Spain remains one of the most popular destinations for foreigners to buy property, either for retirement purposes, investment income or as a second home. For Europeans, Spain’s varied climate offers perfect year-round weather options, its property laws are easy to navigate. And for investors from outside the European Union who are prepared to invest more than €500,000 (Dh2 million) in property, it offers an opportunity to obtain Spanish residency, offering ease of access to the Schengen visa area and the common travel area shared between the United Kingdom and Ireland. If you’ve looked into investing in Spain, here’s a handy guide to assist you with all of the information you need to make that decision.
Can a non-national buy property?
Yes. Spain is a member of the European Union, meaning that anybody with a passport from any EU country, or from any member of the European Economic Area that includes Norway, Iceland and Lichtenstein, can also purchase property there. Because Switzerland is broadly aligned with the EEA, its citizens can also buy in Spain. But Spanish property can be purchased by other foreigners too – and Spain offers full-time residency visas for those who purchase property with a sale price of €500,000 (Dh2 million) or more. This residency visa doesn’t include the right to work, but suits retirees or those independently wealthy and able to live there for as long as they wish.
Value of property for which you are eligible for a full-time residency visa
Choose an area or community you want to be part of. A good way to do that is by actually visiting the places and talking to residents.
The regions of Spain are varied and unique, offering a wide choice of living styles, from the bustling cities of Madrid and Barcelona, the islands of the Mediterranean, the Canaries, the sun-soaked southern regions of the Iberian peninsula, the mountains of the Sierra Nevada, or the wild coasts of Galicia and Basque county.
You can also check house prices and how your home currency fares against the Euro.
There are many property portals such as freedom4sale.com or kyero.com that cater to non-Spanish seeking to invest there.
Here are some areas you could look into:
Madrid: Spain’s largest city offers a cosmopolitan lifestyle steeped in history and culture. Its unique architecture, many art galleries and museums, great sporting attractions and laid-back attitude to life are attractive to many seeking an investment income with good rental returns.
Barcelona: The pulsing heart of Catalonia is truly unique, right from its Gaudi-inspired buildings, wide public plazas, bustling port, old city oozing charm, heritage, great food and a football team that truly is world class. Its property is expensive but offers great rental returns in a city struggling with tourism overload.
The Balearic Islands: Think Ibiza and yachts, suntans, Mediterranean beaches and busy night life comes to mind. But Majorca and Minorca offer great investment options too, whether that be sea-front condominiums or rambling farm properties set in hills and off the beaten track.
Galicia and Asturias: The northwest corner of mainland Spain offers rugged hills and high cliffs, small fishing villages that become summer resorts, some of the west vineyards in the country and great walking and cycling opportunities. And property here is cheap, offering you a real opportunity for a second home away from the hustle and bustle of it all.
The Southeast: Think of the Costa del Col and the Costa Brava, resort regions where the nightlife never stops and where tall condominiums overlook the sea. But inland, there are quieter small towns and villages, where the pace of life is slower, where you money goes further.
Grenada and Cordoba: This is the Spain of the Moors, a land steeped in history, where the architecture is unique and beholden to the outside influences that have shaped Spain down through the centuries. Rolling hills filled with olive, lemon and orange groves fight for space with vines, where a rustic farm property will give you a very different sense of Spain and all it has to offer.
The Sierra Nevadas: Mountain peaks reach more than 3,200 metres high, offering winter sports such as skiing or snowboarding. And in summer, the valleys and hills offer some of the best walking and hiking scenery in all of the Iberian Peninsula. This region is being hollowed out as many Spaniards move to cities for an easier lifestyle. That means that property is cheap but living there comes with challenges.
The Canaries: The seven islands that are located about 150 kilometres off the coast of Morocco offer the best investment value for money for foreigners. The sun always shines – hardly dipping below 20 degrees Celsius in the winter month, hardly about 35C in the summer – life is easy and laidback, and, if you want to earn money from a rental income, there’s no shortage of Europeans who want to get away for winter breaks.
Are you going to pay with your savings or borrow?
Then choose a bank or a lender for options. Following that, you also need to talk to them about transferring money overseas to make payments – the best options in terms of rates, charges, etc.
