Spain joined the European Community in 1986. Since then the economy has been open, efficient and competitive. Most restrictions have been removed and foreign investment has been encouraged. The direction of effort has been to modernize Spain in preparation for the single market concept. The economy is robust and enjoys and investment led growth. The GDP increases have been good over the years. It has a good trade with Japan, the United States and other neighbouring countries.
During the last three years foreign investment in property has shot up by 30% in Spain. More than 560 million Euros were invested in residential property by foreigners. Total homes owned by foreigners today total to more than 3.6 million about 8.5% of the total homes in Spain. Britons form the largest group of foreigner owning homes in Spain.
Laws relating to Foreigners:
Foreigners who have spent 183 days in Spain during any Calendar year are required to take residence ship in Spain. Even if the days are not consecutive. The individual becomes liable to taxes on the 184th day. If a foreigner arrives in Spain with the intention of taking permanent residence then he becomes a resident from the day of arrival. If the spouse lives in Spain, the foreigner is deemed to be a resident. Persons living within 12 nautical miles of the Spanish land are considered to be a resident. All residents are required to obtain Fiscal Identity numbers by applying in person to the nearest police station with a foreigners department along with a copy of the passport and a photocopy of it and 2 copies of the individuals passport size photograph with the name written on its back. Certain prescribed forms are to be filled and the number is assigned in a few weeks. This is also a prerequisite for purchase of property in Spain. The Notary also requires proof of residence while notarizing the property purchased or sold.
Property purchase procedure:
Before buying property in Spain and Canary Islands check with the local Property Registrar to ensure that the property is free from mortgages or outstanding debts. Spanish laws automatically transfer debts to the purchaser if it is not paid by the seller. It is also important to check with the Town planning Department of the local council that the property is not affected by a public or private building project. If you are purchasing the property with a mortgage from a bank the latter would automatically check out the credentials of the seller and the salability of the property. However, if the purchase is being made on your own it is advisable to employ a registered real estate agent to help you with the process.
Most properties are sold at the early stages of the project. A 10% initial payment is demanded and the next instalment is due in 12 months and then 24 months. The value of the property also increases by 10% as its takes shape. While making investment in Canary Islands the investor should keep in mind the following:
1. It is best to make investment in property right at the beginning of a project as the prices are jacked up by 5 to 10% by builders as the building takes shape.
2. It is best to make an investment in a locality that is popular locally. Popular areas are Puerto del Carment, Costa Teguise or Playa Blanca.
3. An English translation of the contract would be to your advantage.
4. Use the services of a lawyer if there are clauses in the contract that you do not understand.
5. It would be in your interests to hire a real estate agent of good reputation. Most building companies pay commission to the agent so he is likely to work for you free.
6. It must be noted that the reservation deposit made by you is non refundable. So think well before making the reservation deposit. This is usually 5000 to 10000 Euros.
7. If you are making the final payment by mortgage ensure that you get the payment in time or you will forfeit your deposits.
8. Ask all the questions you want. You are entitled to get all the answers from the seller.
9. Remember that this is an investment you will want to cash later. Therefore, make sure that you buy the property that is most popular and attractive to buyers. Else you will not be able to sell your property.
10. Ask for maintenance fees and tax details for the property—eg community taxes andAnnual Real Estate tax.
There are taxes for collection of rubbish, water taxes, electricity charges and Property income tax and Wealth tax to be taken into account.
If you decide to buy a ready built property it is best to appoint a lawyer who can examine issues relating to mortgages, charges, encumbrances, debts or liabilities associated with the property. The lawyer will be able to negotiate the purchase terms such as completion dates, form of payment and other related details. Once this procedure has been completed you will be expected to pay the reservation price and you will have to sign the terms of purchase in writing along with the seller. This reservation deposit is non refundable. If the vendor does not perform his obligations you will be entitled to the resolution of the contract and can claim damages or demand an obligatory fulfilment of the contract. On completion of the contract, the final sale will be notarized before a notary and the keys will be handed over after the final payment is made.
Entries will be made in the land registry regarding the new ownership of the property when the notary faxes the details to the Land Registrar as per the Land Registry act. Thereafter the new owner is expected to pay the relevant taxes and have the original deed submitted to the Land Registrar for registration of title. The lawyer will then arrange for the utilities to be transferred to the name of the new owner and payment of the same to be made through a local bank.
Charges and taxes in Canary Islands
The notary normally charges on a fixed scale. The charge ranges from 80,000 pts for a property valued at 20,000,000 pts to 1,50,000,000 pts. The Land Registry charges a sum that is fixed at 40% of what is charged by the Notary. The lawyer will charge at 1% or 2% of the price plus VAT. On resale of property a Transfer tax of 6% of the value of the property is required to be paid. A VAT of 7% plus stamp duty of 0.5% has to be paid if property is being purchased from flat promoters. The VAT is increased to 17% if garage space is also purchased. Additionally a tax called plusvalia is charged by the local town hall based on the locality of the property, the surface area of the land and ctastral value on the date of the previous title deed. The tax could be a few thousand pesetas or several million pesetas depending on the size of the land. By law it is a burden on the vendor but in practice it is charged on the buyer by mutual agreement. | 