Some of the common pitfalls of buying a property in Spain include paying a deposit, liability to purchase tax, issues with off-plan properties, and properties being built illegally.
During your research into buying a property in Spain you will have come across many stories of purchases in Spain that have gone wrong. The key to making a successful purchase of property in Spain is to take early advice from a skilled and experienced independent Spanish lawyer.
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If you are unfamiliar with the process of buying a property in Spain you should read our pages on the process of buying a property in Spain. If you are unclear as to the costs of buying a property in Spain please read our page on the costs of buying a property in Spain.
That said, it is easy to encounter difficulty when dealing with a different jurisdiction and an unfamiliar language. Please find below some of the common pitfalls of buying property in Spain.
The pitfalls of buying property in Spain - the Deposit
When you make an offer on a property in Spain you may find that you are placed under a great deal of pressure to make a “reserve” payment. The estate agent will explain that this is a payment to take the property off the market.
At this point you know very little about the property. In fact, you do not even know that the person purporting to sell the property is actually the owner of the property. Having said that, many people are pushed into paying a deposit at this stage because they have fallen in love with the property and do not want to lose it.
So, what is the problem with paying a deposit when you think that you want to buy the property? The problems are twofold, firstly you do not know whether there is a serious problem with the property and secondly you do not know whether the deposit is refundable, even if you are told that it will be refundable if there is “a problem with the property”.
Please take a look at our page on the process of buying a property in Spain. to understand how to avoid the pitfalls of buying property in Spain.
Essentially, your independent Spanish lawyer should have the opportunity to advise you in respect of the property and the agreement before any documentation is signed and before any money changes hands. If at that stage something is identified that rings alarm bells, you can make an informed decision as to whether to proceed, safe in the knowledge that it will not cost you your deposit to walk away from the property.
The pitfalls of buying property in Spain - purchase tax
As you will have read in our page on the costs of buying property in Spain, purchase tax is by far the biggest expense you will encounter when buying a property in Spain.
What you may not know is that each property has two values in Spain - the market price and the “valor de referencia”, or what can be described as the rateable value. In the event that the rateable value is higher than the market price you ought to pay purchase tax as a percentage of the rateable value, not the purchase price.
The danger if you underpay purchase tax is that the Spanish tax agency can claim from you the amount it considers you have underpaid, with penalties.
To avoid this pitfall your independent Spanish lawyer should advise you of the rateable value of the property at an early stage.
The pitfalls of buying property in Spain - Off-plan Properties
So, you’ve read our guide to the process of buying an off-plan property in Spain and you’re viewing a show home with the intention of proceeding. Everything seems straightforward and so you’ve decided not to use an independent Spanish lawyer. You’ve paid over half of the purchase price and suddenly the developer stops answering your calls. What now?
The answer to that question depends very much on the agreement that you signed and the bank guarantees provided by the developer for the payments you’ve made to date.
If there are no guarantees you may find it extremely difficult to retrieve your funds, especially if the developer is insolvent or has gone into liquidation.
Good quality independent Spanish legal advice from the outset is the way to avoid this pitfall of buying property in Spain. For more information, please read our article on reclaiming deposits for unbuilt off-plan properties in Spain.
The pitfalls of buying property in Spain - the property is not registered or was built illegally
You’ve paid a deposit and instructed your independent Spanish lawyers to make enquiries in respect of the property that you want to buy and they have advised you that the property is not registered, or that the house is registered but an extension that was built later is not registered.
Alternatively, your independent Spanish lawyer may identify that the property was built without planning permission, or that it is not permitted to be used as a dwelling. What now?
Your independent Spanish lawyer ought to advise you as to how this can be rectified and to ensure that it is done entirely at the cost of the seller. Alternatively, you may not wish to wait for the work to be done to rectify this situation, or it may not be possible to regularise the matter.
If you have paid a deposit then you may find it very difficult to obtain a refund of the deposit. That is why it is recommended that you instruct your independent Spanish lawyer before any funds change hands.
