Costa del Sol property buyers guide

The definitive buyers guide to safely purchasing a property on the Costa del Sol in light of the new laws and taxes applicable Spanish Property.

Unlicensed Estate agents:
Unfortunately since the deregulation of the Real Estate industry in Spain in 1999 hundreds of agencies have sprung up like mushrooms, on the Costa del Sol fewer than 5% of agents are licensed or have any qualifications what so ever.
It is no longer required that a Real Estate agent in Spain should be qualified, licensed, registered, or bound by the strict codes of practice as laid down by the professional associations of GIPE. and API as they were previously.
Licensed agents like lawyers and other professionals are regulated and you can claim against the governing body if your are dissatisfied in any way, if you choose to work with an unlicensed agent, then you will be on your own should anything go wrong!
This particularly applies to the new large Real Estate companies that have sprung up here since 1999 when a "Cooling of period" was introduced by the Spanish Government to protect time share purchasers, who are now better protected the real estate investors!

Who are you dealing with? Better news is that from 2003 in Spanish businesses are legally required to register their websites and clearly display the registered name and address of the company and their full contact details, if you don't see them on a web page, move on!

We the Costa del Sol property Index S.L. are a qualified, licensed and GIPE registered agency, membership Number 3474 of the Asociacion Profesional de Gestores Intermediarios en Promociones de Edificaciones and we are also the members of Confédération Européenne de lImmobilier [The European Confederation of Real Estate Agents]
All the members of our Costa del Sol Property Index Network are registered members of GIPE. or API [Agente de la Propiedad Inmobiliaria] and bound by the strict codes of practice.
This is the only network where all the members are licensed GIPE or API agents!
The comprehensive service that we offer before and after sales is free of charge to you the purchaser.

All licensed agent will have an ID card issued by the association which will carry their photograph, which looks like this GIPE agent id card Ask to see your agents ID card.
If you choose to work with an unqualified person or company you will have no help or legal redress should anything go wrong, as always Buyer beware.

Which agency to go with? There is very little point in seeing a different agent every day, you will probably be viewing the same properties over again, and none of the agents that you see will have enough time with you to do their job properly, especially in the country areas
We recommend that you choose just one agent who is:
[1] An approved GIPE. or API. member with a current license, is the person that you are going to see licensed or qualified? Ask to see the person who holds the license, do not settle for an unqualified or part time employee, you deserve better!.
[2] Is your agent well connected? choose an agent who is a member of the
Costa del Sol Property Index as they will have access to the central database of properties, and have members in all areas, a quick call to the other independent licensed agencies will enable your agent to locate all the properties matching your requirements, you no longer need to see lots of different agents! Let our network do the searching for you.
[3] Make an appointment: in advance: You will be much better served if you can give as much information regarding your requirements in advance of your visit here, research the market and make an appointment in advance.
Give your chosen agent time to research all the properties matching your requirements, rather than just turning up on the doorstep of an agents office, senior staff always work by appointment only, you will not want to make do with whoever [if anybody] is left in the office!

Commissions [payable by the vendor] on resale properties are generally 5% but can be up to 10% or even more with some agencies.
Properties offered for sale on the Costa del Sol Property Index include no more than 5% commission, no matter how many agents become involved.
It is best to avoid agencies who are not Spanish companies, and not based in Spain as they will not be licensed to sell property in Spain, would you go to an agent in another country to look for a property in your home town?, all good Spanish agencies speak English.
The Vendor pays the commissions, the vendor or seller will have an agreement with an agent or agents to pay them a commission upon completion of a sale to a client that agent has introduced, the commission the vendor has to pay will always be reflected in the final negotiated purchase price. The comprehensive service offered by the Costa del Sol Property index, both before and after sales is free of charge to you the purchaser.