The process of buying property in Spain
Of the purchase price is spent on real estate fees
• Properties are listed on many different commercial portals. Or you can visit any real estate office –called “immobilaria” in Spanish. Then it’s simply a matter of searching out the property you want to purchase and having the real estate agent arrange a suitable viewing time.
• Quite often, if the property is on a short-term holiday rental on a weekly basis, the real estate agent might not be able to get you a viewing straight away – you might have to wait a few days till the holiday property is unoccupied or during a changeover of holiday visitors. This happens at popular tourist destinations. Consider it to be a good portent of the popularity and potential if you’re seeking rental returns from your future investment there.
• Estate agents provide a wealth of information about the region, are bilingual, and often deal with overseas buyers. However, regulation is relatively low and unscrupulous estate agents do exist.
• Always remember that you can choose your own notary, mortgage provider and so forth – you do not need to use a service suggested by the estate agent. Generally, however, it’s a good place to start.
• If you like the property and are prepared to purchase, you need to make an offer, most usually through the seller’s real estate agent. If you are using your own real estate agent, he or she will act on your behalf and communicate with the seller’s real estate agent.
• You will also need to register for a tax number or “NIE”. This means you’ll have to visit a police station with your passport. Your real estate agent can organise and advise you on this. It is issued on the spot to EU citizens, slightly longer for non-EU passport holders.
• All of the real estate fees, which amount to between 4 and 6 per cent of the agreed purchase price, are paid by the party selling the property.
• If this offer is accepted, then the buyer and seller sign a preliminary contract – “contracto privado de compravento” – with the contract being organised by the real estate agent or agents. The signing of this also includes the payment of 10 per cent of the agreed purchase price. This money can be held in escrow (a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled) by a lawyer or can be paid directly to the seller, depending on the terms agreed in the compravento.
• It’s important to note that if you, the buyer, don’t complete the sale by the agreed date of purchase, the deposit is forfeited. Similarly, if the seller decides he’s not going through with the sale, the 10 per cent deposit is returned and he must then pay another sum equal to that deposit in compensation.
• An agreed date for completion of the sale is set, and in the interim, your lawyer will check for any legal impediments to the final sale.
• It’s worth remembering that many Spanish properties, particularly those in smaller centres, often have structures that are not included on the actual deed. The homeowner may, for example, have added a swimming pool or a couple of other bedrooms that physically exist but are not listed on the deeds. This may, for example, impede the sale if a bank needs a valuation of a property to grant a mortgage.
• In other instances, the illegal additions made have to be added to the deeds during notary – meaning there might be property tax changes as a result. A reputable real estate agent and lawyer will advise you on how to proceed – and should be able to negotiate a better price as a result.
• When homes are sold, the wiring needs to be in order. An electrician’s report – bulletin – might be needed, with the cost being a point of negotiation between seller and buyer. Again, your real estate agent should be able to advise and assist.
• The sale is completed at notary – signed in front of an independent local official with the legal powers to conclude the sale. This will involve checking contracts, making sure all taxes are paid, that any expenses have been covered off, and that the real estate agents’ commission is paid by the seller.
Don’t get confused by the paperwork involved
It is very important to hire a real estate attorney when purchasing property as the real estate industry in the country can be a little less than clear. A good lawyer will be able to provide more security, along with the advice and local knowledge from a reputable real estate agent.
• One of the main issues faced by foreign buyers – and Spanish too – is that the property may have elements that are not included on the deeds. Many Spanish are used to this and don’t see it as an impediment. The reasoning is that if it’s not on the deeds, it doesn’t exist for property taxation purposes. A two-bedroom villa without a pool on the deeds faces a lower tax bill than a four-bedroom villa with a swimming pool.
• Where work has been carried out before and neighbours have objected to the local council – lodged a “denuncia” – this may need to be resolved before any sale can be complete. In extreme cases, the new building work may have to be altered or removed, depending on the nature and seriousness of the “denuncia”.
• A deposit of 10 per cent will be paid upon signing of the initial contract. If you can’t complete as planned – other than say, for mortgage approval – you will probably lose this. Similarly, if the seller backs out, the 10 per cent is returned – and a similar sum is paid to the buyer in compensation by the seller.
