Buying Process for Properties in Costa del Sol
This is a quick guide explaining the standard buying process
in Costa del Sol, as well as Spain in general.
1. Choose wisely
Spain has very low “maintenance” taxes that apply after the
purchase, such as council tax or non-resident owners tax. However, the bulk of
the costs apply on the purchase. Therefore, even if prices have historically
gone up since the past global financial crisis and Spain is regarded as a safe
place to invest within the EU, buyers should ensure that they choose the right
property. In most cases it takes about 2-3 years for price inflation to offset
the original transaction costs.
In addition to economic considerations, Costa del Sol is a
large region with diverse cities, weather, beaches and scenery. It is therefore
important to ensure that the place you choose matches your specific lifestyle.
2. I have found my
dream home: How should I approach negotiations?
When you finally find the right property after seeing some
options, it is best to speak with your agent and agree on the next steps.
Your agent will be able to guide you during the negotiation process
until both parties agree on the price and key conditions of the purchase. This
usually involves an offer, to be followed by acceptance or a counteroffer until
both parties reach a verbal agreement.
A verbal agreement is generally non-binding and does not
give any certainty to either party. As a result, in order for the property to
be taken off the market and to fix the price and terms, it is necessary to sign
a reservation document or a private purchase contract (or PCC).
3. What is the right
price for a property?
For most resale properties, the listing price allows a
margin for negotiation. This logic does not apply to new developments because
prices are set by the developer, who most likely has financing obligations from
a bank and must respect some parameters. In addition, developers do not grant
discounts because this could upset earlier buyers who already paid a deposit.
The scope for negotiation for resale properties depends on the
specific circumstances.
On the one hand, if a property has been in the market for
some time, the owner may be willing to grant a discount (this could be 5% in
most cases or even 10% in very extreme conditions). This is especially the case
if the buyer is a “cash buyer” (with no mortgage financing) who can complete
quickly and without conditions.
On the one other hand, if the property is an excellent deal,
cheaper than neighbouring units and the owner recently reduced the price for a
quick sale: It is unlikely that one would secure a huge discount. In fact, in
these cases, if the price is excellent and it is a unique opportunity, it is
advisable to pay a reservation promptly to avoid losing the deal. If the price
is excellent and your agent tells you that there is another interested buyer,
it is not a sales gimmick. Excellent deals do not last long and they go to the
first reservation.
The bottom line is not how big the discount is, but if the
price is fair based on neighbouring units, the market as a whole, as well as
the likely resale value.
4. What documents need to be signed?
The first document to be signed in most cases is the
reservation contract. The reservation amount would depend on the value of the
property, but it could be €5,000-€6,000 in most cases. The reservation should
be conditional on the property being free of charges and not having any legal issues.
The reservation contract is very brief (1-2 pages) but it
will fix the price and take the property off the market for some days until the
private purchase contract (or PCC) is signed.
The PCC is normally negotiated by the parties´ lawyers. It
is a standard agreement, whereby the detailed conditions are stated and the
buyer generally agrees to pay a 10% deposit and complete before a longstop date
(this is usually in about 1 or 2 months to allow the seller to find another property
and for the buyer to complete all bureaucratic steps).
In most cases, if the buyer decides not to go ahead with the
purchase, the seller would keep the 10% deposit. On the other hand, if the seller breaches the
contract (if he decides not to sell the property or sell it to someone else),
he will have to return twice the value of the deposit to the buyer (this is
generally 20%).
5. What are the
standard bureaucratic steps to “complete” the purchase?
Most of the bureaucratic steps will be undertaken by your
lawyer or representative. These generally include:
(i) Obtaining an NIE (Numero
de Identificacion de Extranjero) or ID Number for Foreign Nationals in
Spain. The NIE can be requested in person at a Spanish Consulate or at the
National Police Station, but it is advisable that this is sorted by your lawyer
or representative after granting a power of attorney. An NIE does not result in
Spanish tax residency, but it is needed for most bureaucratic steps, such as
paying local taxes, registering title or buying a car.
(ii) Opening a local bank account. In Spain it is possible
for buyers to have a standard “resident” bank account, or a non-resident
account. The latter applies to holiday home owners who are not tax-resident in
Spain. Opening a bank account is straightforward because local banks in Costa
del Sol are experienced at dealing with international buyers. In accordance
with EU regulations, it is necessary to show photo ID, proof of address and
source of funds (such as tax declarations).
(iii) Mortgage. Local banks in Costa del Sol are experienced
with financing purchases by international buyers. They will generally require
standard documents like proof of income, tax declarations and credit reports. International
buyers are also advised to consult a specialised mortgage broker, as he will be
able to circumvent many of the complications and apply to several banks to get
the best rate. If you get financing, the filing agency of the bank will sort out
a vast part of the paperwork and the registration of title.
(iv) Completing the sale. This refers to the transfer of
legal ownership when the remaining 90% of the purchase price is paid to the
seller. By law, this needs to be done when the transfer deeds are signed before
a Spanish notary (the deeds are known as
“escritura de compraventa”). Completion can be done in person or by your
lawyer if he has power of attorney. It involves signing the purchase deeds at
the notary, whilst the keys (possession) and a banker´s cheque (cheque
bancario) are exchanged simultaneously. Your lawyer would have completed a due
diligence on the property beforehand, but the notary will also check that the
seller is the legal owner and undertake some last-minute searches at the land
registry.
6. What are the
standard post-completion steps?
As soon as the deeds are signed at the notary, the buyer
becomes the new owner and acquires title. This will be followed by post-completion
tasks which are normally completed by the buyer´s lawyer or representative. If
you are getting a mortgage, many of these steps will be completed by the bank´s
filing agents (gestoria). These post-completion steps include:
(i) Paying the relevant taxes.
(ii) Registering title at the land registry. The
registration of title in Spain is not obligatory, but it is done 99% of the
time to formalise matters and avoid having any embargoes if the seller has any
debts or claims.
(iii) Registering the new owner with local tax office to pay
council tax (IBI).
(iv) Connecting water and electricity. This is done by your
representative or lawyer.
(v) Registering with the padron. Local authorities have a
list of residents called the “padron”. Registration does not result in Spanish
tax residency, but it is advisable for accessing some local services or to
secure a discount with the local IBI council tax bill.
It is best if the above can be sorted by your lawyer and
representative, so you can focus on moving to your dream home without the risk
of encountering any bad surprises later on (such as cut utilities or a penalty
from the tax office).
7. Final considerations
This is a general guide of the buying process. Although it
could appear complicated, if you have a trusted agent and a lawyer, the process
will be very straightforward.
A key advantage of buying in Costa del Sol is that banks,
notaries and professionals are experienced at dealing with international
buyers, so it should not prove difficult if you have the right advisors.
If you have any specific queries, please feel free to
contact us. Our team includes
experienced lawyers and property consultants, so we would be glad to help.
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