The process of purchasing a property on the Costa del Sol
Costs of Purchasing
There are various taxes and costs associated with the purchase of property which will add approximately another 10% to the purchase price. The various charges are:
The transfer tax, called “Impuesto de Transmisiones Patrimoniales” in Spanish, is levied at 8% of the purchase price. It will be 9% for all purchase prices higher than 400,000 Euros up to 700,000 Euros. Higher than this figure it will be 10%. New developments are 10%.
The other tax to be paid on a property purchase is the “arbitrio sobre el incremento del valor de los terrenos”, which is the municipal tax charged on the increase in the value of the land since its last sale, using the official value of the land as the taxable base which tends to be always lower than the market value. The land is officially re-valued periodically for this purpose. This tax may be paid by either the vendor or the buyer, as agreed between the parties.
The notary fees are fixed by an official scale and the fee varies according to the size of the land, the size of the dwelling and its value.
Land Registry Fees
This will be a similar amount to the notary fees, and relates to the entry of the property in the land registry (“Registro de la Propiedad”).
Appointing a Legal Representative
It is highly recommended to appoint a legal representative as early as possible in the purchase process. MD International Estates recommends
Power of Attorney
Should you not be able to be present to sign all the necessary documentation related to the purchase, then you may grant power of attorney to your legal representative or to another third party.
Deciding on a Property
Once you have decided on a property, you will need to pay over an initial deposit/reservation fee to ensure that the property is taken off the market. The fee may be placed with the real estate agency or with your lawyer. A corresponding “offer and reservation document” should be signed on making the payment, indicating the basic terms of the purchase, i.e. the price, details of the vendor and buyer, details of the property, and the date by which the “private purchase contract” should be signed.
The Private Purchase Contract
The private purchase contract will then be signed approximately 20-30 days after payment of the initial deposit/reservation fee, and once due diligences have been carried out on the property.
Normally a 10% deposit would be paid; however, this may vary according to the vendor’s wishes.
The contract will stipulate all the terms and conditions of the sale, including the final date by which the title deeds must be signed and final payment made, and this will then give the buyer time either to obtain a mortgage or get together the money required to complete the balance. Should the buyer fail to complete the sale by the final date, the buyer would lose the deposit. On the other hand, should the seller decide to pull out of the sale, or should the seller find another buyer who offers to pay more, then the original buyer has the right to claim back twice the amount of the deposit.
It is important to note that should you consider applying for a mortgage in Spain; this will add approximately another 2% to 3% to the purchase costs. For a non-resident buyer, the mortgage is usually limited to around 70% of the valuation of the property. Once the mortgage is approved by the Spanish bank based on your proof of income, the bank will issue a binding offer which can be compared with other bank’s offers.
Apart from checking the legalities of the property, your lawyer will also check that all running cost and local tax payments are up to date. This will also enable your lawyer to advise you of the approximate annual running cost of the property.
The Title Deeds and Registration
The “Escritura Publica” or “Title Deed” is the final document of the sale and is signed between the buyer and vendor when the final balance due on the property is paid. The signing takes place in the presence of a notary public, which makes the document legally binding. The notary public is an official of the state, and his duty is to certify that the contract has been signed, monies paid over, and that the buyer and vendor have been advised of their tax obligations. The notary public keeps the original of the document and the purchaser is issued with a second authorised copy, which is then entered in the property registry (against the payment of the stamp duty or transfer tax). This means that if the buyer loses the buyer’s copy, then the notary public can always issue another copy.
When going through the purchase process, you will come across different values which are attached to the property. It may be helpful to understand these different values:
- Cadastral value
- Fiscal value
- Valuation value
- Market value
- Declared value/Sales price
For more information about buying a property in Spain please contact us at [email protected]