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Nine steps to follow if you are buying a home in Spain.

The recovery of the Spanish economy, competitive mortgages and an investing appetite to put product in the rental market are the causes of growth in the real estate sector. The data for the end of 2016 and the first months of 2017 encourage us to be reasonably optimistic. 

In 2016, 458,781 homes were sold, 13% more than in 2015. Why the growth? Especially as employment raises in Spain, there are 413,000 more jobs according to the latest data from the EPA (Active Population Survey) and consequently there is an increase in family income. All of this has repercussions on a growth of mortgages and, with fixed-rate, there is a big increase in fixed rates loans against the variable rate loans, 31% of total mortgages in 2016 were at fixed rates.

 

The weight of foreign buyers.

There is also a growing presence of foreign buyers 17.2% of the total are foreigners and to top it all, there is a real expectation of an annual revaluation of real estate prices, which allows the sector to maintain a positive tone. The residential sector continues to evolve. Year 2016 closed with an average price of a house of 1,512 Euros per square meter and the value of land rose another 5.3% year-on-year.

New buildings were also boosted by 28.9% in 2016 a total of 64,038 new homes were presented to obtain building licences. Although this growth, is still far from what it was in the pre-crisis years of 2006 - 2007.

According to the BBVA Bank study service, between 2014 and 2016, residential sales had the highest increase in Madrid and coastal areas. Madrid, Barcelona, Alicante, Malaga and Vizcaya were the capitals where building licences for new building were the highest.

BBVA expects housing sales to increase by 7% in 2017, housing prices to rise by 2.5% and residential construction to grow by 24%. It is clear that residential investment favours economic growth in Spain and BBVA estimates that the sector will contribute 5.2% to GDP in 2017.

Given this revived enthusiasm in the real estate sector, it would not be a bad idea to remember a few guidelines in order to enable the foreign investor to go through the purchase procedure without making basic mistakes. 

 

Buying a home is a decision that must be taken very carefully, because it is the biggest investment we make throughout our lives. In this guide I will jot down the fundamental points that must be taken into account before buying a home, some of them are pretty basic but you will surprised as to the people that forget them when they land at Alicante Airport.

 

1.     What house do I buy?

If you have decided to buy a home, the first choice will be between new housing and used housing. A brand new house does not need renovations. A second hand will in most cases need some type of rehabbing so an estimate should be made by a trusted professional, do not try to do it yourself.

New housing developments with communal areas such as gardens or communal pools can lead to higher community expenses. In new developments there is no risk of unexpected damages that need to be fixed as normally the construction is under guaranty. However, in used housing, it is advisable to visit the administrator to know in detail the state of the development and if it is envisaged any outlay to correct any communal problem. Energy savings is very significant in the case of energy-efficient buildings, in contrast to the energy consumption of buildings several years old.

 

2.     The Search.

Most people start a search in Internet, real estate agencies, press, etc. According to the latest data from the sector, 75% of users do look home in Internet and the vast majority of these searches come from smartphones and tablets so if you are a seller it is worth taking this fact into account. Even now with the 3D viewers the buyer can see the house and only when just before the purchase is made they do physically pay a visit to the property.

 

3.     The Budget.

 Keep in mind three concepts that credit institutions will consider for the granting of a mortgage:

Currently most banks are offering mortgages that can finance up to 80% of the value of the home. Therefore, you must have previously saved the remaining 20%. In addition it is necessary to take into account, the additional expenses derived from the purchase,  deeds, registration, taxes etc which are detailed later.

For example: for a house with a price of 250,000 Euros. The bank will finance 80%, therefore, you will be left with a maximum mortgage of 200,000 Euros.

 

4.     Financial capacity.

 If you keep the mortgage within proper limits i.e. within your ability to repay the loan, your life will be easier. Compares the price of the home you have chosen with your gross annual salary available. The appropriate proportion should never be greater than the gross family wage of four or five years.

Example: Price of the house: 250.000 Euros. Gross annual salary: 75,000 Euros (3.33). For calculating the gross annual salary, a family unit composed of two or more members may be taken into account.

 

5.     Effort.

 

With an estimated mortgage fee of 948 Euros and a monthly net payroll in the household of 4,063 euros, you would have to allocate 23.3% of the income to pay the loan. The most appropriate proportion is that the monthly mortgage rate should not be over 30% of the monthly net income.

 

6. Information about the property to be purchased.

It is imperative that at least you should obtain the following:

The name or business name, address and, where appropriate, the data of the company selling the property

At least you should be provided with:

- General plans of the house, location plan, as well as description and layout of the electricity, water, gas and heating installations and guarantees thereof, and of the fire safety measures of the property.

- Description of the dwelling with indication of its net area, general description of the building in which it is located (in case of an apartment), indication of the common areas and the ancillary services.

- List of finishes: Reference to the materials used in the construction of the house, including thermal and acoustic insulation, and of the building and common areas and accessory services.

- Instructions on the use and conservation of the facilities and on the evacuation of the property in case of emergency.

- Data identifying the inscription of the property in the Property Registry or expression of not being registered in the same.

- Copy of the building license, the urban permit and the first occupation license, if any.

- Statutes and rules of operation of the community of owners, if any, as well as information on service and supply contracts of the community.

- A copy of the Energy Performance Certificate.

- Total price of house and ancillary services and method of payment.

- Insurance or guarantee that guarantees the amounts paid on account. Discount of the amount paid on account of the total amount of the sale.

 

7. Costs and taxes.

In case of newly built housing, the purchase is subject to the payment of VAT, currently at the rate of 10%, and to the payment of the IAJD - Tax on Documented Legal Acts, with regards to the granting of the Public Deed of Sale.

In the Community of Valencia, as regards the IAJD, a gradual rate is established according to the real value of the dwelling that includes the annexes and parking spaces that are sold together with the house, even if they constitute independent registers, being the maximum rate of 0.75% (this could vary with the time) on the value of the house.

In addition, if the purchase is made with a mortgage, the IAJD will also have to pay and the law obliges to have it quantified, which is the cost of the mortgage liability. However, in the event that you subrogate to the existing mortgage on the dwelling, it will not be necessary to pay this IAJD, which has already been paid by the developer, but, in the future, mortgage cancellation fees will be required to be paid by you.

Finally, in relation to notary and registry expenses for the granting of the deed and registration of the purchase and, if applicable, the mortgage loan  in the Property Registry, the buyer is responsible for the costs of first and subsequent copies of the deeds, the registration in the Property Registry, the IVA (VAT) and Legal Documents Acts tax.

While the seller should pay the tax on the over value of the property and the cost of original deeds.

 

You should know that the buyer is entitled to the election of notary where the deed of sale will be granted, provided that said notary has territorial jurisdiction in relation to the place of location of the house or the domicile of the parties. 

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