• Some notaries may require a Spanish translator to be present if the buyer is a non-Spanish speaker. The cost is around €100 (Dh401) for an hour.
• Any lawyer practising in Spain should be registered with the local Bar association (Colegio de Abogados), and a list of local Bar associations are available on the national website for lawyers, Abogacia Espanola https://www2.abogacia.es/
• Some sellers may ask for “black money” – a cash payment to be taken off the registered sale price of the property. This was a common practice but is now seriously frowned upon. The reasoning is that the seller may have to pay capital gains or other taxes on completion of the sale – the lower the official agreed sales price, the lower tax bill he’ll face. Do not be tempted to participate in any such request – there may very well be legal and tax implications for you down the road. Any reputable real estate agent or lawyer will advise you against this.
How long does it take to close a contract?
Closing usually takes 30 to 60 days later and includes the exchange of contracts and settlement of the remaining balance. When these have been accomplished, the title deeds will be submitted to the Land Registry for registration and payment of government duties. These Land Registry departments are in most cities across Spain and its islands.
Fees, taxes and duties
As a general rule, purchasers should allow a further 8 to 10 per cent of the purchase price to cover expenses and fees.
1. Property transfer tax: This depends on the region where you are buying and is set by the regional government. There are 19 regional governments across Spain. In Lanzarote on Spain’s Canary Islands, for example, the property transfer tax is 6.5 per cent.
2. Notary costs: These will include the fee for using the notary, a tax on the title deed and land registration fees, again set by the regional government, and amounting to between 1 and 2.5 per cent of the agreed purchase price.
3. Legal fees: There are no set fees for lawyers, and these usually amount to between 1 and 2 per cent of the purchase price. You’ll also need to pay Value Added Tax of 21 per cent at 2020 rates.
4. Capital Gains Tax: When it comes to selling your home, it’s important to remember that you’ll likely have to pay capital gains tax on the difference between the agreed purchase price and the agreed sales price. This varies between 19 and 23 per cent. The first €6,000 (Dh24,116) profit is taxed at 19 per cent; the amount between €6,000 and €50,000 (Dh200,000) is taxed at 21 per cent; and anything above this is taxed at 23 per cent.
5. It’s important to remember that Capital Gains Tax also applies to non-Spanish residents.
Value Added Tax has to be paid for the transaction
What can go wrong?
The property-buying process in Spain should be relatively straightforward if you use a reputable real estate agent. Expat forums are often a good place to ask for recommendations.
A good lawyer eases a lot of potential problems that might make the purchasing process more difficult.
Deeds. Make sure that what you’re buying matches the deeds, or if not, those issues are straightened out in the purchasing process before the final paperwork is concluded.
Black money. Don’t participate in any attempt to circumvent or cut the amount of taxes due. If in doubt, walk away from any deal where the real estate agent suggests such a measure.
What you need to know
According to Spanish analysts, the surge in home sales in recent years was mainly driven by foreigners buying homes on the coast and in cities like Barcelona and on the Costa del Sol, one of the country's most popular areas with overseas purchasers. Most foreign homebuyers are Britons, French, Germans, Belgians, Italians and Swedes.
Construction activity is weakening again, after reaching a seven-year high in 2018. During the first seven months of 2019, the number and area of residential building permits fell by 23.7 per cent and 10.6 per cent, respectively.
Decline in number of residential building permits during first seven months of 2019
Foreclosures rose by 11 per cent during the first three quarters of 2019 from the same period a year earlier to 21,039 dwellings. Foreclosures for new dwellings increased by 36.9 per cent and by 4.4 per cent for existing dwellings.
Despite slowing economic growth, the outlook for Spain’s housing market remains upbeat, with house prices expected to rise by 5.5 per cent in 2020, according to a Moody’s forecast.
