The ten golden rules of real estate investment in Spain

Guest Blog

We are currently seeing a resurgence in the Spanish property market. The data around mortgage approvals confirms this and leads us to be optimistic. Furthermore, certain cities and tourist areas are looking particularly dynamic in both residential and commercial sectors.

Before you invest in Spanish property you should analyse and plan around these considerations:

Financial – your expected return on investment, and the financial resources you need and how to get them.

Legal – advice is essential to minimise your risk and understand all the costs involved.

Here are ten areas you should understand when investing in Spanish property.

1. Notifying the authorities While you do not need to seek prior authorisation to invest in Spanish property (there are a few exceptions, investments coming from tax havens are one example), you do have to notify the General Directorate of Commerce and Investment of certain investments once they have happened.
2. Money laundering prevention Anti-money-laundering regulations require you to file certain documents to evidence your identity, your business and professional activities, and from where the funds originate.
3. Choosing the right investment vehicle There are several ways of investing in Spanish property and, depending on circumstances, one may be better than another. You can buy property as an individual or through a company. You can also use property investment funds or real-estate investment trusts (REITs) such as Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario (SOCIMI). I’ve even seen crowdfunding initiatives. These alternatives make it essential to get the right legal advice.
4. Identification numbers When you buy Spanish property as an individual you will need to apply for a Número de identidad de extranjero (NIE), a foreigner’s identification number. If buying through a company you will need a Número de Identificación Fiscal (NIF), a tax identification number.
5. Legal aspects There are many legalities to navigate when buying property in Spain. These include civil, taxation, town planning, and consumer protection matters that can differ across territorial jurisdictions.
6. The role of the notary To enjoy the protection of having your title to property entered in the public land registry, a notary must witness the transaction. A notary represents the Spanish government, not the investor, and does not replace the need for a solicitor.
7. Before you sign the arras contract The arras is a pre-contract that obliges the parties to complete a contract of sale at a future point. It involves paying a deposit. Before you sign the arras, you should carry out the following checks where relevant to the property in question:
• The ownership of the property and its entry in the public land registry
• The presence of any charges or encumbrances
• The cadastral situation and how it determines property taxes
• Any urban planning that affects the property
• The existence of a community of owners and any rules that you will need to observe
• The possession status: whether the property is leased or occupied
• All expenses and taxes and whether payments are up to date
• The physical state of the property and its general maintenance.
8. Ownership costs It is essential you familiarise yourself with the costs of ownership. There are taxes that arise from your investment in a property as well as those that arise from your subsequent ownership, such as real estate tax and non-resident income tax. There are also the costs involved in buying a property. These include notary fees, land registry fees, and other administrative costs. While ownership of these costs can be negotiated, it is usual for the buyer to pay. Once you own the property you will need to insure it too.
9. The property as security If you are buying a property with a mortgage, the lender will place a charge on the property as security.
10. Investor’s residency Commonly called the Golden Visa, this entitles non-EU owners investing more than c500,000 in Spanish property to apply for a family residence permit. The permit lasts for two years but is renewable. After five years of ownership, owners can apply for permanent residency. After ten years it is possible to apply for Spanish citizenship.

Guest Blog by:
Jaime J. Navarro - a partner in Navarro Llima Abogados S.L., Zaragoza.

(First published Russell Bedford, Business-World, September 2017)

Posted 1st December 2017