Buying property in Spain is possible and even encouraged. The coasts of Spain are populated by large colonies of German, French, English and Scandinavian retirees who have purchased homes there. Real estate/construction is one of Spain’s largest industries and one of the hardest hit by the international economic crisis, so foreign buyers and investors are always welcome. In fact, there’s a whole industry dedicated to marketing Spanish properties to foreigners. It is estimated that 150,000 foreigners purchase properties in Spain each year.
Madrid is slightly different in that it has no coastline, so it doesn’t draw as much attention from foreign retirees and foreigners looking to purchase vacation homes. However, once an expat has set down his or her roots in Madrid and generally when he or she starts a family, it is not uncommon to invest in a home.
The Spanish property market is notoriously bloated, especially in Madrid, where it is estimated that a 100 sq. meter house is an average of 400,000 euros. Due to the economic crisis, prices have decreased slightly, but property values in Madrid are still far from being considered a bargain.
If you decide to purchase a property in Spain, it is always advisable to work with a lawyer who can inform and advise you throughout the buying process and who is completely independent of your estate agent or developer. You can find a directory of English-speaking lawyers at http://madrid.angloinfo.com/af/275/madrid-lawyers-law-firms-and-legal-advice.html. You may also choose to work with a real estate agent, but this is not necessary should you want to look for housing opportunities on your own.
Here are some facts to keep in mind when purchasing a property in Madrid:
- If you are buying an apartment, remember that there is a monthly maintenance fee that you’ll have to pay called “comunidad.” The expenses included in the “comunidad” vary from building to building. Always take into account this monthly expense when budgeting.
- You can lose your deposit if you do not complete the housing purchase within the time frame specified in the purchase agreement.
- Always check to make sure the property has a valid planning permission. This is particularly important if buying an apartment in a building that is being renovated or any new construction.
- Capital gains taxes must be paid on any profits made through investment properties.
- Purchasing fees and taxes are generally about 10% of the purchase price.
- Research mortgage options in both Spain and your home country to determine which option works best for you. In Spain there are several loan providers that are aimed solely at providing mortgages to foreigners, but Spanish banks, such as Caixa, BBVA and Caja Madrid can also provide mortgages to foreigners.
The key to successfully purchasing a property in Madrid is understanding all of the steps involved and the documentation that accompanies each step. Once you’ve decided on a property to buy, this is how to proceed:
1. Securing the purchase
You will first have to sign a Documento de Reserva (Reservation Contract) when paying an initial deposit on the property. The deposit is usually 1% to 2% and counts towards the final price of the property. Never sign this document without your lawyer’s approval.
2. Deciding on the terms
At an early point in the purchase process, you are likely to have to sign a Contrato Privado de Compraventa, a private sales contract, that designates in detail the terms of the purchase, including payment dates, pricing, property specifications, etc. There is no backing out of this contract unless both sides agree.
3. Making the down payment
Before the initial deposit period is up, you will have to sign the Contrato de Arras and make your down payment, generally about 10% of the purchase price. Once this contract is signed, if you fail to complete the purchase, you will lose your down payment. However, if the seller backs out of the sale, he or she must pay you double the deposit.
4. Completing the purchase
The property purchase is officially complete when the Escritura Pública (deed) is signed by the buyer and seller in front of a notary (notario) and the seller receives a bank check for the remaining amount of the purchase price. Both parties must also bring a valid form of identification, such as a passport, and in some cases your NIE.
5. Once the property is yours
Although the property is now officially yours, you must still register with the Registro de la Propiedad (Property Register), located at C/ Principe de Vergara 72 (Metro Diego de Leon) and pay the taxes related to the purchase within 30 days of signing the escritura. You must also insure all buildings on the property, as not doing so is a criminal offense.
Not only will you now have to pay property tax, but you’ll also have to pay the taxes that apply when you buy and sell property. The standard property purchase tax for housing is 7% IVA (VAT), plus an extra 0.5% stamp duty. The purchase tax increases to 16% when the property purchased is land, commercial space or a parking space. Before completing the purchase, always visit the town hall to make sure that all property taxes to date have been paid, as unpaid rates become the new owner’s liability upon purchase of the property. For more information regarding property tax payments visit the City of Madrid’s Web site http://www.munimadrid.es/ or call the municipal information phone number 010.
In Spain there are several private loan providers that are aimed solely at providing mortgages to foreigners, including:
Europa Mortgages (http://www.europamortgages.com/multi-currency-mortgages.html)
Mortgage Group Europe (http://www.mortgagegroupeurope.com/)
International Mortgage Solutions (http://www.international-mortgages.org/)
Direct Mortgages Spain (http://www.directmortgages-spain.com/foriegn_currency_mortgages.htm)
However you may find better rates through Spanish banks, such as:
La Caixa (http://portal.lacaixa.es/home/particulares_es.html)
Banco Santander (https://www.bancosantander.es/cssa/Satellite?pagename=SantanderComercial%2FPage%2FSAN_Index)
Caja Madrid (http://www.cajamadrid.es/CajaMadrid/Home/cruce/0,0,0,00.html)
Interest rates and loan requirements vary from one bank to another.
In Spain, a mortgage is granted on a property and not to an individual, making it possible to transfer a mortgage to the new owner, and meaning that a mortgage will not be granted until a property has been found and the purchasing stage is underway. Spanish lenders will generally lend 30% to 40% of your monthly net income, so the interest rate and the product offered play an important role in determining the amount that can be borrowed.
Receiving a formal mortgage offer takes a minimum of three weeks, and interest rates are generally based on the Euribor (European Business Rate). Current information about Euribor can be found at http://www.euribor.com.es/
To apply for a loan, you will need to present:
- Last three pay stubs.
- Last tax return.
- Last six months of bank statements (last two to three years if you work freelance).
- Employment contract.
- Passport and NIE.
- IVA returns if working in Spain as a freelancer.