FOOL'S EYE VIEW
Buying A Home In Spain

By Jane Mack (TMFJane)
November 1, 2002

About ten years ago some friends of mine bought a villa in a smallish seaside resort on the southern coast of Spain. From their terrace there were uninterrupted views down the hill to the sea and watching the sun go down over the horizon on a beautiful summer's evening was a pretty fantastic way to see out the day.

Unfortunately, over the years, developers have moved in and have plonked a series of apartment blocks right on the beach. Now, you can just about see the sunset in between two of the apartment blocks if you sit in a certain place on the terrace although you have to put up with being squished up against the bougainvillea growing over the wall.

As it happens, my friends don't mind in the slightest that they didn't check the local plans that cover prospective development zones. The weather is too good for anyone to get in a bad mood when on holiday and they're far more interested in the local seafood than they are the view so the concrete jungle that now surrounds them isn't a problem. Besides, they've no intention of moving permanently to Spain – it's just a holiday home.

Retiring to Spain is, however, a popular choice for some people. The food is so cheap that it's hardly worth the effort of growing your own tomatoes unless you're just doing it for fun and, in spite of huge increases in house prices, property is still fairly cheap in many areas, particularly inland.

At the end of 1980s about half a million homes in Spain were owned by foreigners. In the last five years, this number is thought to have gone up to one and a half million and a further one million new foreign buyers are expected over the next five years so it's obviously a popular choice.

It's not that hard either, in theory. Mortgages are easy to get with non-residents able to borrow up to 70% of the property value without difficulty while residents can borrow even more.

But, as ever, there are people with horror stories to tell not least because invariably they tried to buy on the cheap without getting proper advice. It's not uncommon for people to hand over the standard 10% deposit to the owner of a villa only to find they turned out to be short-term tenants and have done a runner with the money. And property developers do go bankrupt, something buyers only discover when they pop over to Spain to see how their apartment's coming along only to find that not a single brick has been laid.

People often think they can rely simply on the estate agent and the local notary. Although the notary is responsible for the legal transfer of property you should bear in mind that he's not acting on your behalf nor that of the seller. He only certifies that both parties have sworn to the terms of the contract, not that the statements made are actually true.

The top tip definitely seems to be to get yourself a Spanish lawyer who speaks English – not least because they're cheaper than UK-based lawyers who speak Spanish – and not simply to rely on the estate agent who may not know as much about the law as he thinks. It's also best to appoint one before you even put in an offer so you don't find you've committed yourself to a purchase before certain things have been checked.

For example, in Spain, debts, charges such as mortgages or court orders for distraint or seizure are registered against the property rather than the person. So if the seller disappears without having paid something, then you're going to have a bit of a problem once the property is registered in your name. In certain cases you may be liable to pay the unpaid bills yourself or, in the very worst-case scenario, you could even lose the property.

Beware too of the seller who wants your agreement to officially to declare a price lower than the one you're paying. He has to pay capital gains tax on the profit he's made since he bought it so it's obviously in his interests that it be as low as possible. However, apart from being illegal, you have to remember that you'll have to pay capital gains tax when you sell so it's in your interests that the official price is as high as possible.

It's also important to make a Spanish Will. Spain has a system of compulsory heirs whereby you must leave two-thirds of your estate to your children but the authorities don't impose this on foreigners. However, unless you leave your property to relatives, there'll be a huge Inheritance Tax bill to pay. Even if you do leave your property to your children you'll still get clobbered if you're a non-resident.

And finally, the fees and taxes that you have to pay when buying property in Spain tend to add 10%-12% to the purchase price. So make sure you budget properly.

As ever, research is key to a successful purchase and it's particularly important to check the local laws in the region of Spain that you're interested in. Even if you do complete successfully and in the proper manner, you may encounter problems later. I wouldn't want to put you off but there was a salutary tale on one of our discussion boards a few months ago that was rather alarming. It's worth reading!

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