The commission for New Developments under construction is built into the price, which will always be the same whether you purchase on your own or with the help and assistance of a good agent, generally, the better the development, the lower the agent commission, so watch out for the hyped up promotions!
It is particularly important to use a good agent when looking at new developments, remember the developer and their sales staff are looking after the interests of the developer.
A good agent with a wider experience, will help you to find the best developments and help you negotiate advantageous payment terms and conditions, this is especially important if you might want to be allowed to re sell your property before completion.
NOTE: Some of the best developments pay low or no commissions to general agencies, the best investment for you may not pay the highest commission, some agencies cannot afford to show you these developments, we will.

Ok fine, so now you know how to choose a licensed Real Estate agent to locate your dream / investment property.
When you do find that property, ask the agent if the vendor is likely to accept an offer, some vendors price to sell, others price a little high and expect to be knocked down, others will wait until the market reaches the value they have set. It is impossible to generalise as we have so many different nationalities living here all with their own sales - purchase cultures, let your agent be your guide.

The next thing you should do is find an abogado [Spanish lawyer] before you sign anything or pay any deposits to anybody. An abogado will charge around 1%. of the purchase price, this is great value, your abogado will look after your financial interests, and give you peace of mind, a very valuable commodity when buying a house!

Reservation deposits and payments paid to an agent [whether licensed or not] are not legally binding on the vendor, you should never pay money to an agent or agency.
If you pay money to an agency you will be tied, unless you leave you money behind!
Reservation deposits for new developments should be made directly to the developer, After you have spoken to your abogado, and all other payments should be made by or under the supervision of an independent abogado [Spanish lawyer] in this way your interests and your money will always be protected, and you will be sure that the sales purchase contract is in your name and not in the name of the agency, this may be convenient for the agency, but you will have no legal claim on the property.

It is only when a sales purchase contact has been agreed and signed by both parties and 10% paid that the vendor is legally bound to sell you the property, which is why there is no point in paying any reservation deposits to an agent.

With all of the properties we offer for sale 10% of the purchase price transferred to your abogados clients account will be sufficient to take the property off the market while your abogado makes the searches, and you arrange your finances, the 10% will be handed to the vendor by your abogado when everything is checked out and the sales purchase contract terms have been agreed and signed.
If a vendor will not accept this show of good faith to take a property off the market, or an agency asks you for any money you should immediately consult an independent abogado, if the abogado cannot convince the vendor to accept your terms, then walk away, there are other properties, keep your money in safe hands, deposits given to agents are not returnable.

Never use the same abogado as the vendor or interests may be compromised.
Never use an abogado who works directly for a real estate company, as he will be looking after the interests of the agency, and not yours.
Use an abogado from a well known independent company of abogados, we can recommend well respected independent English speaking companies in all areas.

The Spanish legal System and land registration process is different to most other countries and is not to be tackled by the do it yourself type. I have heard of unfortunate people having problems buying property in Spain, all of them could have been avoided if the purchasers had used professionals and common sense, as always buyer beware.

Property owned by companies: You should also consult a specialist abogado, if the property that you wish to purchase is owned by an offshore or Gibraltar based company and you wish to consider purchasing the company that owns the property.
You will then not only be dealing with a property purchase, but the cost of maintaining an offshore company or companies, Spanish and international taxation.
The administration costs, new laws and taxation, now applied to properties owned by offshore companies must be carefully studied, these companies are set up by specialist tax lawyers, and you should use one too if your are considering buying such a property or the company that owns it.
Most of the advantages previously applicable to properties owned by offshore companies are now heavily taxed, the Spanish tax authorities are well aware of all the practises and will fight you for every cent of tax advantage!
Properties owned by Spanish S.L. companies also need close assessment, if the tax authorities think the beneficiary of a property owned by a company has changed, all the transfer taxes will still have to be paid in any case, you will need specialist advice.

