The purchase process

Can EU citizens/foreign residents buy real estate in Spain?

If you intend to invest in buying a holiday home abroad for the first time in your life, it is understandable that your initial concerns may be partially discouraging. However, Spain is a country that is very supportive of foreign investors and, thanks to its rich experience, the local institutions are already much better informed than they were years ago. The rules for buying real estate in Spain for foreigners are relatively simple.

It all starts with choosing a property and contacting the real estate agency, which is your representative throughout the process. This means that the client is very unlikely to do anything on their own. All matters are usually expressed by the real estate agency, which, thanks to contractual cooperation, will also arrange the necessary legal steps. These include obtaining the NIE tax identification number or opening a Spanish bank account, which are further initial steps before the purchase itself. The client is informed about all changes made and at the same time may be invited to cooperate, for example by signing documents, verifying the signature, etc.

Spain also offers a program of so-called gold visas for foreign property owners. Under this program, with an investment of over €500,000 in Spanish real estate, it is easily possible to obtain a residence visa.

In the first half of 2019, Spain approved 848 gold visas, with the majority of successful applicants being Chinese (272) and Russian (187) investors. In total, this meant that 4,941 people have received a gold visa since the program launched in 2013.

How to buy a property in Spain?

The process of buying real estate in Spain usually proceeds as follows. The buyer first makes an offer. If this offer is accepted, the buyer and the seller will sign a future contract (Contrato privado de compraventa – so called “Arras”) and the buyer will pay a deposit, usually 10% of the purchase price.

Then the buyer arranges a mortgage as needed, which he should already have pre-negotiated with its provider.

The purchase contract (Escritura de compraventa) is usually signed by a notary. Subsequently, the entire purchase price, taxes and other potential costs become due. The change of property owner in the real estate cadastre is registered within 1-2 months.

Mortgage in Spain

Spanish real estate market

Spain’s popularity as a destination for foreign investors has enjoyed unprecedented popularity in recent years, as evidenced by available data from the Spanish real estate register. Last year alone, more than 61,000 properties were sold to foreigners, which represents 13% of total sales. At the same time, 7% of the total volume of mortgages provided for the purchase of real estate was signed by foreigners. The Kingdom of Spain is aware of this fact, so that the supply of the real estate market responds flexibly to external demand. The banking sector is not lagging behind either. With the ever-expanding offer of an inexhaustible number of houses and flats, several options open up for foreign clients where and how to obtain funds for their investment plans.

If you are discouraged by the idea of ​​a complex financing solution on the way to your goals, do not be intimidated. Mortgage financing is the most common choice when buying real estate in Spain. And that you are a non-resident does not play such a crucial role. We will provide you with basic, up-to-date and verified information about what options you have and what their advantages or disadvantages are.

How to apply for a mortgage?

Although the official mortgage application process can only begin after the purchase agreement has been signed, it may also be desirable to start mortgage negotiations at the same time as buying a property.

Documents needed to apply for a mortgage

• Identification number NIE
• Proof of employment and income (prepare payslips for sure)
• Bank account statement to which your salary is sent (for the last year)
• Preliminary agreement with the seller
• Proof that property tax is still paid
• Details of your current debts and mortgages
• Copies of all your existing deeds of ownership (in Spain and elsewhere)
• Records of your current assets
• Any prenuptial agreements (if any)
• Confirmation that you are not a Spanish resident
• Tax return
• A tax residence certificate

Remember that the relevant documents must be translated into Spanish and you must have a bank account in Spain. Whether it is enough to send the documents in electronic form or the bank will request them physically depends on each institution and communication between the two parties.

At this point, all that remains is to choose the right tactics. If you contact several institutions at once or have an offer processed, with which you will then contact competing mortgage providers, it is up to you. But be sure not to stay with a single offer. You will not pay anything for its processing or consultation. However, what must be taken into account is the extra costs, for example, for a lawyer or a translator.

The mortgage approval process usually takes 4-6 weeks. So this is the minimum time before you can start packing suitcases with confidence and enthusiasm.

Total cost of buying real estate

Taxes

When buying a Spanish property, it depends on whether you will be its first owner or not. In the case of new real estate, it is necessary to pay value added tax (IVA) in the amount of 10% of the purchase price and the so-called stamp duty (AJD) in the amount of 1.5% of the purchase price.

If you are not the first owner, it is necessary to pay a transfer tax (ITP), the amount of which varies depending on the area in which the property is built. It can reach the value of 4 – 11% of the purchase price of the property. In Valencian region of Costa Blanca ITP tax reaches 10%.

Fees

Additional costs associated with the purchase of real estate can climb up to 4.5% of the purchase price. They include fees for notary and law services, bank expenses, fees associated with a possible loan and the transfer of ownership in the real estate cadastre.

Notary

The notary fee covers the preparation of contracts establishing the right to real estate (Escritura) and verification of the authenticity of signatures. The amount of the notary fee depends on the price of the property and the complexity of the documents. It ranges from 0.5 to 1.0% of the purchase price.

Cadastre

After completing the purchase, the new owner is registered in the real estate cadastre as the owner. The fee for this registration ranges from 0.5 to 1.0% of the purchase price.

Lawyer

Layer’s role is common in the process of buying real estate. The lawyer settles NIE and will represent you before the notary and at the relevant authorities. His/her services are charged. Generally, you should expect to pay around 1% of the purchase price for these costs. It is up to you whether you use a lawyer available at the representative real estate agency or yours. In the latter case, it is necessary to agree with him before you pay the deposit or sign any document related to the property. At the same time, inform the real estate broker about the fact that you will use the services of your chosen legal representative.