For more information on planning and development of property in Spain, please take a look at our planning pages.
Legal, Technical, and Fiscal Due Diligence
When purchasing property in Spain, conducting thorough legal, technical, and fiscal due diligence is paramount. Failing to do so can lead to unexpected costs, legal disputes, or complications with property ownership. The Spanish property market offers incredible opportunities, from charming countryside homes to swish city apartments, but it also presents unique challenges.
To safeguard your investment and avoid potential pitfalls when buying property, understanding the due diligence process is essential.
Legal Due Diligence
Understanding the legal requirements when buying a property is critical. Start by verifying the property’s registration in the official Property Registry. This step ensures that the seller is the rightful owner and confirms that there are no encumbrances, such as unpaid mortgages or rights of way that affect the property. Investigate whether the property is impacted by legal complexities like easements, zoning issues, or public domain restrictions that could affect its use.
For example, if you’re considering buying a house near coastal areas, Spanish law may impose public domain restrictions that limit development or access. Obtaining professional help to uncover any legal limitations is strongly advised, as is obtaining professional help to review the property’s legal documents.
Technical Due Diligence
Never underestimate the importance of technical assessments. Understanding the physical state of the property is vital, whether you're buying a new property or an older house in Spain. Hiring an independent surveyor ensures a thorough inspection of structural conditions, energy efficiency, and compliance with local building codes. For properties marketed with promises of rental income, a technical assessment also helps to confirm the property’s suitability.
Boundary verification is another key consideration. Ensure that the property’s physical limits align with its registered documentation. Discrepancies in recorded boundaries can lead to costly disputes or potential redevelopment restrictions. A local Spanish estate agent familiar with the area can assist in verifying such details, especially in regions with high demand or intricate landownership histories.
Fiscal Due Diligence
The financial side of purchasing property in Spain can be complex. Start by identifying all applicable taxes and fees associated with the buying process. These include the transfer tax (which varies by region), notary’s fees, and the annual property tax (Impuesto sobre Bienes Inmuebles). Failing to account for these can lead to financial strain, especially when combined with other associated costs.
Additionally, check for any debts attached to the property. These can include unpaid utility bills, payments to a community of property owners, or even Spanish property tax owed to the local council. Such liabilities can and often do continue to be associated with the property, meaning unsuspecting buyers could unknowingly inherit the liability for these costs. Working with an independent Spanish legal advisor ensures that these checks are carried out effectively.
It's also essential to understand the impact of currency exchange fluctuations and tax implications. If you’re buying a house in Spain to generate rental income, knowing your tax obligations is crucial. Stay informed about real estate tax policies, the costs of your property, and potential additional costs like value added tax for new builds.
Key Takeaway
Professional help should be non-negotiable when buying a Spanish property.
Engaging reputable and skilled Spanish legal advisers and technical experts can help you to avoid hidden costs and protect your investment. Whichever professionals you turn to, ensure that they are well-versed in the Spanish property market and property law. Adequate due diligence minimises fiscal surprises, legal hurdles, and technical setbacks, helping you to enjoy Spain's dazzling landscapes and rich cultural heritage without worrying about unpleasant surprises.
NIE (Foreigner ID) Requirement
Obtaining an NIE (Número de Identidad de Extranjero) is a mandatory step for non-Spanish nationals buying property in Spain. This unique identification number is needed for legal and fiscal matters, including registering the property and paying taxes. Applying for your NIE early helps to avoid delays in the conveyancing process and other legal hurdles.
Property Inspection Details
Thorough property inspections are essential to uncover potential problems. Check for signs of humidity, energy efficiency ratings, the condition of windows and tiles, and the functionality of the sewage system. Verify boundary lines and assess the overall structure. Don't forget to consider noise levels in the area and, if possible, have a friendly chat with neighbors to gauge relations and any concerns about the property.
