check that the development is legal and that the developer has all of the required planning and licenses before you pay an initial reservation fee. Your lawyer will most importantly agree a “long stop” date by which your property must be competed and made available to you.
Against all stage payments to the developer the lawyer will ensure you receive a recognised bank guarantee that provides security against all payments made in the event the property, for whatever reason is not completed or delayed beyond the agreed “long stop” date. As a foreign investor, you may also decide to by a plot of land to build your own property. In such cases it is important that you seek out legal advice to ensure all contracts with the building contractors are “watertight”.
Property Debts and Transfers Spanish property law determines that any mortgage or debt registered against a property is transferred to the new owner if not discharged when the property is sold. Therefore, it is critical that your property lawyer ensures that all registered charges are fully discharged on or before the legal completion of the purchase.
The types of debts include:
• A existing mortgage
• Any outstanding payment due to a Community of Owners
• Any unpaid property taxes (impuesto sobre bienes inmuebles)
• Any other legal charges which have been previously secured against the property
Keep in mind that there are more than 2 million foreign property owners in Spain. Of course not forgetting the millions of Spaniards who also own their own homes – most are happy with their property purchase and enjoy their property to the full each year or all year round as expats. Few problems usually arise when it comes to buying property on the Costa del Sol and this should be borne in mind when you hear or, read horror stories concerning foreign buyers in Spain.
We’ve already highlighted some of the dangers involved, but this can apply to everywhere when it comes to property investments or investments in general. As estate agents in Spain, we are alerting you to potential pitfalls, not to discourage you from buying property, but to simple ensure you stay safe and understand your legal rights before committing to purchase a property in Spain. The warning really applies to buying off plan property on the Costa del Sol and we urge you to seek legal advice or instruct a long established and reputable estate agency on the Costa del Sol.
The Buying Process- Buying Property in Marbella, Spain
The buying process in Spain is relatively straight forward, but here is what the Vendor (the Seller) should provide to your property lawyer at the onset of the sale process: The title deed of the property (Escritura and Nota Simple) Copies of the paid “IBI” Tax (Council Tax) and “Basura” (Rubbish Tax). Certificate from the Administrator of the Community of Owners if the property forms part of a managed urbanisation Copies of paid recent utility bills Copy of the occupational license granted by the local Townhall Estate agents commission invoice (to be deducted from the sale proceeds) Details of any existing mortgage or debt on the property being sold
- The title deed of the property (Escritura and Nota Simple)
- Copies of the paid “IBI” Tax (Council Tax) and “Basura” (Rubbish Tax).
- Certificate from the Administrator of the Community of Owners if the property forms part of a managed urbanisation
- Copies of paid recent utility bills
- Copy of the occupational license granted by the local Townhall
- Estate agents commission invoice (to be deducted from the sale proceeds)
- Details of any existing mortgage or debt on the property being sold
Before Official Purchase of Property in Spain
Before the official purchase of the property in Spain, an agreement will be drawn up between the buyer and the seller. Within this document, both parties will set out the terms of the purchase. It’s best you seek the advice of a lawyer before actually signing any sort of agreement. It’s also imperative that you be sure this is the property you want to buy – you can lose any deposit paid if you pull out of the purchase, and there is a penalty clause in the contract as well. If the seller were to default, then he or she must pay twice the amount. When the contract is ready to be signed, it will be done in front of the notary (link to page explaining notary), this will ensure the details are entered into public record.
Buying property in Spain costs
How much are fees when buying property in Spain?
When it comes to buying property on the Costa del Sol, there are a number of costs including taxes, which are above the property price. Many of the costs, fees or taxes involved will also depend on the type of property you are buying. For example, if you are buying a property on the Costa del Sol from a developer, or perhaps a resale property from a private individual, you will be expected to pay VAT & Stamp Duty or a transfer tax.