Property options to suit your budget
The attraction of Spain as a year-round destination is strong and the property market offers a whole range of investment options to fit your budget and your ambitions. There are good rental returns on properties in and around Madrid and Barcelona in particular for long-term contracts. In popular tourist areas, rental income is possible in excess of 40 weeks per year, still leaving you time to be able to savour life at a slower pace for the rest of the year. In terms of value for money and more property for your euro spend, look to the Canaries in particular for year-round sun and bargains. Do keep an eye too on the euro to dirham exchange rate, now almost exactly 4 dirhams to the euro.
Dh300,000: Fancy a two-bedroom apartment in a low-rise building overlooking a gold course in Cordoba? It might need a new kitchen and some renovations on the bathrooms, but this price point gives you a good foothold in the Spanish market. A rural farmhouse and several hectares of land in the Sierra Nevada range is on the cards too, or a property in rural Galicia. These rural areas, however, have very limited rental potential.
Dh500,000: A 1-bedroom apartment in a complex with its own pool because the sea in less popular areas of the Costa del Sol. A farm building in Asturias with some olive trees and a small thicket of woods to relax in. A small townhouse in fishing village in Galicia? A small condominium in Benidorm – these are all within your budget. Or maybe a small flat on the outskirts of Madrid that can return €500 (Dh2,005) monthly in rental returns.
Dh1,000,000: This level of investment allows you to consider a two-bedroom condominium overlooking the Mediterranean in the Costa Dep Sol or Costa Bravo, a hobby farm in the foothills of Ibiza, a 3-bedroom house in a small town anywhere across Spain outside the larger cities, or a lock-and-leave villa on a golf course in Cordoba. Look to the apartments close to the centres of Barcelona or Madrid, an investment that on long-term rental will bring close to €1,000 (Dh4,010) in returns.
Dh2,000,000: Congratulations – You’ll have enough to qualify for a property valued at €500,000, guaranteeing you a residency visa in Spain, allowing you to live but not work there all year round. A 3- or 4-bedroom villa in Lanzarote with its own pool and sea views, a condominium in downtown Madrid, a substantial rural property anywhere across Spain – these are all possible, bringing your Spanish dream to fruition.
Do Spanish banks assist foreign buyers investing in property?
Some Spanish banks such as La Caixa or Banco Sabadell will entertain mortgage proposals from non-Spanish EU nationals. Brexit, however, has brought a reluctance for these lenders to entertain mortgage queries from UK passport holders. EU nationals can qualify for 80 per cent of the purchase price. Now, post-Brexit, UK nationals are limited to 50 per cent of the purchase price. Generally, Spanish lenders won’t entertain mortgage inquiries from non-EU or EEA nationals.
Loan-to-value ratio for EU nationals for mortgages in Spain
The rental market
The return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs, range from 4 to 5.15 per cent in cities such as Barcelona or Madrid, Spanish market analysts say. They also point out that yields on the very smallest apartments are now reasonable in these cities – but add that these smaller apartments tend to need more maintenance, so a higher yield is justified.
The casual holiday market, however, is popular and properties in popular sun destinations have the potential to be rented out for in excess of 40 weeks per year. These rates vary greatly and there are rental agencies who can offer more details, contracts, and organise bookings and turnovers if you wish to go that route.
Beware of these scams
• If you meet someone who says they work for a real estate company or that they are a real estate agent, ask them for details of their website. If they don’t have one, the chances are they’re not legitimate. And if they say the site is down for upgrade, that’s also an indication they’re not on the up and up.
• Even if they do have a website, check out the properties. Some act as “cuckoos” – merely listing other agents’ properties. Don’t be afraid to ask for testimonials from sellers or buyers who have used their services.
• The person you deal with should behave in a professional manner at all times, offering printed material on any listing they are selling. And they should be able to get access to the property too. If they haven’t or can’t get access, chances are they’re not a legitimate agent.
• Agents should be prepared to put everything in writing. If they want things done verbally, that’s a warning sign. If it doesn’t feel right, chances are it isn’t. Trust your judgement.
• The practice of asking for cash under the table by seller or the agent are a sign that not everything is right. Participating in such a tax-avoidance scheme will have serious implications for you down the road.
• Most importantly, never pay for anything if you do not get a solid and concise contract that protects your rights as a buyer. Apart from the deposit to secure the property, you should only be expected to pay in full when you are signing the deeds at the notary.