In the previous chapter we discussed the importance of establishing why you are buying to help make the process of selection a lot easier. In this chapter we explain the different types of property available in Spain as well as the important distinction between off-plan and resale.
The distinction off-plan and resale property
Before going any further in your research it’s important to make the following distinction.
- Resale property: property that has had one or more previous owners who are described in the title deed or Escritura Publica.
- Off-plan property: property that is sold by a developer off of architects plans, either before construction starts or during construction and where the title deed is created and signed upon completion. It is common practice in Spain for developers to sell a significant proportion of the apartments or villas in a project that they plan to build prior to completion.
Things to be aware of when buying a resale property
What you see is what you get
The main advantage in buying a resale property is that you have the opportunity to see exactly what you are getting. The property is complete, the building standards and finishing is easy to assess, the community is (usually) formed and you have the chance to speak to neighbours and find out if they are happy living in the area.
Huge choice
The building boom of the last five years means that there is a huge variety of different forms of property available at the moment, and there are some excellent deals currently appearing on the market (see below).
Distressed sales
Distressed sales occur through the owner no longer wishing, or being, able to afford the property and needing to get out immediately. Foreclosures by banks, divorce, death duties, etc, are all reasons for such a situation.
Property contents are often included
Resale properties are often sold with fixtures and fittings and sometimes furniture included.
Payment terms
There is little flexibility in the payment terms when buying a resale property, typically you will place a deposit of 10% of the sales price, sign a purchase contract and pay the final 90% when you sign the title deeds typically one or two months later. Therefore, if you are looking at a resale property you need to have your finances ready.
Renovation costs
The property may require significant renovation and this will be an important factor to include into your budget calculations. The most popular renovation projects for foreigners in Spain are fincas (farm or rural properties) near to the major tourist destinations. Renovation is also very popular in town centers, especially old towns.
Things to be aware of when buying off-plan property
Bank guarantees and insurance cover to protect your investment
Purchasing off-plan is generally considered to be quite safe, as all developers by law must offer a Bank Guarantee to protect the client’s deposit money. The deposit is held in an escrow account and will be refunded should any problem occur that prevents development from being completed (read article: Buying Off-plan Property from a Developer: How the Law Protects You)
Better value for money
Provided you get in early enough it is sometimes possible to secure a property at a significant discount compared to the prices of the properties at completion. Upon completion, you also have a brand new property that has never been lived in.
Better build qualities
Build qualities in Spain have generally improved over the last ten years with wider cavity spaces, better insulation, qualities and features as properties are now being built for year-round occupation.
Favorable payment terms
Off-plan properties generally have interesting payment terms, typically 20 – 40% down-payment and with the rest to be paid on completion. Sometimes a smaller deposit and a staggered payment system can be arranged. This makes an off-plan property easier to buy than a resale property bought at the same price.
Not getting what you ordered
The down side to buying off plan is that you cannot assess the final qualities and views from the property until the project is complete. The development may deviate from the plans slightly or another development may be built in front of your property thus blocking your view. There are certain rights that you have to ensure that you get what you paid for (read article: Buying Off-plan Property from a Developer: How the Law Protects You).
Building Insurance
By law all new build properties must be sold with insurance cover that covers the property for structural faults for the first ten years.
Tax avoidance and investment
The off-plan property market was the main reason why so many people invested in Spanish property over the past ten years. Presently a potential investor has two options, he can wait until completion, pay the balance and then remarket while renting the property, or he can sell on his contract prior to completion of the property to maximise returns (read article: Sellers Guide to Spanish Property).
Buying land
The main advantage of buying land from a holiday home point of view is that you have the opportunity build your own tailored property more cost effectively (read article: The Guide to Building your Own Property in Spain).
Commercial property
Frequently commercial property is referred to as a safe investment in a hot market. As resort areas become more popular, there is a tendency for the holiday seasons to spill over into the winter months and the number of people who are looking to live full time in the area and set up businesses inevitably increases.
Offices and shops are often rented out with a long term leasehold called a Traspaso for a fixed period of between 10 to 15 years. With this, the lessee pays a lump sum for a lease on a property and has the right to rent it exclusively for the duration of the lease at a lower rent than would be the case for direct rental.
Other points to bear in mind
Buying and selling property is not a cost-free exercise: in Spain, your purchase costs are between 10 and 12% of the property value at the signing of the title deed. Additional tax consequences through ownership should be planned for and you will also need to budget for maintenance of the property. (read articles: The Process of Reserving your Property and Taxes and Other Costs Associated with Owning a Property and Living in Spain).
Think carefully about buying a property overseas: if you are buying a holiday home you should also think of it as investment opportunity as you are not only looking for a location you will enjoy, but how it should increase in value over time. Once you have found the property you want we will be able to help you with the next step in purchasing, continue reading to find out how to buy in Spain.