Below, we list the property types and the costs, and taxes involved:
NEW PROPERTY BUILD FROM BANK OR DEVELOPER
For residential properties being sold for the first time, which means basically that no one has ever lived there; these taxes will apply:
VAT & Stamp Duty (IVA & Actos Jurídicos Documentados – AJD)
This includes commercial properties and plots of land. VAT is the national tax in Spain and is known as IVA. Presently, the IVA is 10% on the purchase price of residential properties, which includes villas, apartments, etc; and 21% for commercial properties in Spain, and plots of land in Spain. Wherever you are buying property in Spain, VAT will apply. In the Canaries however, a different version of VAT will apply.
Both VAT and Stamp Duty are paid by the buyer. If a deposit was paid before the sale was final, the deposit is also subject to VAT.
RESALE FROM A PRIVATE INDIVIDUAL
For resale properties or buying property from a private individual, the following taxes apply:
Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP)
The ITP tax applies when the property was lived in previously, and is to be paid by the buyer. If a deposit was paid before finalising the property sale, you don’t have to pay ITP tax. But, the full ITP will have to be paid once the sale is complete. On a resale or private sale by owner, you won’t have to pay VAT, and Stamp Duty is already included in this tax.
The Transfer tax rate will be different depending on what autonomous region you are buying property. In some cases, the regions have applied higher local rates, generally however, the ITP is 8% up to 400.000 € , 9% up to 700.000 € and 10% for the rest.
What are the real estate agency fees in Spain?
Real estate agency fees or any commissions is paid by the seller, unless there is another agreement in place. Despite the internet that has several sites connecting buyers and sellers, many people still use a real estate agent to find and buy property in Spain. One thing you must be made aware of is the fees or commissions charged by real estate agents. Agencies on the Costa del Sol charge between 2% and 15% of the sale price. This will also depend on the region and type of property.
KMS Property charges 5% commission plus IVA
Additional Costs involved when buying a property on the Costa del Sol
We urge you to hire a lawyer to help you during the buying process. Your lawyer will draft contracts on your behalf, and will explain everything to you in English. There are several English speaking lawyers on the Costa del Sol, and most who specialise in real estate, will partner up with agencies just like KMS Property Solutions. We work with Bufete Megias Lawyers in Marbella.
Mortgage costs will be incurred if you choose to buy a property with a mortgage. Additional fees associated with the mortgage costs should also be expected. There will need to be a property valuation in place, which the mortgage provider will need to see in order to approve the mortgage.
Then of course there will be the costs of the mortgage itself. Keep in mind that each mortgage provider is different, so costs will vary accordingly. However there is usually some kind of opening fee of around 1% of the value of the mortgage.
Next there will be notary expenses to pay, and these are almost always paid by the buyer. The notary fees are calculated in relation to the purchase price of the property. This is the price declared on the deeds of the sale.
Never under declare property prices on the Costa del Sol
Once scenario that happens far too often is when buyers under declare their property price. Even if you get the best possible deal or bargain, we still advise you to declare the true market value. One thing you must understand is that the tax authorities (Agencia Tributaria) can still reassess a property’s value for tax purposes.
You must also consider any additional banking costs – in order to buy the property it is common to write a bankers cheque. To write a bankers cheque you will need to open an account in Spain. Once you’re set up with a bank account in Spain, a transfer of the funds will need to take place from your country. The bank fees for transferring can go up to 0.4% of the total amount transferred. The banker’s cheque will cost around 0.5% of its amount.
Furniture costs must also be considered. Once you have your property it will be time to furnish it. The cost of furniture greatly depends on what you are looking for. For comparison purposes, and in our experience, the cost for furniture for a 2 bedroom flat will usually cost around 10,000 to 15,000 Euros.
List of Costs incurred on buying a property on the Costa del Sol:
- Transfer tax (resale properties only)
- Value added tax (on new properties only)
- Legal document tax (new properties only)
- Land tax
- Notary Fees
- Legal fees
- Deed registration
- Surveyors fee (optional)
- Selling agents fees (Commissions)
- Utility fees
For any additional information or if we can help you in anyway, please do not hesitate to contact us today. You are under no obligation, and we are happy to assist you.