What are the Pitfalls of Buying Property in Spain?

In this article we are going to explain what are the pitfalls of buying property in Spain to be considered by any buyer.  

Spain. More than 300 sunny days every year. Safety. Art. Sports. Health. Gastronomy. Cheaper than other countries in Europe. What more can we say? Spain is the chosen paradise for ever more foreigners to retire in a safe, multicultural environment, with an amazing mediterranean gastronomy and ahead of the curve in several arts and fields.   

Buying a property in Spain is a process that will require some time and effort and the completion of several steps. 

These are the main 6 steps that you (or your lawyer) will have as pitfalls of buying property in Spain:

1.- Get a NIE

A NIE is a foreigner identification number (número de identidad de extranjero). This number is mandatory for every foreigner as a pitfall of buying a property in Spain.

It may be requested in certain Police Stations. You can apply for it in person or through your lawyer with a special power of attorney. 

2.- Timeframe for the purchase

The timeframe for buying property in Spain may vary depending on various facts, but in general it normally goes from one to three months. 

If the property you do desire to purchase is in construction or the works have not started yet, you will need to pay special attention to the legal framework for the purchase, in order to have all legal aspects of the transaction under control before going any steps forward. In this case, waiting time will be longer. 

If the property of your dreams is already built, the process of purchase will be slightly reduced and you will have less pitfalls of buying property in Spain. 

3.- What about the mortgage?

In Spain the banks normally lend up to 80% of the purchase price for Spaniards as mortgage loans for buying a property in Spain.  

In case of foreigners, the Spanish banks normally lend up to 70% of the purchase prices, but this number usually is between 50% and 60% of the purchase price. 

If you are a foreigner and you will need to borrow some money as a loan to purchase the property you shall review the transaction with both Spanish and your local banks and verify which option can offer better conditions for you. 

It may be the case that your local bank lends you money using your home as collateral and you do not need to sign a mortgage with any Spanish bank. 

If the loan is finally signed with a Spanish bank, the bank is obliged to perform a Know Your Client (KYC) procedure and therefore they will request several documents from you like tax declarations, labor agreements, etc…

4.- What are the fees and expenses? 

Buying a property in Spain implies several expenses to be considered. The expenses to be taken into account are the following:

  • Notary: Every transfer of any property in Spain must be done before a public notary and they charge fees for preparing the Purchase Deed. 
  • Land Register: The new owner of the property transferred needs to be registered in the Land Register where the property is located and they also charge register fees for reviewing and registering the documents. 
  • Lawyer: Your lawyer will be responsible for preparing and reviewing all legal aspects of the transaction. Normally the fees of your lawyer will be 1% of the purchase price. 
  • Real Estate Agency: If you use an agency to find your future property they will also charge fees. 
  • Tax: As a buyer you will need to pay taxes when purchasing a property and also during the ownership. 

Approximately 10% of the purchase price will be fees and expenses to be paid to several parties involved in the transaction. 

5.- What documents are to be signed?

When purchasing a property several documents will need to be signed by the buyer and the seller. 

There are several legal mechanisms to sign off the purchase of a property in Spain. The most common are the following:

  • Reserve Agreement (“Contrato de Reserva”)

This agreement is signed between the seller and the buyer in order to reserve the property for the buyer and not showing it to another different buyer. It normally is a soft document with no penalties for the parties if finally the transaction does not come to a good ending. 

  • Engagement or Deposit Agreement (“Contrato de Arras”)

This is another kind of reserve agreement, used in second hand properties with obligations for both parties. The buyer will need to pay a reserve called “Arras” and the seller will not negotiate in parallel with other parties. If finally the transaction will not perform, penalties will arise for the party responsible for not performing the transaction, usually losing the amount paid as reserve. 

  • Private Purchase Agreement (“Contrato Privado de Compraventa”)

This is the most common document in transactions where the property to be acquired is yet to be built or is in process of construction. This document is signed in private and officially reflects the transmission of the property for the parties involved, nevertheless it will need to be eventually signed before a public notary. 

It is a hard document with obligations for both parties and it is very important that a lawyer reviews this document to be sure about the content and legal implications and risks. 

  • Purchase Deed (“Escritura de Compraventa”)

This is the most common document and it will be imperative to execute in any transaction involving properties in Spain, as obliged by law. 

This document will have a full description of the parties involved, a full description of the property to be sold with details from the land register, a full description of the price, the tax that will have to be paid, if there are any debts related to the property, etc…

This document will be the official ownership title for the buyer in respect of the property acquired. 

5.1.- Other important documents?

Other important documents to be considered are the technical report, which is important for transactions where a second hand property is involved and the status of the property needs to be reviewed and confirmed by a professional. Normally this kind of process is present in transactions with a high price, or the valuation report made by an official valuator engineer, which will be required to apply for a mortgage with any Spanish bank. This report will not be valid if made by a Real Estate agency.  

6.- How will the transaction end?

As commented, the closing of the transaction will need to be done before a Spanish public notary and the Purchase Deed will need to be registered in the Land Register. Once the registration has taken place the process about pitfalls of buying a property in Spain will finish and the change of ownership will be official. 

Normally the registration of the Purchase Deed in the Land Register will take about two months to happen from the deposit date and normally will be done by a corporate services provider or by the lawyer itself, who will also be responsible for communicating the change of ownership to the town hall where the property is located. 

If you feel that SCI Real Estate & Law can be of help to you when purchasing your property in Spain do not hesitate to contact us and we will be more than happy to assist you during the whole process. 

Thank you!