This guide provides a basic outline of the property buying process, and includes issues applicable only to foreign buyers.
The first step is to consider the type of property that you are buying, for each has different legal implications; an existing property that has already been owned by someone else or a new property under construction or recently built and not previously owned.
In general, we could say that the procedure to purchase a property is Spain is formed by two main steps: the signature of the public deed before a Notary Public and the entrance of this deed into the Property Registry, but there are many other steps and issues that should be taken into account.
- Preliminary Contracts
Once the buyer has chosen the property he wishes to buy, the normal procedure begins with preliminary contracts. In cities where there is a fast moving demand of residential properties, like Barcelona, it is common practice to deliver to the seller a small amount of money (i.e. € 3.000-5.000), and accordingly the seller undertakes to reserve the property for the buyer during a short period of time (2-7 days), meanwhile a more formal agreement, the so called “Contrato de Arras” is drafted and signed by both parties.
A “Contrato de Arras” (“CA”) implies the payment to the seller of a small percentage of the sale price (usually 10%), and the parties commit to respectively sell and buy the property within a certain time period (1-3 months), during which both parties can prepare all the necessary documents for the transaction. If after this period, the buyer does not want to buy, the seller keeps the amount paid, and if the seller does not want to sell, the buyer is entitled to recover twice the amount paid.
- Pre-sale Steps
Before signing any private contracts, land/title searches should be carried out to ensure that the person selling the property is the registered legal owner and if the property has any encumbrances. If the property is within a building or condominium with several other owners, it is useful to know the rules or statutes that regulate the use of the common areas and the percentage of the common expenses allocated to each property.
- Obtaining the NIE (Tax ID Number)
Before signing the public deed, it is a requirement that foreigners who are buying property or have an economical relationship with Spain obtain an NIE (Número de Identificación de Extranjero) number.
We advise you to apply for the NIE as early on in the process as possible since it is required for more than just purchase of the property.
- Opening a bank account
Once the foreigner has obtained the NIE, it is possible to open a bank account.
The Spanish bank account will be used not only to pay the purchase price (as mentioned before, this payment can also be made through other means), but also to pay the regular expenses related to the property: water, electricity, “community expenses”, taxes, etc.)
- Signature of the public deed
This step is done before a Notary Public, who certifies that the appearing parties have the necessary authority to enter into the agreement, checks that all documents in relation to the property that are required by law are correct, and formalises the purchase of the property. Once the deed is signed, the buyer becomes the formal owner of the property, and the keys of the property are delivered to him. At this point, the purchase price must be paid (deducting the amounts paid as “arras”). The fees of the Notary Public are usually below 1% of the transaction value.
An official form, which reports the acquisition of the property by the foreigner to the Spanish Ministry of Finance, is also signed in the presence of the Notary Public. In some special cases (i.e. investments from tax holiday countries) it is necessary to apply for the previous verification of the acquisition before the authorities, but in most cases, it is only necessary to report the acquisition once it has been signed before the Notary Public.
- Payment of Transfer Tax
The acquisition of properties in Spain is taxed according to Transfer Tax or Value Added Tax. If the property in question is being bought from an individual and not directly from a developer, the transaction is taxed by Transfer Tax at a rate of 10%. The tax must be paid by the buyer within a period of 30 days, after the public deed is signed. If the property is a new property, the applicable tax is Value Added Tax (VAT) is also at a rate of 10%. In this instance, the corresponding amount is included in the price.
- Registration of the deed into the Property Register
Once the deed has been signed before the Notary Public, you should file it in the corresponding Property Register since failure to do so means that the buyer will not have the benefit of protection against potential third party claims. The purpose of registration is to certify who is the owner of each property and the encumbrances.
The fees associated with registration are usually below 0.5% of the property’s price. Within 2-3 weeks the deed is registered and the purchase procedure is concluded.
- Post-sale Steps
As with some of the pre-sale steps, these points are not necessary to successfully purchase a property, but it is advisable to properly deal with them.
- Water and electricity companies should be notified of who is the new owner and the bank account where they can send their invoices.
- If the property forms part of a co-ownership, the property administrator should be notified of at least an e-mail address to which communications regarding the property may be sent, and also of the account to charge the building’s common expenses to.
- The same applies to the local dwelling tax (IBI).
- Granting a Power of Attorney
If you decide to execute the purchase steps through a Proxy so that you are not required to travel to Spain purely to sign documents, it is necessary that you grant a Power of Attorney (POA), either before a Notary Public in Spain or in the country of residence of the buyer –and in this case, the Power will have to be “apostilled” (this is an official legalization of the POA for international use), and sworn translated, unless it has been granted in bilingual format.
The Power of Attorney document will be explicit as to the authorities and limitations of the proxy to execute the aforementioned steps regarding the property that the buyer wishes to buy, minimising the risk of abuse of the power.
- Golden Visa
In September 2013, an immigration program came into force in Spain which consists of granting a residence visa (and afterwards a residence permit) to foreigners who invest at least € 500.000 in the acquisition of one or more properties in Spain. The visa is granted to the investor and his/her family within a few weeks after the acquisition has been completed.
- Real Estate Personal Shopper vs Estate Agents
Estate Agents (Agentes de la Propiedad Inmobiliaria –API’s-, in Spanish) are the professionals whose role is to find a buyer for a property. In this case, is the seller who pays them.
Real Estate Personal Shoppers, do all the search of the property on behalf of the buyer. The purpose of their service is to assist the buyers in finding a home suited to their needs. They provide personalized and confidential services tailored, exclusively for the buyer. They help local and international clients who are searching for properties in Barcelona. In this case is the buyer who pays them.
In any case, prospective buyers should not forget that the estate agent’s goal is to conclude the transaction, while the real estate personal shopper’s obligation towards their clients is to defend their rights, and therefore, give the best advise to achieve the best price and the property that suit their needs.