Guide to buying a property on the Costa del Sol

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Guide to buying a property on the Costa del Sol

The process of buying a property on the Costa del Sol is the same as the rest of Spain, but quite different from other countries such as the UK. Although the cost involved in the purchase are higher, the Costa del Sol is one of the most desirable places to buy a property in Europe. With over 300 days of sun in the year and a huge range of properties to suit every budget, the area offers something for everyone.

Choosing your Agent

Choosing your agent is the first step you should take when you are buying a property on the Costa del Sol. There are thousands of properties for sale in the Costa del Sol and hundreds of estate agents. Unlike many other property markets, Estate Agents share properties with each other, so you should use a single agent to filter properties for you, which will save you time and avoid being bombarded by different agents offering the same properties.

Quality of service, availability to answer your questions, speed of response and a deep understanding of the property market all contribute to a good agent and at Hunter Properties we understand this.

With over 30 years of doing business on the Costa del Sol, the Hunter Group are a known and trusted name, yet we don’t rest on our laurels. Every new client we meet is a fresh start and a new opportunity to make our reputation, which is why so many people make us their agent of choice. We hope you will too!

Filtering Properties

It’s important to prioritise exactly what you are looking for. If you are looking for an investment, a holiday home or your main residence there are different considerations to take into account. There are so many properties on the market that you could spend every day for years looking at them and still not see them all. So clarity and an agent who understands what you want and need will cut down your search time, so that you need only see a small handful of homes to find the ideal one.

At Hunter Properties, we will do the legwork for you. First we will discuss with you exactly what you want and guide you through the options based on your needs and price range. Then the properties that we show you will be the closest possible match ensuring that your valuable time is not wasted. It is quite normal for our clients to put an offer on one of the first three properties we show them, and we pride ourselves on getting it right.

Making an Offer

Once you have found your property, you will make an offer. As your estate agent, we will then put this offer to the vendor and they may come back with a counter offer. This process of negotiation is quite normal and we work hard to ensure that you will agree the best price. Once agreed you will sign an Intent to Purchase contract and deposit a payment of €6,000 with your lawyer or in our client escrow account.

This Intent to Purchase Contract sets a timeframe for the property transaction and when signed, the property will be taken off the market.

The Legal Process: Due Diligence

You should not consider buying a property on the Costa del Sol without the services of a lawyer who will perform due diligence and ensure there are no outstanding debts on the property and that the ownership status of the vendor is legitimate. If your lawyer does find a problem, then your initial deposit will be refunded to you. There are a number of checks that your lawyer will make:

Confirm that the vendor (or vendors, if the property is jointly owned) has full title to the property and can legally sell it and to confirm that the property is correctly recorded in the Land Registry.

A pre-emption right gives its holder a preferential right to buy the property at the price agreed between you and the vendor. This would be the case if there are tenants in the property.

The Land Register will reveal any charges or encumbrances on the property, for instance a mortgage, loan, or certain unpaid taxes or penalties. The existence of any debts is not in itself a problem so long as they are identified in advance, and the vendor’s have them cleared before or at the time of signing the deeds before Notary.

Your lawyer will also need to see the latest receipts of payment of local rates (IBI), and in some cases check with the Town Hall (Ayuntamiento) to verify that there are no problems with unpaid rates from previous years.

The cadastre (catastro) records the location, physical dimensions and classification of all properties in Spain. The cadastre provides a generally accurate physical description of all properties, and also includes plans, maps, and aerial photographs. The cadastre is a very useful source of information when buying a property as it helps to identify discrepancies between the deeds and what you have been shown.

You lawyer will to check that planning permission (licencia de construcción) was granted, that a certificate of completion (certificado de final de obras) was signed by an architect, and that an occupancy licence (cédula de habitabilidad or licencia de primera ocupación) was issued by the town hall.

Generally speaking, if a property has mains connections to water and electricity then it has necessary licences, as the utility companies will only supply properties with an occupancy licence

If the property is part of a community of owners (comunidad de propietarios), as is nearly always the case for apartments and urbanisations, then your lawyer will check that the vendor is up to date with community fees (gastos de comunidad or cuota de la comunidad de propietarios).

The lawyer will also need to find out what the community fees are so you can budget for them, and check whether there are any plans afoot to upgrade the communal areas that might mean a large and unexpected cost shortly after you have purchased (derramas extraordinarias).

Finally your lawyer will check the community bylaws for any that might affect you (such as restrictions on renting out properties). The lawyer will obtain all this information from the secretary or administrator of the community of owners (administrador de la comunidad de propietarios) who will also provide a copy of the community bylaws (Los Estatutos de la Comunidad de Propietarios).

Getting Organised

While your lawyer is performing due diligence on the property, you will need to run through a checklist to ensure that everything is in place for to complete the purchase of your property. This checklist will include:

An NIE number is your identification number in Spain and is required in order to purchase a property. This is not something that you can delegate to someone else, you will have to set aside a morning while you are in Spain for the process. We will help you to apply for one if you do not have one already.

