Avoiding Common Property Investment Mistakes In Spain

For British expats in particular, Spain is a very popular country for buying a second home or to relocate, especially for expat retirees who are looking for a new life or a perfect holiday home. Spain accounts for one in four of overseas property purchases by Brits.

It’s obvious why Spain is popular: with lots of sunshine and a friendly population, it also has nice family-friendly nightlife and good cultural attractions along with a sound infrastructure including good railways and roads.Expat property investors in Spain

However, it’s not all been good news for expat property investors in Spain. The country experienced a sharp drop in property prices during the financial crisis and then the tax rules changed for expats which made having property there expensive.

In addition, during the property boom, some crooked developers managed to build huge numbers of properties without planning permission, which left expat owners distraught when local Spanish authorities decided they had been built illegally and demolished lots of them without compensation.

That’s leaving aside the British investors who lost deposits they put on off-plan Spanish property before prices crashed and the properties were left unbuilt.

At its peak, the Spanish construction industry was building 800,000 new holiday homes every year but lots of developments were left unfinished and homebuyers lost their money – though there was successful legal action from those who gave deposits to get them back from Spanish banks.

A quick Internet search will reveal lots of stories of expats who have lost fortunes after unknowingly buying illegally-built houses in Spain or who have suffered a ‘land grab’ where the land their home stood on was claimed by someone else.

Spain's top of their buying list

But now British buyers are back in force and Spain is top of their buying list. Property prices are also beginning to recover, though they are still much lower than they were before the financial crisis struck.

To put this into perspective, in some areas property prices are still around 30% lower than the 2007 peak which makes them affordable for expats.

For those who are looking to buy Spanish property, the most important aspect to appreciate before doing so is that knowledge is key.

It is important for expats, regardless of where they come from, that they know what they are doing and familiarise themselves with the way the Spanish property buying system works.

While the UK is currently still in the European Union, not all laws are identical so property buyers should be more cautious and double check everything they are told and everything in the paperwork.

Advice for expats buying Spanish property

The next most important piece of advice for expats buying Spanish property is they must always use a conveyancing lawyer. A surprising number of expats don’t use a lawyer for buying Spanish property and use either an unqualified person or the estate agent; this could be a very expensive mistake to make.

It’s also important to use a lawyer who speaks the expat’s language fluently so there’s no misunderstanding and everything is translated efficiently.

It should go without saying that the lawyer should also be independent of the estate agent as well as the seller and also registered with the official body, the Colegio de Abogados. They should also have public liability insurance cover and any advice given should be made in writing and a copy retained.

This issue of paperwork is also important and expats should only sign documents that they fully understand, which may mean that the document had to be translated into their own language.

Also, expats should never sign documents without the lawyer being present and should be aware of any hidden fees, some of which can be hefty, once the document has been signed.

It’s also worth bearing in mind that regardless of how friendly the estate agent is, he is a salesman working on commission. Unlike estate agents in UK, the ones in Spain can earn up to 18% of the property’s sales price – that’s an impressive incentive to be ‘charming’ and ‘friendly’.

Expats should always use professionals who are objective

For this reason alone, expats should always use professionals who are objective and working on a fee basis for investigations and advice, for instance surveyors and lawyers.

Speaking of surveys, it should also not come as a surprise that many expats decide not to invest in the knowledge and expertise a professional surveyor can bring when examining a property; the quality in property construction varies hugely in Spain and the expat buyer should ensure they are buying a decent home.

Having said that, there’s no equivalent of a Spanish building surveyor but there are UK trained and qualified building surveyors available who can undertake a thorough building survey to ensure it’s not only worth the money being paid but has no fundamental problems in its structure.

It’s also surprising how many expats buy a property that does not have an electricity or water connection, never mind a telephone land line. Expats interested in a property without a utility connection should be very wary indeed since the property may never be connected despite what the seller or the estate agent claims.

Defining a property in Spain

This is down to the three distinctions to define a property in Spain which are Urbanizado, which means building land that can be built on subject to planning; fully Urbanizado is where the infrastructure works and utilities have been completed and Rural is the definition for agricultural land which has restrictions on what can be built upon it, if anything at all.