Bank

If you are sending money to Spain from a bank account in other EU country then Spain, it is likely that the bank will charge a fee. Especially if you are converting money from other currency to Euros. The bank may also charge a fee for issuing a bank draft, which will be used to pay the price of the property after signing the contracts with a notary.

Mortgage

If you are considering paying for the purchase of a property, it is necessary to count on a fee for estimating the price of the property around € 500 – 800. The bank may also charge administrative fees depending on the type of mortgage and the amount lent. Generally, fees of 1% of the loan amount can be expected.

Real estate management

Taxes

City property tax (IBI, Impuesto Sobre Bienes Inmuebles)

If you own a house in Spain you must pay a city property tax. Based on the size and location of the property, local authorities determine its cadastral value (valor cadastral), which is around 60 to 70% of the market value of the property. The amount of city tax is then determined in the range from 0.4 to 1.1% of the cadastral value of the property. Payment of the city tax is in the competence of the property owner and the city (municipal) office is not obliged to draw attention to the need for payment. The tax is paid once a year, the exact period may vary depending on the location.

Annual property income tax for non-residents (Impuesto Sobre la Renta de no Residentes)

The amount of the annual property income tax is set at 19% for all residents of the EU, Iceland and Norway (24% for residents of other countries) from the tax base, the amount of which is determined according to the purpose for which the property is used. If the property is rented, the tax base for calculating this tax is the total gross rental income. If the property is used for own use, the tax base is an amount of 2% of the cadastral value of the property (or 1.1% if its cadastral value has been revised since 1 January 1994).

Property tax (Impuesto Sobre Patrimonio)

If you own any property worth at least € 700,000 in Spain, you are required to pay property tax of 0.2 – 3.5% of the property value to the Treasury Authority (Agencia Tributaria). The percentage rate depends on the region in which the property is located and its total value.

Waste collection tax (Basura)

The waste collection tax is paid to the municipal authority and covers the fee for the collection and disposal of household waste. The amount, date and frequency of payments vary between regions.

Insurance

Home insurance (Seguro de Hogar)

You are not formally obliged under Spanish law to insure your property unless it is financed by a mortgage. The insurance contract will protect you from possible damages in the event of fires, natural disasters and other accidents. This service costs an average of 300-350 euros per year and depends on the value of the property, the scope of insurance and other factors. Apartment buildings often have insurance included in service fees. This insurance does not replace the building’s insurance, so we recommend that you verify its coverage.

Any insurance contract in Spain is concluded for one year and is automatically updated for another 12-month period. If you intend to terminate the contract, you must inform the insurance company in advance, 1-1.5 months before the date of renewal of the contract.

Property equipment insurance (Seguro de Contenido)

Property insurance is not required by law in Spain, which is why around eight million Spanish households do not. In addition, many more are insufficiently insured.

However, if you expect to rent your property or often leave your house or apartment empty, you may feel safer with insurance. Many insurance companies also cover portable items (eg mobile phones, laptops and bicycles) outside the home for an additional fee.

Energy

If your property already has an existing electricity connection, you will arrange everything faster and easier. All you have to do is contact the supplier and enter into a contract in your name. You will need proof of identity, NIE identification number, Spanish bank account number and proof of address. However, if your property does not have an existing electricity connection, this process will be more lengthy. You must contact your local distributor to arrange a connection, which is likely to involve additional charges.

Even though energy prices are not very high in Spain, your bills are likely to be slightly higher than you are used to. Central heating / cooling is not very widespread in Spain, which increases energy consumption during the summer and winter months. Payment is usually made by bank transfer, the interval of payments depends on the supplier.

Electricity supply is (as in most of Europe) 220V AC with a frequency of 50 Hz. The sockets are the same as in our country (type C, or older type F). If your appliances are not compatible with them, you will need to purchase adapters.

Water supply

In Spain, water supply is managed at local community level, with the provision of services falling within the competence of local authorities. There is a combined market system in the country and it is not possible to choose a provider. Some areas have a municipal public provider, while about a third use the services of a private company. The rest is a combination of public and private sector.

After buying a house, it is necessary to contact the local authorities to register the property and rewrite the water supply contract. You will also need proof of identity, an NIE identification number, a Spanish bank account number and proof of address. If your new property does not have a water connection, you will need to arrange it with your local provider.

In Spain, water and sewage are usually paid monthly or quarterly.

Spanish drinking water

Water quality is generally very good in Spain, with 99.5% of tap water considered drinking water by global standards. However, the actual quality of the water flowing from the tap can vary greatly in different regions, and even in the streets of one city. This is due to the quality of the local water infrastructure and the fact that many pipes in Spain are relatively old and local authorities use chlorine to keep them clean.

For taste reasons, many people in Spain prefer to use tap water only to wash fruit and vegetables and brush their teeth. However, this largely depends on personal preferences and the quality of the local tap water.

In some regions, water consumption restrictions are issued in the summer months, such as watering the garden or washing the car.

Other expenses

If the property is part of an apartment building with an established community of owners (comunidad), the owners must contribute monthly to a common fund for repairs and maintenance of the building. The amount varies depending on the type of property and available services, and ranges from €200 to €1,500 per year. In luxury complexes with a developed infrastructure (with tennis courts, spa, gym, restaurant, swimming pools and whirlpool), the annual fee may be even higher. Residents of private housing can hire a management company or pay for various services individually, such as a gardener, cleaners, pool cleaners, etc. You may also want to connect to the internet, TV or telephone.