You are going to need an account in a Spanish bank if you do not already have one. If you are getting a mortgage and the lender is a bank, then it is most convenient to open the account with them.

If you require a mortgage, this is the time when you will apply. At Hunter Properties we have good links with banks and mortgage lenders to help you find the most suitable package at the best rates.

You will need to ensure that you have funds in place to pay the deposit on your property and the completion if you are not using a mortgage. Banks do not offer the best rates for currency transfer and this is best done through a a specialist exchange company. Again, we can help you find the best company for the service.

Quite often a property buyer (or seller) cannot attend the Notary meeting, in many cases this is because they live in another country. If you are unable to attend then the normal practice is to give Power of Attorney to your lawyer who will sign on your behalf.

Private Purchase Contract

When your lawyer completes the required legal searches, usually about two or three weeks after your Intent to Purchase contract was signed, you will then sign a Private Purchase Contract. At this point you will pay the full deposit of 10% of the agreed purchase price (less the €6,000 you have already paid). This binds you to purchase the property and you will lose this if you change your mind. If the buyer changes his mind, he will have to pay you double the value of the deposit. At this point a date will be set for final completion at a Notary.

Completion

The formal completion of the property sale takes place in front of a public Notary. This is normally three to four weeks after signing the Private Purchase Contract. The balance of the purchase price is paid at this meeting, as well as taxes and costs. You will be handed the keys to your new home!

Costs and Taxes

As a buyer of a property in Spain there are a number of costs and taxes over and above the property price that you will have to pay. These taxes vary depending on the type of property you purchase.

If you are buying a residential property being sold for the first time (never previously occupied), a commercial property or plot of land then you will pay VAT (known as IVA in Spain) which is rated at 10% of the purchase price of a residential property (villa, apartment, etc), and 21% for commercial properties and plots of land.

In addition, there is also a Stamp duty (known as AJD) is 1.5% of the price of the purchase.

If you are purchasing a resale property you do not pay IVA or Stamp duty, but instead you pay a Transfer tax which is calculated on a sliding scale:

Property PriceTransfer Tax Payable
First €400,008%
€400,000 – €700,0009%
Amount over €700,0010%

If you choose to buy with a mortgage then this will incur several additional costs. First there will be the property valuation that the mortgage provider will require before granting the mortgage. This is paid for the by the buyer and can cost around 500 Euros. Then there will be the costs of the mortgage itself. This varies according to the provider, and even according to the particular branch. However there is usually some kind of opening fee of around 1% of the value of the mortgage. Finally a mortgage will increase the Notary & Register fees.

You will also pay Notary, Land registry fees and Lawyer fees and these vary with the cost of the property.

The Plusvalía Municipal Tax is always paid by the vendor, but it can become a problem for the buyer if the vendor fails to pay it. If the vendor is not a Spanish resident, your lawyer will withhold the amount of the Plusvalía Tax and make the payment to the Town Hall.

If you are purchasing your home from a non-resident of Spain, your lawyer will also retain 3% of the property purchase price from them and this will go towards paying Spanish taxes on their behalf.

Cost of Ownership

There are ongoing costs involved in owning a property in any country and Spain is no different. Fortunately in Spain these are much lower than those in the UK and most of Europe.

The local Municipal Tax is called IBI (Impuesto sobre Bienes Inmuebles) and the amount depends on the Municipality and type of property, but we can tell you what the amount is for the property you have chosen.

You will also pay a small annual fee for to the local authority for rubbish collection.

If your property is part of a complex or urbanisation, then you will pay a monthly Community Fee. This is based on the size of your home covers your share of cleaning, maintenance, pool upkeep etc. The more facilities you have on your Community, the higher the fees are.

Naturally you will pay for your service bills such as water, electricity, gas and internet. These are due monthly or bimonthly. Your lawyer will help you to set up or change these services to your name.

Household insurance will vary according to the value of the building and the content.

Annual Income Tax ( Impuesto Sobre la Renta de No Residentes).  The tax rate is fixed as 19% of 2% of the valor catastral of the property.

Annual Wealth Tax applicable only to properties with a value superior to 700.000 euros.

Renting out your property

If non-residents rent out their property and receive an income in exchange, they are obliged by law to declare this income and pay taxes on it. The taxable base and the tax rate will be determined by the laws as they apply to each person’s particular circumstances (taking into account the double taxation treaty – if any – between Spain and the country of origin of the non-resident). In many cases non-residents simply pay a flat rate of 19% of the gross income they earn from their property in Spain.

Important

When buying property in Spain, always keep digital and hard copies of all invoices related to your purchase such us taxes, legal fees, notary and register fees. Likewise, if you ever do building work on the property once you own it, keep copies of all licences and invoices. You may be able to offset these expenses against capital gains when you sell, and so reduce your Spanish capital gains tax on property sales.