Next: Conduct a search: Nota Simple The next step in conjunction with your lawyer and agent is to do a search on the property at the Registro de la Propiedad, the Registro for a small fee will supply a Nota simple for any property. It will give you the details of any Mortgages on the property. A good agent acting directly for the vendor will probably already have a copy. Buying a property with a mortgage attached is not a problem, as long as you know about it beforehand!.
Your lawyer will advise you on the cost of continuing with it, paying it off or re mortgaging.

Make an Offer: Next if all is well, and your lawyer is happy, with your agents help you should make an offer and firm details up in writing, covering all the points to be negotiated, these should include:

Your abogado should also check: If the property is on an urbanizacion, that the urbanizacion is legal and registered and has been adopted by the Town Hall. The Plan Parcial will show all the plots on the urbanizacion and if it is legal and with the Town Hall to check for proposed new roads and developments. Make sure the seller has the final Escritura Publica if not exercise extreme caution.

Making a Private Contract:
Hopefully now both parties are in agreement so a private contract for the sale can be drawn up. When your lawyer has drawn up or approved this Private Contract, you would normally be expected to put down a 10% deposit. Your lawyer should pay the 10% to the vendors lawyer. This contract is then legally binding, your 10% deposit is non returnable, and the vendor is legally bound to sell the property to you at the agreed price, the rights of both the buyer and seller are protected, it is a very fair system.

The contract will usually specify a completion within one month, [but other periods can be agreed to suite both parties] and the penalty for not doing so [usually loss of your deposit]. Normally a property will not be withdrawn from the market until the 10% deposit is paid The private contract should include all the points covered in the negotiations and it should also state that the property is sold free of all mortgages, liens and embargo's, that all bills are paid up to date and all the household equipment [listed] will be in working order.

Your lawyer should also check:
That the IBI receipts are all up to date. [more about this later] , the certificate of Referencia Catastral, the number should be on IBI receipts, make sure any community fees are paid up to date, and likewise electricity, water and telephone bills are paid.
Rubbish collect charges [basura] be a nasty surprise as bills can have built up and are subject to additional fines and surcharges.

Important Notes:
Only the persons [or a company] named on the escritura [title deed] of a property can own that property, only those persons [or the company administrator in the case of a company] or persons empowered by a power of attorney [Poder] can sell the property
It is not advisable to make any payment to any agent or agency.
Your lawyer should always deal directly with the vendors lawyer, and you should always know who the vendor is.
Only documents and contracts in Spanish are fully legally binding in Spain, never sign anything until your abogado has approved it.

Declared Value: It used to be common practise to grossly under declare the sale price in order to reduce the 7% transfer tax ITP on resale properties or the 7% IVA on new properties for the purchaser and capital gains tax for the seller, of up to 35% [Now 18% from 2007]
Tax inspectors now make their own assessment based on market values. There are penalties for both the seller and the buyer that will be swiftly applied if it is considered the declared price is not the true market value. Your abogado will advise you on what you should declare.

Under declaring a sale price will usually benefit the seller more than the purchaser, saving the seller capital gains tax [CGT] or corporation tax on the undeclared amount, where as the purchaser may save 7% now [or possibly 16% on newly divided land] , BUT, will end up paying more capital tax on the amount when selling.
It is the buyer who when selling will have to pay Capital gains tax on he difference between the declared value when purchasing, and the declared value when selling.
The amount of capital gains tax payable on the sale of a properties purchased now, and since 1995 reduces annually inline with inflation.

The maximum level of CGT payable by non residents from 2007 has been reduced to 18% from 35%.
If you are a resident and sell a property which is your principal residence in Spain, as long as you have owned it for at least 3 years, and all the capital is reinvested into a more expensive property, and the new property is also your principle residence in Spain, then any capital gained from the sale will not be taxed. [this is effectively a tax on property speculation]
Good news for resident pensioners is that from 2000 resident persons over 65 years old, who have owned a property for at least 3 years, which is their principle residence in Spain, will not have to pay any tax on the capital they gain from the sale of the property.

