The Economist recently reported that property prices have risen faster in Spain in the last 20 years than anywhere else in the world. If you purchased in Spain two years ago, you might have benefited from a 30% increase in the value of your property, possibly more in some areas. Although increases are currently a little more modest, experts predict that prices will continue to rise for the immediate future, and are unlikely to drop. This means that you can still buy a property in Spain that you can enjoy and be secure in the knowledge that it’s also a good investment.

There is a wide range of property available. High quality, new construction projects are readily available throughout Spain. The introduction of the Euro has made it easy to compare property prices across Europe. Compared to the property prices in Northern Europe, Spanish property still represents good value. With mortgage rates at record lows and the continuing uncertainty in the stock market, investment in Spanish property can be a wise decision.

To make sure that you enjoy the potential benefits of property ownership in Spain you need sound legal advice and representation. This could be provided by a lawyer, a registered estate agent, a specialised ‘gestor’, or an ‘administrador de fincas’, any of whom is qualified to act on your behalf.

Finding a Real Estate Agent

When you decide to buy property in Spain you will almost certainly contact a number of Estate Agents. There is no law in Spain regulating the real estate industry and anyone may, quite legally, act as an intermediary in property sales. There are, however, two professional associations that promote a voluntary level of regulation for their members – API and GIPE.

Ask an Estate Agent if they have professional indemnity insurance, and, if so, for how much. Also ask if they operate an ESCROW bank account, a bonded client’s account, into which any deposits are placed, and which is inaccessible except for the recorded purpose of the deposit. Estate Agents dealing with Spanish property typically charge commissions of between 5% and 10% of the sales price. This they justify because of the increased costs associated with international marketing and the complications arising from a market where a buyer comes from one country, the seller from another and the transaction taking place in Spain, potentially a third country. Very few agents in Spain have exclusive rights to sell a particular property, so you will probably find more than one agent showing you the same property, sometimes at different prices.

Finding a Lawyer

You would use a lawyer in your home country when buying property and there is no reason why you should deviate from such common sense when buying property in Spain. Many Spanish lawyers speak excellent English, among other languages, and are accustomed to dealing with foreign purchasers and advising on their property transactions. The best way to locate one is to ask around for personal recommendations and experiences. Alternatively, the British Consulate maintains a list of lawyers who speak English. The lawyer will charge you around 1% of the value of the transaction, unless there are some unusual complications.

Before signing anything there are some important pieces of paper you and your lawyer should have a look at:

The Escritura Publica and Nota Simple

The Escritura Publica is the registered title deed of the property. It is entered in the ‘Registro de la Propiedad’, the Property Registry, and is the only guarantee of title in Spain. It contains a description of the property, the details of the owner and any mortgages or legal claims that exist against the property. This document is important because it tells yyou if the seller is the owner of the property being sold. A nota simple contains further details of any mortgages or charges against the property and is also available from the Registry.

The IBI receipt

Before purchasing a resale (not new) Spanish property check out the ‘lmpuesto sobre Bienes lnmuebles’, or lBI, which is the municipal property tax. Ideally, you’ll be able to see the IBI receipts for the last five years because that is the limit of liablity for unpaid back taxes and is attached to the property, not the owner. A new property bought from a developer will not have an IBI receipt (because it has never been ‘owned’) so it will be your responsibility to register the property for this tax.

The Referencia Catastral

Every property sale must quote the ‘Referencia Catastral’ of the property in question. The Catastro is another system of property registration in Spain, concentrating on the location, physical description and boundaries of the property. While the Property Registry focuses almost exclusively on ownership and title, the Catastro is concerned with property valuation.

These two systems do not communicate with each other, and it is common to find that the catastral description of a property differs greatly from the one in the Property Registry. It is a good idea to request the actual certificate from the Catastro with a full description of the property. The certificate is in two parts, one being a description of the property and the other being either a plan or an aerial photograph.

Community fees, statutes and minutes of the AGM

This only applies if you are buying a property in an urbanisation or where there are some ‘communal’ resources, shared amongst a number of properties. These are the fees charged by the ‘Comunidad de Propietarios’, the Community of Property Owners, a legal body that controls all the elements held in common; the lift, gardens and pool for example. Each owner is assigned a quota, or percentage of the expenses which, by law, must be paid.

Utility bills

These assure you that the bills are paid and also provide an idea of what the running costs of the property will be.

Miscellaneous

If you are buying a property in an urbanisation, make sure that it is legal and registered by asking to see the approved ‘plan parcial’ at the town hall. If the property is on the beach, make sure the development is also approved by the Jefatura de Costas. For a new property, make sure that it has been declared for IBI and that the developer has made the ‘declaracion de obra nueva’. Also ensure that the escritura mentions the house you are purchasing as well as the plot of land on which it stands. As an additional safeguard, it is wise to examine the town planning maps for the area around the property, called the Plan General de Ordenacion Urbana, or PGOU.

The process of buying a house will involve three very important documents: Deposit document, Private purchase contract document, and completion by means of Public Deed of conveyance signed before a Notary Public document.

Private Purchase Contract Document

If the parties decide to convene the signing of a further document, where new terms and condition can be agreed, against payment of a sum which is normally 10% of the purchase price. Once this document is signed, the reservation sum document ceases to be valid and enforceable.

This agreement may adopt the form of an option to purchase contract, an `arras´ contract or a new private purchase contract.

Briefly, the option to purchase imposes obligations only on the vendor. Against a sum of money, the seller undertakes to hold the property for the buyer until a given date and obviously undertakes to complete when the balance is paid. If the buyer withdraws, the seller keeps the money. If he decides to go ahead, the vendor has to grant Public-deed of conveyance. This contract is unilateral, in that the vendor is the only party under any obligation. The buyer, after signing, is not liable for defaulted payment of the balance. Only the premium of the option is liable, which is lost to the vendor. Conversely, the vendor is liable and can not withdraw from the deal until it has expired. Before this date, the buyer informs the vendor he wants to exercise the right granted by the vendor, and against payment of the balance, the Public Deed of conveyance is signed.

The `arras` contract enables any of the parties to withdraw from the proposed deal. The buyer loses the reservation sum, and the vendor will have to refund twice that amount if he withdraws. The Spanish Supreme Court has stated that in order for this to be applicable, the document has to specificly provide for this and mention without a cast of doubt that it is intention of the parties.

The private purchase contract as such binds both parties, enabling the non-defaulting party to sue for perfomance and/or claim damages. Where the contracts previously described fall short of the requirements to qualify as such, then deal will be regarded as a plain private purchase contract. However, it has to be said that these types of contract are not water-tight compartments. Parties can draw up taylor-made contracts to suit their interests, inserting clauses of the most varied nature. These are valid and enforceable so long as:
• They are not deemed unlawful
• They are easily interpreted. Otherwise, an ambiguous or cofusing clause will be interpreted by a Court of law to the detriment of the party who created the ambiguity or confusion.

What the buyer should check before handing over any monies:

Who holds the monies? The deposit should be left with either a reputable and financially sound agency or directly with the seller. The most secure bank account for lodging these monies is the clients account of the lawyer of the vendor. Although not technically an escrow account, it is bonded inasmuch as lawyers have very restrictive rules as to monies given to them for custody. It is recommendable to use this procedure where the owner of the property is an offshore company or when the buyer´s lawyer advises accordingly