As with all property purchases, expats should be wary of falling into the classic trap of buying a property that is unsuitable for other buyers so when it comes to resell it, they will struggle to find a buyer.

To avoid this, the expat should examine the property carefully as well as any connecting roads and traffic noise, privacy issues and whether there are any restaurants or bars nearby. Also, will they be looking to sell to another expat or a Spanish buyer – if it’s the latter they will not be attracted to an area with lots of foreigners.

Also, we’ve mentioned the crisis that hit the Spanish property market when prices took a steep dive so it is tempting for expats to believe that they are snapping up a bargain property which is not to say it’s not worth the money. There’s often a good reason why the seller is asking for a low price.

Interest building in the Spanish property scene

With interest building in the Spanish property scene once again, expats should also be wary about buying off-plan properties and making large payments as a deposit to secure what appears to be a dream home.

They should ensure that a building licence has actually been granted for the property to be built before parting with any cash.

Indeed, expat buyers of Spanish property should really appreciate what their rights are before beginning their property search and what they need to do in the sales process such as understanding the taxes and costs that are involved.

If the expat is looking to move there with their family, there will be personal tax implications, employment rights as well as social security rights, and also the need to secure schools for the children.

In addition, there may be maintenance costs for the property, particularly if it’s within a resort, and there may be a local tax charge too.

Expats should never be shy to ask the property developer about their portfolio and history of delivering quality buildings and they should ensure that if they are buying a resale property then there are no hidden fees or legal complications.

Take it slow

When buying a property in Spain, expats should never be rushed into purchasing anything and they should never buy a home on impulse regardless of great the location of the property is. They should always assess the pros and cons first and learn more about the area.

The process for buying a property in Spain moves quickly and expats should be prepared for buying a property that is a resale taking between four and six weeks. An off-plan or new property could take up to a year to process, depending on the stage of its construction when the expat bought it.

Indeed, an important tip for any expat looking to buy off-plan properties in Spain is that they really need to ensure that the building licence has been granted for its construction before making any payments. This is because banks are only responsible for repaying a deposit when that licence is in place.

Finally, as with property purchases everywhere, the guiding principle is always ‘location, location, location’.

While many expats, particularly from the UK, will be happy moving into an area full of fellow Brits, others may want something more rural or with more Spanish people in the neighbourhood. Expats should also be wary of living too far from towns or cities since they will need to access communities and amenities as well as services.

Expats also need to consider how close the nearest international airport is and how close the sea is as well – property experts say the home should be not more than 20 minutes from a beach.

Benefits for non-EU expats moving to the country

While Spain offers the citizens of EU member countries excellent opportunities to buy and enjoy property there are also benefits for non-EU expats moving to the country.

Indeed, Spain encourages those who can afford to buy a property worth more than €500,000 with an automatic residency visa. Expats should be aware this is not a work permit but enables them to live in a country, so it’s mainly aimed at holiday home buyers and retired people.

In fact, buyers do not need to be resident in the country before purchasing a property and they can buy before they actually arrive and so are able to move in directly. Obviously, this approach to buying a home comes with a number of risks.

We should also mention that the process of buying a property in Spain is different to that in the UK since the buyer makes an offer which, if it’s accepted, then the buyer and seller will sign a preliminary contract at which point the buyer will pay a deposit, usually around 10% of the sale price. When the contract of sale is signed, the balance of the sale price along with other costs and taxes must also be paid.

Whatever the expat’s needs, the Spanish property market is going from strength to strength and industry experts say the crash that was witnessed in 2007 is unlikely to occur again, so the long-term ambitions for the market look good with strong price growth and good returns.

Expat buyers should still be cautious, however, and the UK’s Foreign Office has issued guidance for Brits looking to buy property in Spain with these recommendations:
– check the credentials of estate agents and lawyers being used
– check the Land Registry to ensure it is registered (that’s the Registro de la Propriedad)
– check that planning permission has been obtained correctly, if appropriate
– check there’s no outstanding debt that is attached to the property, for instance a mortgage
– check with a surveyor that the property is structurally sound and is as described

Spain’s Land Registry can be contacted by email, telephone or in person. The website address is www.registradores.org