Legality of Construction
It's vital to confirm that the property was built legally. A proper building licence should be in place, and if you're buying a rural property, check for compliance through processes like the DAFO (Declaración de Asimilado a Fuera de Ordenación) or AFO/SAFO. Skipping this step could result in fines or restrictions on use.
Tourist Licensing and Buy-to-Let Considerations
If you're planning to rent your property for holiday purposes, ensure it qualifies for a tourist license. Regulations for obtaining such licenses can be strict and vary by region. Owners' associations may also impose additional costs or restrictions for properties used as short-term rentals, so clarify these details upfront.
Ongoing Costs and Tax Implications
Understand the ongoing tax obligations, such as IBI (Impuesto sobre Bienes Inmuebles) or property tax, and the Non-Resident Tax applicable to foreign homeowners. Non-residents who don't let their property may also owe imputed income tax (income tax based on the value of the property), a cost many buyers overlook.
Charges for Community Facilities
Before purchasing property in a community with shared facilities like pools or gardens, check for any outstanding charges for pending maintenance work. These additional costs should be factored into your budget, as they'll be your responsibility after buying the property.
Buying Off-Plan Properties
When buying off-plan, ensure that the developer complies with legal requirements and provides you with a bank guarantee to protect your payments. Schedule inspections during construction to check progress, and review all legal paperwork carefully to confirm the completion timeline and quality standards.
Yearly Property Costs
It's important to budget for annual costs, including property taxes, maintenance fees, and utilities. These expenses can add up, so having a clear plan helps avoid financial strain after purchase.
Urban Planning Records and SWOT Analysis
Review urban planning records to uncover potential issues, such as future construction projects or zoning changes. Conducting a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis can also help evaluate whether the property aligns with your long-term goals.
Energy Performance Certificate
Every property in Spain must have an Energy Performance Certificate (EPC). This document shows the efficiency of the home and may influence operating costs. Verify its validity before completing the purchase.
Flood Zones
Determine if the property is in a flood-prone area by consulting flood zone maps. Homes in such zones may bring higher insurance costs and potential risks that can affect future value.
Choosing the Right Lawyer
Avoid hiring the same lawyer as the seller, or the lawyer recommended by the estate agent (who is acting for the seller), as this presents a conflict of interest. Instead, seek an independent lawyer who works with tax advisors and architects to provide comprehensive guidance tailored to your needs.
“Valor de referencia” (rateable value equivalent) and Costs
The rateable value is a key factor in calculating transfer tax. Ensure you understand this value, as it directly impacts how much tax you'll pay, along with the overall costs of the purchase. Make room in your budget for this crucial expense.
Is buying property in Spain a good idea?
Lifestyle, weather and stunning locations are some of the reasons that people still choose to buy property in Spain. You can avoid potential pitfalls with the right legal advice from an independent Spanish lawyer.
Are Brits still buying property in Spain?
Yes. Despite the UK having left the EU, there are still numerous reasons why Brits are still buying property in Spain and this is unlikely to change.
How long can you live in Spain without residency?
You can usually stay in Spain (or anywhere in the Schengen Zone) for three months without needing to apply for residency. To remain beyond this period, you must either apply for permission to extend your stay (a visa), or apply for residency. If you are in Spain for more than six months in a year then you will be regarded as a tax resident in Spain and in many cases will have to pay tax in Spain on your universal income.
How to avoid the pitfalls of buying property in Spain
As you will have learned, often the key to avoiding the pitfalls of buying property in Spain is to take early advice from a good quality independent Spanish lawyer. At E&G Solicitors in Spain we have been advising clients in relation to property purchases throughout Spain since 2004. We are completely independent and have offices in Spain and in the UK.
Find out more about selling property in Spain.
Taking the next steps towards buying a property in Spain
If you are considering buying a property in Spain contact us for a free initial consultation. You can contact us by telephone on 020 3478 1421, by email at info@solicitorsinspain.com or by completing our contact form.
