Property Investment in Spain

After the restrictions of the "state of alarm" were lifted, the property and investment market has returned to full growth. Spain is preparing for the return of thousands of investors who postponed their plans because of the pandemic. Here we explain in detail how to invest in property in Spain.

Introduction

After many long months, Spain has come out of the state of alarm, and the economic recovery has started again. The real estate sector, having weathered the public health crisis and the economic downturn, is ready to welcome investors from all over the world. During the pandemic, many property signings were canceled, office use and retail were also hit, and the day-to-day operations of investment funds that were preparing to enter the market were held back; the economic impact of the pandemic transformed the property market completely. With so much pent-up purchasing power, investment demand and opportunities to buy property have increased sharply. In both the short and the medium term, investing now is highly advisable. International investors have gradually noticed the market recovery, while many countries and regions have begun to ease their entry restrictions. In light of this, Spain is ready to welcome visitors from every country, and investment in Spain is bound to recover. The Spanish investment market was paralyzed for many months, and current prices have entered a range that makes buying attractive. That is why we at Aray Asociados decided to publish this guide to property investment in Spain, so that more people can learn the requirements and basic information needed to make a safe, effective and rewarding investment.

Why investing in Spain is attractive

One of Spain's main attractions for foreign investors is the price of housing. A few years ago, property prices in cities such as London, Paris or Munich were 16,420, 9,869 and 7,999 euros per square meter respectively, compared with 4,215 in Barcelona and 3,820 in Madrid. That is, without a doubt, a huge difference.

The quality of life in Spain is much higher than in other European countries, and it also offers excellent value for money.

Thanks to its location, Spain has 8000 kilometers of coastline, a long shoreline from which you can enjoy beautiful views of the Mediterranean Sea, the Cantabrian Sea and the Atlantic Ocean. Geographically, it is guaranteed more than 300 days of sunshine a year, which is extremely appealing to people from most countries.

How do you start looking for a home?

One good way to look for property in Spain is to consult different real estate agencies or check the listings that private sellers publish on their websites. Once your investment goal is clear, we recommend getting legal advice from a specialized lawyer. First, even if you choose a home through a real estate agency, for new builds it is very important to check for hidden costs or construction defects. To be completely sure, it is advisable to obtain a registry extract for the property (nota simple) from the Property Registry (Registro de la Propiedad) or to hire a surveyor or an architect to inspect it. Also, even if the real estate agent asks for it, avoid sending money before viewing the property. It is best not to make advance payments, so that you do not fall victim to possible fraud. For this reason, we recommend hiring a lawyer to act as the go-between for both parties and prevent this kind of situation. Once you have found the right property, the sensible thing is to travel to Spain and see it in person. With that in mind, let us look at the requirements you need to meet.

What are the requirements for a non-resident foreigner to buy property in Spain?

The first step is to apply for an NIE (Número de Identidad de Extranjero, the foreigner identity number). This number is required for all foreigners who need to carry out any kind of activity in Spain for economic, professional or social reasons. In Spain, you can request it from the National Police headquarters (Dirección General de la Policía); if you are not in Spain when you apply, you can request it from the Spanish embassy or consulate in your country. Then, once you have chosen the property and checked its costs and other legal matters, the purchase must be formalized by following these steps:

Sign a deposit contract (contrato de arras) and pay a percentage of the price as a deposit. This contract is an agreement under which both parties commit to completing the transaction in the near future. The deposit is usually 10% of the property price and is deducted from the final price.

Sign the deed of sale (escritura) before a notary and pay the rest of the price. The notary plays a key role both in the property sale and in applying for a mortgage, and is an essential safeguard for the security of the transaction and the rights of both parties, especially those of the buyer.

Register the property in the buyer's name at the Property Registry and pay the related administrative costs. Remember that, to pay for the property and the purchase costs, it is best to open a local bank account in Spain. We will see how to do this later.

How much does it cost to buy a property?

When you buy property in Spain, taxes and fees can reach 12%. If the transaction goes through a real estate agency, there is also an agency fee paid by the buyer. The breakdown is as follows:

Resale homes: property transfer tax (ITP, Impuesto sobre Transmisiones Patrimoniales), from 6% to 10% depending on the autonomous region.

New homes: VAT (IVA) at 10% of the value of the home. It applies only when you buy a newly built property.

Stamp duty (IAJD, Impuesto sobre Actos Jurídicos Documentados): 0.5% to 1.5%.

Notary fees: 0.03% to 0.45%.

Registration fees: 0.02% to 0.18%.

In Spain, the purchase price and transaction taxes are normally paid in euros. In addition, regarding cash payments, Law 7/2012 of October 29 (Ley 7/2012, de 29 de octubre) limits the amount that can be paid in cash in transactions carried out in Spain, setting it at 15,000 euros for anyone who is not a tax resident. So if the funds come from abroad, the property must be paid for by bank transfer. In some cases it is advisable to carry out the transaction through a specialized platform to avoid surprises, such as the extra margin that traditional banks add to the real exchange rate, which makes the operation considerably more expensive. When transferring money from abroad to buy property in Spain, a specialized platform lets you convert the currency and move the funds from your bank account at a very low cost, always at the real market exchange rate.

What taxes do foreigners pay on property in Spain?

If you invest in property in Spain but decide not to live there, you will have to pay the following taxes.

Taxes to keep in mind

IRNR: non-resident income tax (Impuesto sobre la Renta de No Residentes) is levied on property held by foreigners who do not live permanently in Spain. If the owner actually lives in Spain for more than 183 days, they are considered a Spanish tax resident and a different tax applies: personal income tax (IRPF).

IP: wealth tax (Impuesto sobre el Patrimonio) must be paid even if the owner of the property does not live in Spain. The law sets a tax-free allowance of 700,000 euros, which also applies to non-residents.

IBI: property tax (Impuesto sobre Bienes Inmuebles) is a local tax paid to the town hall based on the value of the land. Each town hall sets the rate. Besides transaction taxes, buying a property involves other costs, such as notary fees, agency fees, registration fees and valuation fees, which are paid by the buyer. On the other hand, if the land being transferred has increased in value, the seller must pay the resulting municipal tax. As you can see, working out which taxes apply and at what rates is a complex process that is best handled with professional help: professionals can not only advise you on compliance but also act as your local guide and intermediary.

An extra advantage of investing in Spanish property: the investor golden visa

When investing in Spanish real estate, we cannot forget its greatest advantage: the investor golden visa.

The investor golden visa is a visa designed to encourage international entrepreneurs and investors to invest in businesses and property in Spain and, ultimately, obtain legal residence. Initially, once all legal requirements are met and as long as the investment required by law is maintained, the investor can obtain a 1-year residence visa, followed by a 3-year residence permit. Subsequent residence permits last up to 5 years. The residence permit allows you to live and work legally in Spain.

In addition, under the law the investment can also be made in non-residential property (for example, commercial premises or offices), which greatly broadens its usefulness and the investment possibilities.

Finally, the law requires a minimum property investment of 500,000 euros, but this amount can be reached through joint ownership, that is, property owned jointly by spouses, or through the combined value of several properties. Investing in Spanish property therefore opens the door not only to the financial market, but also to a new lifestyle with more than 300 days of sunshine a year.