To make sure a non resident pays this tax when selling a property the tax man Hacienda requires the buyer to pay 5% [reduced to 3% from 2007] of the purchase price to them, the seller can later claim back this money minus any taxes due. Both parties can agree with the Notario to waive this payment, If you agree to such a waiver, you as the new owner will be responsible for any taxes due, if these taxes are not paid, Hacienda will place an Embargo on your new property, the taxes due can also exceed the retained amount.
Furniture, carpets etc. can of course be sold separately reducing the value on the Escritura.

Declared value when purchasing a property under construction from an investor. [not directly from the developer]
Investors who purchase early on in the history of a development, [often before construction starts] are rewarded by very good prices, as their 30% or 40% payment [depending on the terms negotiated] allows the developer to keep borrowing to a minimum.
The purchase price is written into the sales purchase contract and that is the price that will be declared on completion, when the balance of the money is paid and the escritura is drawn up into the name of the owner.
Over the construction period [2-3 years] a property will increase considerably and an investor may decide to sell the property for a profit [this is usually just before or just after completion] .
In such cases it is not the property that is sold, but the contact allowing the person named to buy at the price stated from the developer or owner stated.
The contract can only be transferred with the cooperation of both parties, which is why it is necessary to have a clause written into the contract allowing the transfer, otherwise the purchaser is at the mercy of the seller who may not want to cooperate.
The person selling the contract has never been the owner and so capital gains tax normally payable by property owners who sell does not apply. [The investor should of course declare his profit]
Usually 2 payments are made:
[1] The amount needled to cover the value of the installments paid so far by the investor
[2] The price for purchasing the sales purchase contract [the profit for the investor]
The purchaser of the contract then takes the place of the original purchaser and on payment of the final installment becomes the owner of the property when his / her name is written onto the escritura.
The above can apply to any sales purchase contract.

Completing the purchase:
Escritura de Compraventa: The Final document for the sale is the Escritura de Compraventa and it must be signed by the buyer and the seller in the presence of a Spanish Notario in order to make it legally binding. The seller or the buyer can make a Poder [power of attorney] allowing another person to sign instead.

The Notario: The Notario is a public official who's job it is certify that the contract has been signed, the declared money transferred and to advise both parties of their tax liabilities for the purchase. Any other payments should be made in the presence of your lawyer outside the Notario office. The Notario is not responsible for the accuracy of statements in the contract, that is your lawyers job.

Registering the Escritura de Compraventa: Finally your Escritura de Compraventa must be registered with the Spanish property registry to make it Escritura Publica and fully install your title to the property. You should receive this from your lawyer within 5 - 6 weeks of the purchase, if not pursue it with your lawyer [you have been charged 0.2% for this registration] Until you have the Escritura Publica you do not have full title to your property and you are not the registered owner.

Taxes and fees payable when buying a property: If you allow an additional 9% - 10 % of the purchase price it should cover everything except the Plus Valia which is normally paid by the vendor.
Break down:
New property on the first transmission attracts IVA [ VAT ] + AJD [stamp duty]
Resale Property on it´s second and subsequent transmission attracts transfer tax called Impuesto de Transmisiones Patrimoniales [ ITP ]

Plus Valia: Plus Valia is based on the increase in value of the property, since the last time the ownership changed, this tax is applied to the increase in value that the vendor has enjoyed and should be paid by the vendor.
Normally the vendor pays this tax but as always everything is up for negotiation, some vendors do ask that the purchaser pays the Plus Valia as part of the deal.
So make sure that the vendor is going to pay the Plus Valia, or if not find out exactly how much you will have to pay on his behalf before you make your offer.
Your abogado will be able to find out from the Ayuntamiento [ Town hall ] the amount payable.

IVA: [VAT] On new property on the first transmission of the escritura [title deed] the buyer has to pay IVA, which is 7% on apartments, houses and any garages purchased with the property [usually garage space below apartment], and 16% on land, locales [shop units] and garages purchased separately.

