As with the majority of markets, it is the ever-increasing demand for property in Spain that is causing the increase in property prices. Due to an excellent year-round climate, and a relatively inexpensive cost of living Spain continues to be in high demand. Regardless of an apparent cooling of the market, there is no sign of a decrease in demand and can expect respectable progress to carry on into the future.

Practical Advice:

When considering the purchase of property foreign investors should bear in mind the importance of obtaining a lawyer. One should not take recommendations for a lawyer from a developer, estate agent, or any others involved in the property transaction. The lawyer chosen must have the buyer’s interests in mind exclusively. It is crucial to find a lawyer familiar with Spanish law who can give counsel about the entire process from requirements to completion, taxes and minimizing tax liabilities, as well as how the property should be paid for and what procedures to use when transferring payment. As in the majority countries, the lawyer will do nearly all of the work, including drafting a contract of sale, taking on the land registry search, offering ongoing advice, coordinating the completion of the purchase in front of a Spanish Notary Public and setting up the transfer of funds.

Make sure the following checks have been cleared before any payments are made: the boundaries and the legal description of the property; determination of the current legal owner of the property or land involved; planning permission building licenses obtained; bank guarantees in place; the land has been properly re-zoned for development purposes; and all utility services are installed and available. In Spain, contracts are not subject to survey as in other countries. You should still order a survey to ensure you are satisfied with the results before you sign.

Another important fact to be aware of is that foreign investors will need to acquire a Número de Identificatión de Extranjeros (NIE). This identifies the number holder to the tax authorities and allows them to determine their tax liability. The NIE number can be obtained from the local police station.

Tax Highlights:
Impuesto Sobre Transmisiones Patrimoniales (Itp)
This is a transfer tax payable when you purchase land, a house, an apartment or a building plot from a private owner. It is calculated at the rate of 7% of the declared value of the property as expressed in the Escritura de Compraventa (Title Deed).

There are severe penalties for under declarations, which also can lead to Capital Gains Tax issues in the future, as the declared value on your purchase is the base line used by authorities when assessing the capital gain you make upon the eventual sale of the property.

Impuesto Sobre El Valor Añadido (I.V.A)
This is the Spanish equivalent of VAT. It is charged at the rate of 7% on the purchase price of all property with the exception of commercial property and plots.

AJD (Stamp Duty
Stamp duty is payable by the purchaser at 1% of the purchase price on new property.

Municipal Plusvalía
This is a local tax paid on the increase in the value of the property from the last transaction.

Normally payable by the vendor but it may be stipulated that the buyer pays. Who pays this will be discussed in the negotiations and in consultation with your lawyer.

Credits & Mortgages:

Spanish banks are happy to lend up to 70% of the purchase price to non-resident buyers. Banks in Spain base their decision regarding your ability to repay the mortgage by looking at your net monthly income. Pay check stubs, tax returns and / or bank current accounts are all required as verification of income amounts. Copy of passports, NIE number, and a bank reference are also required. Other documentation is normally required and varies from lender to lender.

100% financing of the purchase price is possible, but depends on the valuation of the property, and is more likely to be possible if you are buying an off-plan property. During the period between agreeing the purchase price and the completion date the value of the property will normally have risen. Some banks will use this final valuation and it may mean that 100% of the purchase price can be funded.

As far as the length of time it takes to get a response from a Spanish lender, normally a verbal indication within one to three days is possible. This is subject to full application, required documentation and a valuation. Once all the paperwork is sent to the bank the full process should take approximately four to six weeks.