Property in Spain - Foreword

Spread over 17 chapters, this is probably the most comprehensive online guide to buying a property in Spain - but we advise all buyers to use these details as a checklist on the actions and safeguards to be taken and to use this knowledge in discussion with your own Spanish Solicitor.

Read each relevant chapter carefully, note the legal and real estate terminology because it will come in useful during the purchase procedures. Armed with this knowledge and scores of buying tips could be the best way to a hassle-free purchase and early enjoyment of property ownership in sunny Spain.

If you are thinking of buying in Spain, you will not be alone. By the end of the 1980’s, some 600,000 homes in Spain were owned by foreigners, and since then this number is thought to have more or less doubled to around 1.3 million. The Asociación Nacional de Urbanizadores y Turismo Residencial forecasts an increase of another 1 million new foreign buyers in the next five years, whilst the Fundación Instituto de Proprietarios Extranjeros is more conservative, estimating a net increase of 100,000 a year (allowing for those who leave or move within Spain), whilst ICEX is more bullish forecasting a further 1.75 million by 2008.

Whilst in the early years most properties were bought as holiday homes, in recent years around two-thirds have been for retirement, but as younger people are becoming increasingly affluent, the demand for holiday homes is again becoming more important. In the Spanish property market, German and English people each account for around 30% of the total; France & Benelux account for around 7% each; and Italy and the Scandinavian countries around 5% each. Around half the properties were owned by foreigners who had obtained residence in Spain, and the other half by non-residents. In earlier years, many foreigners bought property through an offshore company, but (with certain exceptions) the latest changes in taxation encourage foreigners to obtain residence, and buy in their own names.

New house prices in Spain rose by 13% in 1999, 14.8% in 2000, 18% in 2001, 18% in 2002 and 17.8% in 2003. Some areas, such as Estepona, Fuengirola, Benalmádena, Marbella and Torremolinos, experienced a noticeable increase in demand, combined with a lack of new properties coming onto the market, as a result of which prices rose by up to 19%.

Property prices in Spain have generally grown at or above the rate of inflation over recent years. One technical reason for this is that tax and legal changes have ended a common earlier practice of undervaluing property to reduce tax payments. During the late 1980’s and early 1990’s the market was affected by the economic situation, as in the UK.

For new properties, in 1987 the average price per square metre (the normal way of comparing prices in Spain) was €420, and for existing properties, €270; during the boom years to 1991 this roughly doubled to €841 and €631 respectively. But then, after the stock market crises and the rise in interest rates, these prices fell to €721 and €571 respectively by 1994. As in the UK, during 1999 average prices had once again passed their earlier record high, reaching an average of €946 for new properties. In some sought after areas it is getting close to €1,750 per square metre.

It is also the case that prices vary considerably even within small areas: in the province of Alicante for example, if we look at the 10 most popular locations for foreigners, the average price/m² in 1999 varied from €603 in Pilar de Horadada, to €1,020 in Altea. The average price in Torrevieja and Elche was €754, in Javea €876, and in Calpe €886. Inland, the prices can be much lower: in Petrer, a town 40 kilometres inland from Alicante, the average price was just €463.

These are average prices: there can also be a huge difference between minimum and maximum prices for new properties in the same place: for example, in Villajoyosa, the minimum price/m² was €371 and the maximum €1,502.

These higher prices for new property are partly due to the higher standards of construction today (for example, the new Ley de Ordenación de la Edificación took effect in May 2000, which requires builders to take out an insurance (seguro decenal) against major structural faults for 10 years, and this added between 1.2% and 4.0% to the cost of property). But the main reason for higher prices for new property is the high cost of obtaining building land in some areas.

For example, in the provinces of Alicante, Castellón and Valencia over 80% of the costas have been zoned for development, and there is still huge demand for building land. It is therefore likely that over the course of the next few years, all available land will be developed, and only the "green" zones are likely to be spared.

In 1999, foreign investment in property in Spain increased by 31.6% compared to 1998, and totalled over £1.25bn. Of this, 42% was in the province of Andalucia. On average, the highest prices were also in Andalucia where 27% of foreign purchases were for properties of more than €205,000), and the lowest prices were paid in Murcia, where the most popular price range was €60,000 – €78,000.

This brief overview highlights the fact that prices on the Costas can vary tremendously: they are affected by the economic situation locally (such as the availability of land and water in relation to the demand, and hence its price); as well as in Spain generally (such as the rate of inflation, the availability and cost of building workers, and the level of taxes); and across Europe (as the market is largely "discretionary" – i.e. people can choose whether to buy or not, and are not forced to buy in any particular place by reason of their work or family - demand will rise above average when the European economy is doing well, and will fall dramatically when it goes into recession. In some areas on the Costas, at the end of the 1980’s, prices fell by as much as 50% but has recovered.)

It will be necessary for buyers to decide whether to obtain official residence (residencia) in Spain or not. Residence has important implications for tax and inheritance (although you are due to pay tax in Spain if you spend more than 183 days there in any calendar year, irrespective of whether you obtain official residence or not), as well as car ownership, driving licences etc. You must take tax and legal advice on this. We would also recommend membership of FIPE (the Fundación Instituto de Proprietarios Extranjeros) which publishes a regular bulletin containing much interesting news and information, including residence and tax.

One general point is worth making here: many foreigners – including those who have not obtained residence – complain about the lack of telephone lines, postal services etc. But the subsidies from the state and regional governments to the local municipalities for these services is entirely dependent on the number of residents registering there - so by not registering these foreigners are contributing to the very problem of which they complain.

There are costs as well as benefits of obtaining residence, but if foreigners expect the benefits from their host country and the services from their local municipality, it is only fair that they should play their role in registering as a resident.

We have prepared this guide because the Spanish market is very different from that in the UK: two examples will help to illustrate this:

(a) In Spain, contracts are validated by a Notary Public, when they become "public deeds" – this process only creates a valid act in law; contrary to what some people think, it does not substitute for carrying out the necessary pre-contract enquiries either yourself or via your solicitor and;

(b) When you agree to buy a new property being built by a developer, the property will not become yours until it is completed and the necessary certificates issued. In the meantime, you will be expected to make advance payments, which should be protected by a bond or insurance guarantee.

In spite of these differences, it is quite unbelievable that during the 1980’s over half the foreigners buying property in Spain did not use a solicitor, and the figure is still around 20% - it is not surprising therefore that some people have problems, sometimes many years later!

You would not dream of buying a house in the UK without using a solicitor – and in Spain the differences make it even more necessary. This guide is intended to help you become familiar with the terminology and buying process requirements, but it cannot substitute for proper legal, taxation or inheritance advice.

We try to keep this guide up-to-date, but we cannot be held responsible for any errors or omissions, nor decisions based upon information supplied directly or indirectly.