ITP: [Impuesto de Transmisiones Patrimoniales ] [Transfer tax]
On second and subsequent transmissions of a property the buyer has to pay ITP at 7%

Stamp duty: Impuesto de Actos Juridicos Documentado [ AJD ]
When a property is purchased from a developer, promoter or habitual trader and IVA is charged the purchaser will also have to pay 1% AJD [stamp duty]

Abogado, Notario and registry fees:
Abogado [lawyer] fee: around 1%.
Notario fee: Depending on land and size of house, allow 0.2 - 0.3%
Registry of property ownership approx. 0.2%

Additional notes for companies: The good news is that now in Andalucia, when a property is transferred from one Spanish company to another, the companies involved can elect to pay 16% IVA instead of 7% ITP but in this case the company would pay a higher rate of AJD [stamp duty] at 2%

ITP or IVA tax is not payable on a property owned by a Spanish company when the ownership of the company changes.
The company purchasing, would need to have a minimum of 2 shareholders, holding a maximum of 50% of the shares each, BUT if the tax authorities suspect that the beneficiary of a property owned by a company has changed [the one living in it], then all the transfer taxes and other costs will be applied!.
Warning: This is an area where you should always consult a specialist abogado, it is extremely difficult [some would say impossible] to determine exactly the assets and more importantly the liabilities a company has.

The cost of owning a home on the Costa del Sol:
IBI: Owned Property is subject IBI. tax Impuesto sobre Bienes Inmuebles. This local tax varies and is based on the Catastral value [Valor Catastral] of the property. this value is often considerably lower than the real value. On a property that has changed hands recently the Valor Catastral could be 75%, on a property which has not changed hands for 15 - 20 years or more, it could be much less. The tax varies depending on the area, but Generally on a property with a Valor Catastral of 120,000 euro you would expect to be taxed approx. 480 euros per year.

Basura: In some areas you will have to pay the Basura [for rubbish disposal] separately, in other areas it is included in the IBI.

Patrimonia: All non residents have to pay wealth tax Patrimonia based on the amount on the Escritura Publica or the Valor Catastral, which ever is the highest value. Roughly speaking This tax starts at 0.2% on the first 156,263 euro, 0.30% for the amount from 156,263 euro to 324,547 euro and so on to a maximum of 2.5%. On a property of 150,253 euro a non resident would pay a tax of 300 euros. A resident pays nothing on the first 102,172 euros. A husband and wife when resident and jointly owning a property have a combined allowance of 204,344 euros. So they would pay nothing in Patrimonia tax on a house with a value of up to 204,344 euros, It really is only a wealth tax.

Non residents property owners tax: Only non residents have to pay property owners income tax. They are taxed at 25% of the income from your property whether or not you have a real income. The income is assessed as 1.1% - 2% of the Valor Catastral. The government have an ongoing policy throughout Spain of increasing Catastral values into line with real market values, the percentage applied to the new values is reduced to 1.1%.
This tax is in realty very low, especially if you purchase for rental income.
Owners should of course declare all the money they earn from rental income, and from 2002 there are new allowances to encourage owners to rent their properties.

Residents pay income tax: Residents pay only income tax on their declared income starting at 20% there are the usual tax allowances, and new ones to encourage owners to rent property.

Urbanizacion and Community fees: Properties on an Urbanizacion or in a Community will have to pay quarterly [or monthly] community fees, covering the running and maintenance costs of shared facilities which can include as private roads, drains, lighting, private water supplies, gardens, swimming pools etc. These costs vary considerably depending on the facilities available. The agent will advise you of the Community fees applying to a particular property.
If you are not resident in Spain, you are legally required to have a fiscal representative who is, an Asesor fiscal will take care of everything and keep you 100% legal for a small monthly fee.

