How to Purchase a Property - 3 Legal Steps to Buy a House in Spain
No matter where you are from, moving to Spain may be one of the greatest decisions you will ever make. But that requires an important process: buying a house. In this guide you will get all the information that you need to buy a property in Spain as a foreigner. We will talk about the property market, the main steps and requirements when acquiring a house, and other relevant aspects such as taxes.
Any real estate process has many risks involved. Understanding the legal part, in that sense, is a must. Not only it will protect you, but it will also save you time and money. And in this article you will understand how.
About the Spanish property market
The property market in Spain presents great opportunities. And that is true both for foreign investors and for expats willing to settle in the country with their families.
After the 2008 crisis that completely devastated the real estate sector in Spain, the overall market situation has improved since then.
Nevertheless, we are talking about a very special market. As the whole country in general, each region operates differently. And being aware of the nuances and differences that arise between regions is a must.
For example, if you want to rent an apartment, knowing where to find the greatest deals is crucial; as in cities like Madrid or Barcelona rents are just too high.
In order to give you an overall idea, you can find in this article our predictions and characteristics for the Spanish property market during 2020.
Can foreigners buy a house in the Spanish territory?
Yes, any foreigner can purchase a house in Spain. Nevertheless, there is one difference. In case you are not a Spanish national, you will need to take one extra step prior to the purchase.
Don't worry, it is really simple (if not, we can help you out).
What are we talking about?
The first thing you should do is to get your NIE number. It is the basic identification number that all foreigners must obtain once entering the country.
Furthermore, we must make a distinction here. Because depending on your country of origin, things change:
If you are from a European Union country
If you are from a European Union country, there are two types of NIEs:
- The temporary NIE number, for those individuals who do not want to live in Spain. For instance, if you are planning to visit the country and realize the purchase, but then leave, this will be the type of ID you will need to request.
- Conversely, a resident NIE (a permanent one) for those who actually want to reside in Spain
If you are a non-EU citizen
On the other hand, let's say that you are a non-EU citizen. In that case:
- You can apply for the Resident NIE number if you are a Spanish resident (if you live int he country more than 183 days per year).
- Non-resident NIE, if you are not living in Spain but would like to buy a property either way.
How to buy a property in Spain as an expat
The process of purchasing a property in the Spanish territory can be divided into three different steps:
- Down payment: procedures or diligence that arise prior to the purchasing of the property
- Public deed: formalizing the purchasing contract
- Formalities and procedures that come after the purchasing moment
How long does it take to buy a house?
It depends. There are cases in which you can complete all the steps in just one or two weeks, provided that everything works smoothly between buyer, seller, and agency. But it can be much longer if any contingency arise.
Let's analyze the property purchasing process in a more detailed way.
1. Legal procedures prior to the purchase
In this section, a series of diligence prior to the signing of the binding contract between both parties is born: the so-called diligence of the property.
What does this process consist of? Basically, it consists of a review and verification of all the documentation of the property in the registry, as well as the validity of those papers.
We will first analyze the documents you will need here. And afterwards explain, step by step, how should you manage this first part of the purchasing process.
Documents you will need before buying a house or flat
Already with your NIE number and the house you are willing to acquire, there are now 3 documents you will need to sign:
- The reservation contract. It normally is 1% of the property price. This percentage represents a tiny amount that you should pay in order to officially make the offer to the seller of the house.
- If the seller accepts the offer, you need to pay the pre-sales agreement, which is 10% of the amount of the price.
- Deposit contract
Once you have a copy of the notarial deed containing information regarding the registration of the property (for example, who is the owner of the property), you can go to the register and request a simple note, a document by which we can see that the property is free of duties and charges (such as mortgages).
Pre-sales agreement ("contrato de arras")
In addition, on a large number of occasions, before signing the public deed on the notary, a prior contract is signed, pre-sales agreement or "contrato de arras", which is not mandatory.
This pre-contract between buyer and seller has the purpose of formalizing the transaction between both parties: the buyer shows his clear intention to acquire the property, and the seller her intention to sell.
As we have said, it represents 10% of the total price. Once paid, the seller is obliged to sell the property. But what happens if she doesn't? Good news. She then has to give you back double the amount you paid (20% of the total price).
But be careful. If you, as a buyer, don't want to finally purchase, then you will lose that money.
Finding financing and preparing for the notary
After the pre-sales agreement is made and paid, there is usually a 3-month period in which you can find financing from a bank, or just wait. Once that period is over, you will go to the notary to pay the remaining 90%.
