Despite the collapse of the real estate in Spain, believe it or not, homes are still sold and not only that, but three of every ten sales of properties bought in Spain are done so with cash in hand, i.e. without the need for a mortgage.
These buyers are, in general, small and medium investors over 55 years of age, able to pay the full price of a dwelling, without having to go to the local or UK bank for a mortgage. The buyers aim is to provide it as a donation to their children or get a return by letting it, preferring to invest in brick and mortar rather than leaving the money in a deposit account, as they believe that their savings are not well assured in the bank and the interest rates are not very jubilant either.
Savings of up to 50%
Anyway, before acquiring a house or flat, it is recommendable to take into account certain precautions, as obvious as to find out if a tenant resides in or to check charges that can weigh on the property but let's start from the beginning. We will list them on next week articles.
If you take a calculator in hand or use an Excel sheet and start doing some arithmetic you will find out that acquiring a property without funding from a bank and paid in cash it can mean savings of up to 50% with respect to the purchase through a mortgage.
Buy without mortgage
275,000 mortgages were signed during 2012 of the nearly 320,000 homes that were sold in Spain, according to data from the INE (National Statistics Institute). Despite the collapse of the real estate sector, the Spanish government is still fundraising VAT. With each ten sales of homes; three are carried out with cash, without the need for funding.
The abolition of tax incentives for house purchase from January 1, 2013 and the closing of the mortgage tap, especially for flats that are not owned by banks, has caused that access to a mortgage is more expensive and involves a larger number of demands. Thus, the increase in cash payments to buy flats is a trend that is spreading throughout Spain, except in the Basque country, where the majority of purchases still being done with mortgages.
Who are buying homes with cash on hand?
Since the beginning of the crisis, has emerged a new kind of real estate investor, usually a 55-year-old, who is able to pay the full price of a property in cash, without having to resort to the a mortgage from a bank. New home buyers perceive the mistrust in the financial system and considered that their savings are not sure all in banks. For this reason, they prefer to invest in bricks and mortar, instead of putting all the money in doubtful financial products, or in an account with a fixed interest, speciallywhen interests are decreasing year after year.
Prices are down by as much as 50 up to 70%.
The type of property which is mostly purchased in cash tends to be small and old, with prices down on its current value by as much as 50 up to 70%. Real bargains you might say.
These small investors do not possess large fortunes, but have enough liquidity to acquire a property without a mortgage. The types of property which attract these buyers are usually small and old, with large reduction in their original prices. In addition, the statistics show that they do not buy to speculate or to reside in it, but rather to leave it in inheritance to their children or to achieve profitability that may round a 5% at present, through its rental. At the same time, both banks and property developers and individuals are making a great effort adjusting prices downward to attract those who are willing to still invest their savings in the real estate market.
Next week we will analyse a complete list of tips of what to look for before carrying out a purchase.
I know what I want, what now?
Determining the price of the house that we are going to acquire will depend on whether we have initial capital or not, the indebtedness capacity of each one, the tax advantages that the purchase of a home entails, or if we have another previous house that we are going to sell. You can also study the possibility of opening a home savings account.
Buying a second-hand home
Before formalizing the purchase of a second-hand home to a private individual, we must collect information from different institutions.
1. Registration of Property
In the Property Register you have to check that the house is in the name of who sells it; that its location, extension and other characteristics correspond to those that it actually has; which has no charges and is not rented, as well as information on expenses and community statutes.
2. Property manager
With the property manager you will check if the property is up to date with community payments.
3. Town Hall
In the City Hall if the seller is up to date on the payment of Real Estate Tax.
Financial institution, if the property is taxed with a mortgage there are two options: ask the person who sells the home to cancel the mortgage before a notary before signing the contract. Subrogate the mortgage to take care of it.
Buying a home newly built
Before signing any commitment to acquire a home already built, you should check some important aspects. To step on insurance against possible fraud, follow these steps:
1. Commercial Registry. Verify the registration data of the developer or builder (registered office, registered capital, etc.)
2. City Hall. Find out that the building license has been requested and granted.
3. Registration of Property. Check that the ownership of the plot corresponds to the developer or builder. Check also, if there is any other load on the lot (mortgages, foreclosures, etc.)
4. Promoter or builder. Request a copy of the insurance policies required by the Building Management Law depending on the various damages that may appear.
Purchase of a flat or under construction
Before you commit any amount of money with the promoter, you must gather some information:
1. Approved technical project and building permit.
2. “Cédula Urbanística” which can obtained from the town hall, with which you will avoid surprises as to the possible inexistence of complementary equipment offered (green areas, playgrounds, etc.) or in terms of public use.
3. Certificate of the Property Registry that reflects the registration of new work and the ownership of the seller, and the situation of charges and levies on the farm.
4. The promoter must guarantee, through an insurance policy or a bank guarantee, the amounts delivered on account plus the legal interests of the money, in force until the return becomes effective.
The one million dollar question: Should I register the property?
You may be wondering if it is worth spending time and money drawing the deeds and then registering the home you have purchased.
If you have doubts, here are three good reasons to have the purchase done in a notary and then register the purchase:
• If you want to apply for a mortgage loan using your new home as collateral, it must be registered in the Property Registry. And so that you can register your home, it is first necessary that you have raised the private contract of purchase and sale to public deed.
• Once you have notarized and registered your home, you have the full assurance that the home is yours: no one else can claim it.
• You also have the assurance that the contract is fully compliant with the law.
How do you draw the deeds?
The usual practice in the purchase of a home is the signing of a private purchase agreement, and then put it into public deed. Once the private contract has been issued to a public deed, in order for it to have effects against third parties, it is necessary to register it in the Property Registry where the dwelling is located. To make the registration you must have paid the corresponding taxes.
As in all my previous articles I do strongly recommend to obtain the aid of a qualified solicitor before purchasing a property and that you only use this article as a guide line of the procedures.