NIE number: You will need an NIE Number [fiscal identity number] Its handy to have one even if you are not a property owner. A number can easily be obtained from the relevant police station but can take a few weeks to process, your abogado will apply for this for you.

Banks: Choose your Bank carefully, the running costs and fees do vary considerably, Most Spanish banks and Cajas [Similar to UK savings banks] are very good, and are very competitive on mortgages, some have excellent online banking in English.
All the utilities can be paid by direct debit from your account.
My Spanish bank offers free transactions, online banking, no maintenance costs and pays interest on the current a/c as long as I maintain a small minimum balance, they have never missed a standing order or payment, which is more than can be said for some!

Transferring Money: The cost and time it takes to transfer money varies considerably, as do the bi-currency services, so shop around in your home country and also in Spain.
Buying euros in your home country is not your only option.
Most people do not realise the commissions and fees charged by Banks are negotiable, do not be afraid to haggle!
There are some very good companies who offer much better exchange rates than the high street banks, and some even allow you to pre book currency at a set exchange rate for the future, this is particularly important for off plan purchasers wishing to protect themselves from the falling pound / dollar.

Becoming a Resident: If you wish to spend more than 183 days per year in Spain you no longer need to apply for a Residencia to become registered as a Resident, but being registered as a resident still has several advantages.
Being a resident does not restrict your movements in any way you will be able to spend as much or as little time in Spain as you wish, there are no restrictions, but there are many advantages.
Registering as a resident in Spain, in no way changes your nationality
If you are not to become a Resident you must appoint a fiscal representative who is, your Asesor would be a good choice, This is not a responsibility that should be entrusted to an amateur friend or neighbour.

Good reasons for becoming a resident:
The are many advantages, some of the major ones are:

A Spanish will: I would strongly advise you to make a Spanish will, cost approx 180 euro. Property in Spain is subject to Spanish laws above foreign wills. Talk to your lawyer about the differences between what you can will in your own country as opposed to here.

Inheritance Tax: Ask your lawyer or tax consultant about inheritance tax and how to minimize it. Get advise before you decide in who's name or names the property is to be registered in, especially if you are in your Golden Years.
If you are non resident you should also make provision to pay inheritance tax on the property [or 50% of the property] that you inherit as this can be a shock for a poor widow or widower.

Common Sense: As is true anywhere be very careful if you pay any deposits or sign anything without first clearing it with your lawyer, if you do not feel happy, walk away.

Conclusion: Buying a property abroad is an exciting experience, please do not take the impression that you will encounter many problems, in Spain we all enjoy more personal freedoms, which is one of the reasons España is such a great place to live.
Whilst enjoying that personal freedom we have to be more responsible for our own decisions.
Using your own abogado, and other qualified professionals will protect your interests, making the purchase of your home here a risk free and stress free experience.
All of the unfortunate property related stories I have heard could have been avoided if buyers followed the above guidelines.

This is not a Do it Yourself Guide! I am not a legal expert, I would never dream of buying any property without the services of an abogado. The above information is current and accurate to the best of my knowledge [and our abogado] It has been gathered from my own experiences of buying and selling properties, living and working in Spain, and the mistakes made by others.
The purpose of this article is to provide some general information for potential buyers, point out the areas where mistakes can be made, encourage buyers to use professionals, and to reassure them that buying a property on the Costa del Sol can be enjoyable and totally stress free.

All Set? I hope that you now have a good general understanding of what is entailed in buying a property on the Costa del Sol, If you have this understanding before you start looking at properties, then your own common sense can be your guide.
If you feel there is any more information that should be included here, please let us know.
If you have any questions or require more information please do not hesitate to ask.
If you find this guide useful or it helps you avoid a potential problem, please let us know.

The Costa del Sol is a great place to live, happy house hunting!,
Best Regards from Barbara Dunkel & Steve Gilbert -
[Directors] Costa del Sol Property Index S.L.
For more information about us and our company please see About us