The payment conditions will be defined in the deposit contract. In it, the purchase price will be established, the payment method defined (whether it will be fully paid in advance or it will be paid in installments), and the deposit (for practical purposes, a common down payment).
However, this document, unlike the public deed (as we will see right now), can not be used for registration to the property registry in Spain.
2. Public deed
Once you sit down with the notary, you will proceed to draw up and sign the sales contract.
That is the time in which you do the due diligence of the property. The seller is requested several documents in order to verify that she is the real owner, that there is an actual agreement to sell, no inheritance or tax problems with the property, no debt with neighbors...
A full check regarding any legal issue that could affect the house or flat that is being sold will be done.
Important advice: hire an architect and a lawyer
This is crucial and will avoid many problems.
Our advice here is to hire an architect to do an architect report about the flat situation, in order to determine that no damage to the building is present.
This part of the process is undoubtedly one of the most important, since a meticulous analysis of the contract will be needed, so as to neither party gets harmed. Buying a property that has problems with the city hall for town-planning reasons, and that is something you discover after the final payment... is for sure detrimental.
That is why we recommend you to receive help from our specialized property lawyers in Spain. Why? Because we will accompany you during the whole process of buying and/or selling the property from the beginning, and we will make sure that there is no clause that could go to your detriment.
Furthermore, we developed a checklist that will guide you during the procedure. The checklist contains all the issues you should consider before buying a property, and you can have access to it here.
Signing the contract with the seller
Once the transaction is completed and contracts signed, the house can be registered in the Property Registry under the ownership of the buyer (now the new owner).
Of course, each of these legal steps will have additional costs. How much, exactly, will those be? You can learn here about all the total costs when buying a property.
3. Legal procedures after the purchase is complete
Once the purchasing contract on the notary has been signed, the process hasn't yet finished. There are 3 remaining steps that you must follow in order to deal with all the diligence that may arise:
- First of all, you must register the property in the Property Registry, identifying the new owner (you).
- Then, you must fill in the corresponding forms referred to the payment of property transfer taxes: the property transfer tax and the stamp duty, to the Autonomous Community in which the property is registered. You have 30 days to realize that payment.
- Finally, you must transfer the ownership of public services; such as gas, water, and electricity.
Taxes when buying or selling a property as a foreigner
There is no denying the fact that taxes will be next to you in any legal process. In that sense, not only will you pay taxes when buying a house, but also if you plan to sell it.
And knowing which are the specific taxes beforehand is crucial so you can plan accordingly.
Taxes when buying a property: Property transfer tax
As we have mentioned before, you will need to pay the property transfer tax. And the exact amount will depend on whether the flat or house is new or not.
If you are buying a second-hand house, the tax amount to be paid will be equal to 10%.
On the other hand, if we are talking about a new promotion, the VAT is 10%, and then you have an additional 1,5% that needs to be paid as a new registration. Therefore, buying a brand new flat in a brand new building implies paying a total amount of 11,5% in terms of taxes.
But if you are a young individual we have some good news for you. Because if you are under 32 and you declare that the house or flat which you are buying will be the place in which you are going to live, then that 10% turns into a 5%.
Capital gains tax when selling a house
If you are the one selling the property, you will need to pay mainly between 19-24% (provided that you are a tax resident), depending on the case, on capital gains tax (there is a scale). That tax percentage will be applied to the benefit obtained from the property. This means, the difference between the selling price and the price you paid when acquiring the property.
If you are non-resident taxpayer you will pay 24% in terms of capital gains tax.
And what happens if you rent the property? As that will be considered an income, capital gains tax will be also applied, at the same tax rate.
Can you deduct any expenses? As a non-resident, you will just be allowed to deduct the expenses from the real estate agency, from the lawyer, and from the notary. Anything else. Nevertheless, the list of things you can deduct is larger in the case of being a resident in Spain (more on how to determine if you are a resident or a non-resident in Spain in our tax post).
Rely on a real estate lawyer
We have just covered the 3 main legal steps to buy a property in Spain as a foreigner. The purchasing process can be long and complex, basically due to the fact that there is an urgent need to take into account many aspects related to the operation (many times small nuances), especially if we do not want to be harmed.
If you still have doubts, good news. We have gathered in an article the 9 most frequent questions that our clients do to us when trying to buy a new house in Spain. Would you like to go over them? You can have access to the real estate questions and answers here.
Nevertheless, you may want to get the help of a specialized real estate lawyer. Getting the right legal advice as an expat is key. He will draft all the contracts and look after you during the whole transaction, making sure you are fully protected and you avoid losing money.
At our office, we have dealt with many foreigners who wanted to purchase a property. And now we want to help YOU out.