FAQ About Buying Property in Spain Marbella
How do I go about buying property in Spain?
Firstly, consult a reputable agent in the desired area. Most agents share a property portfolio, so time can be saved by building a relationship with just one, rather than several. When you find your dream property, a small deposit (usually €3.000 to €6.000) is required by a developer to reserve the property. A reservation document is drawn up which means that the property is taken off the market, and the purchase price is fixed. This reservation sum is fully refundable if the developers do not have their paperwork in order. Also, if the developers fail to acquire a building licence for the development, the funds paid will be returned. Normally at this stage our clients are introduced to a local lawyer (unless our clients have already secured a lawyer´s services) who will advise them on the entire purchasing process, in addition to arranging for the transfer of the monies required for the signing of the purchase contract.
Normally within 30 days, private purchase contracts are exchanged. At this stage your legal representatives will be required to hand over your first instalment of funds, usually anything from 20% to 50% of the purchase price.
During construction, some developers´ payment terms require further payments to be made. Again, your lawyer will advise when these instalments are due.
On the day of completion, the balance of the purchase price is paid, and you (or more commonly, your lawyer) will sign the title deeds for the property, and the keys will be handed over.
If I am purchasing a property from a developer, what happens if the developer disappears or goes bankrupt before completion?
This is now extremely rare, and the government have actually tightened up the process in this area quite considerably.
When signing private purchase contracts, the developer must now produce evidence that he has in place a bank guarantee or an insurance policy.
Following this, if the developer runs into difficulties, such as bankruptcy, the purchaser´s lawyer will arrange for the return of all monies paid to date, plus interest at 6%.
Do I personally need to be present to sign the title deeds on completion, and can I use the property immediately?
The notarial system in Spain means that completion is never the exact science that exists in other countries.
We always advise clients to arrange for Power of Attorney so that the lawyer can sign on your behalf. This saves the frustration of sitting around a smoke-filled office in the centre of Malaga for hours on end, waiting for things to get moving!
Only once deeds are signed and the keys are effectively handed over to you can your lawyer arrange for the utility contracts with water and electricity companies.
Therefore, physical possession of the property normally takes 1-2 weeks once deeds are signed.
Again, we always advise clients not to book their flights until they receive the OK from the lawyer.
Does the buying process differ if I decide to buy a resale property?
For resale properties, the process is similar. A reservation deposit is required to formalise any offer to purchase.
Normally within 30 days, a sum of 10% is usually required in order to exchange contracts.
A completion date is then set to suit both the buyer and the vendor, and the remaining balance is paid at the notary on completion.
Should I buy a new-build property, or something a little older?
This is really your decision. However, there are pros and cons to both, and it is our job to try to find the most suitable property for your personal lifestyle and/or investment requirements.
For instance, if you require a property to be ready for use within a very short space of time, obviously a resale property makes sense.
However, we would always advise to be careful to ensure that build quality is acceptable, and that the vendor is not going to make the sale problematic.
Most of our investors prefer to buy new or nearly new properties. To secure properties on some of the coast´s top developments, clients need to reserve off-plan and wait for 12-24 months for delivery. This ensures that they can secure exactly their preferred unit, at the keenest prices.
Some of those clients then use the property as an investment vehicle, rather than a simple holiday home in the sun.
I´ve been hearing reports of buyers ´doubling their money´ within a couple of years by buying property in and around Marbella. How can this be true when prices are rising at 20% per year?
Some clients decide to reserve units, and then re-sell the properties prior to completion. So, in simple terms, a client can ´buy´ a property for €250,000 (approx £165,000) secure payment terms of 30% on signing the purchase contract, followed by the balance of 70% on completion, say in 2 years time.
So the client pays €75,000 (30%), and sits back, waiting for the market to rise at its historical level of 20%.
When the time approaches to complete the purchase, the client is ´sitting on´ a property worth €410,000 (assuming 20% growth p.a.). It is possible to then sell the property to a second buyer for the market value at that time. The ´new´ buyer simply pays back to our client the monies that have already been paid and arranges to pay the 70% balance directly to the developer. Crucially, the ´new´ buyer will also pay to our client the profit on the purchase price of the property, in this case €160,000. Even with projected growth of 10% per annum, this could still generate gross profit for our client of €52,500 (a gross return of 70% on initial investment). Buyers should bear in mind that there are some purchasing and selling costs that are incurred. Personal illustrations can be provided. There are also certain tax advantages to this scenario which can be explained during personal consultation.
How much should I allow on top of the purchase price for costs/expenses?
As a rule of thumb, allow for between 10% and 11% of the purchase price as costs. These are as follows:
IVA (or transfer tax) 7%
Payable with each staged payment
Stamp Duty 1%
Payable on completion
Notary & Land Registry Fees, approx 2%
Payable on completion
Legal Fees 1%
Half payable at start, half payable on completion
I keep hearing about ´Community Fees´. What are they?
Community fees are payable to the Community of Owners, usually by direct debit on a quarterly basis.
They usually cover all costs relating to the external fabric and upkeep of communal areas, e.g. pools, gardens, paths, staircases, external painting, security etc. Exact budgets are discussed and agreed at AGMs, chaired by an elected president. Attendance is not compulsory, as votes can be registered by proxy.
Will my property be freehold?
Yes, all properties that we deal with are freehold properties.
How easy is it to obtain a mortgage on my Spanish property?
Firstly, banks in Spain will usually lend up to 70% of valuation to non-residents. The mortgage market is not as sophisticated as the UK (in terms of product choice) but the application process tends to be very simple. Paperwork required includes evidence of income and a letter from your bank. Most mortgage products are repaid on an interest and capital basis, with a maximum length of 20 years. Some lenders are introducing products such as interest-only mortgages, but these are not easily found.
There are various ways of financing the purchase, and the best way will very often depend upon your personal circumstances. Some of our clients choose to release equity from existing UK property to part-fund the purchase, and then take a Spanish Euro mortgage. The advantage of a euro mortgage is that buyers are protected from any currency exchange volatility. Spanish mortgages are paid directly from your Spanish bank account which can be set up by your lawyer.