Buying Property in Catalunya
Hugo Navarrete is a Barcelona based lawyer specialising in property law (including house purchases, rental agreements, traspasos, mortgages, remortgaging and mortgages in foreign currencies)
Calle cartagena 245, 3ºA 08025 Barcelona (+34) 661886587 firstname.lastname@example.org
What is your first piece of advice to anyone thinking of buying in Catalunya?
Not rushing and understanding what they are doing, getting the right advice to get the right place at the right price and getting legal advice so as not to get into trouble.
What are the advantages of buying in Catalunya compared to elsewhere in Europe?
Catalunya has got everything and is a sensational place to live or to have a second home. There is the Mediterranean climate, good beaches, good mountains, good food, nightlife, cultural traditions, beautiful cities, good shopping, good transport system and cheap connections with all Europe. There is a relaxed lifestyle, nice people, child friendly environment, established and stable democracatic system as well as services for foreigners (schools, publications, cinemas, theatre, comedy nights, etc). I think that there are many places in the world that you can say are beautiful, but not so many that match so many requirements. In theory Catalonia is a great place to live, in practise you have to find your own way, develop friends, and be open to a new culture and mentality as well as the different pace of the Spanish.
Could you explain the process of buying a property in Catalunya and roughly the timescale involved?
Once the negotiations lead to an agreement, seller and buyer agree on the price and that’s when the legal work starts. In some cases people want a deposit to keep the property out of the market so during that time the lawyer can conduct searches and negotiate the terms and conditions of the contract. I advise not paying "arras" until a lawyer has looked at the property and has given his approval. Once the arras contract is signed, the problem will be getting the money back. Most of the lawyers work is during that time, so he has to make sure that the money goes to the right place, the right people and the purchase is all correct, at least in the legal terms. Here I can give some examples of how things can go wrong: I have seen cases where there were houses for sale with debts that genuinely not even the owners knew about it. That happens because Spanish people buy property without lawyers. I have seen cases where people buy a property and don’t know that the sellers have carried out illegal work on the house and there’s a file opened in the Council against it, so what it is supposed to be a flat ready for occupation actually turns into a 1 year work long negotiation with architect drawings, licences, works, etc. I have even seen lawyers authorize purchases without the right documentation under the promise that it will come very shortly, and the clients losing the money. Another example is people buying less land than they think they are buying, etc. Another essential element on a property transaction is the financing. Most buyers need a mortgage. If that is the case, please make sure you know that you can get that money before you commit, or put a clause that you can pull out if you don’t get the finances in place. I have seen people paying a deposit, and then the bank rejects the application at the last minute..., or changes the terms and conditions for higher interest. No compensation is given for putting the client in such situations. Their argument will be that they never put it in writing; they never gave a formal offer...Once the sale is at its final stages you will need to go to a notary in order to sign an agreement between two parties. On completion please note that the Escritura de Compraventa does not guarantee your title to the property until it is registered at the Property Registry (making it an Escritura Publica, a public document). If you need a copy you can request one from the Notary who will produce an authorised copy. The deed should be registered within a few months. If you are a cash buyer, make sure that you or your lawyer does it. If you buy with a mortgage the bank would do it for you, as they want to assure that the charge is also registered.
There are many hidden costs when buying a property in Catalunya; can you explain what these are?
All the books regarding buying a property in Spain talk about 10% which could be less or more depending on the situation, which break down in the following way.
Mortgage opening commission: Depends on the situation but hardly any mortgage is without opening commissions, non residents offer is normally 1%, and mortgages in foreign money (multidivisas) are 2%. The banks also value the risk of the operation and they charge more or less opening commission depending on the risk and difficulty of the operation. You will also need to pay a mortgage appraiser (tasador) between 300-500 Euros
Notary fees: The Notary fees for the execution of the Escritura are fixed by a sliding scale established by law. You will be charged a standard fee (about 0.4% of the first 6010 euros, going down to 0.02% for over 6,010,121 euros).
Land Registry's fees - For the registration of the Escritura at the Land Registry, again a sliding scale is applicable dependant on the purchase price.
Commission: The seller will have an agreement with an agent or agents to pay them a commission upon completion of a sale to a client that agent has introduced, the commission the vendor has to pay will always be reflected in the final negotiated purchase price.
Stamp duty or VAT: If the seller is a private individual and not a property developer, the sale is subject to a transfer tax (“Impuesto sobre Transmisiones Patrimoniales” – ITP) at the rate of 7%, there ´s an exception for buyers younger than 33 years old if it is their first residency. The sale is subject to a VAT (“Impuesto sobre Valor Añadido” - IVA) at the rate of 7% when it is a new building (Article 91.1.7º LIVA) and will also have to pay a stamp tax at the rate of 1% (Article 31.2 LITP-AJD)
Plusvalia Tax (Impuesto sobre el Incremento Del Valor de los Terrenos de Naturaleza Urbana): This is a municipal tax on the increase in urban land value; The Plusvalia is based on the assessed increase in the official value of the property from the date of the previous sale to the date of the current sale. The amount payable varies widely since it is based upon the assessed increase in the land's value and the lapse of time since the prior transaction. The amount payable also depends on the location of the property and the applicable scale. In accordance with Spanish law the Plusvalia Tax must be paid by the seller.
Capital Gains Tax: This must not be confused with the above-mentioned Plusvalia Tax, as it is not based on the official value of the property like the Plusvalia Tax, but on the real value. The Capital Gains Tax is based on the increase in the purchase price and the sales price.
What are the capital gains costs for residents and non-residents?
There were changes in the Capital Gains law. One of the most significant changes that affect non-resident income tax from 2007 onwards is the significant reduction from 35% to 18% of the capital gains tax applied to property sales or transfers. It is important to note the withholding tax will be reduced from 5% to 3%. In addition, the Personal Income Tax bill establishes that Capital Gains tax arising from the sale or transfer of property in Spain by persons over the age of 65 and persons who are considered to be in a situation of dependence shall be exempt totally from capital gains tax. However it should be noted that this only applies to residents in Spain and therefore does not apply to non-residents, meaning non-residents aged over 65 will still be liable to pay capital gains tax on the profit of selling their home in Spain
Can you explain the different roles performed by a lawyer and also a notary?
Do not confuse the Notario with a lawyer. Many people think that the notary is enough for them and gives them the legal protection they need. That is wrong. The Notario is a public notary and an official of the State who ensures that contracts are legal. He does not verify or guarantee the accuracy of the statements made in the contract. You still need a lawyer representing your best interests. The Notary does his job, but gets involved at the end of the process, when it could be too late and 10% of the money has already been transferred. The notary doesn’t control anything, for instance in the case of illegal works, it would not be the Notary ´s job to check this.
What would your advice be if the seller wants the declared price to be less than what a potential buyer actually wants to pay?
It is illegal, and the authorities are controlling more and more every transaction.
If buying a property in Catalunya can you save on taxes by creating a company?
Depends on the circumstances. Most of people who do that buy the assets in the name of the company and they put those expenses towards the income. Needs to be seen in every particular case, but I ´d say that in most of the cases it doesn’t apply. Remember that setting up a company involves having an accountant, tax declarations every 3 months, etc.
What information should a buyer get from an agent before going ahead with the property?
Agents are mostly good professionals, but not lawyers or educated in law. Therefore, you often see clients checking with lawyers things that an agent has told them.
Are Catalan estate agents regulated? How do potential buyers know when they are reputable?
There ´s a professional association called Colegio de Agentes de la Propiedad Inmobiliaria; but to be an agent you don’t need to belong to it, despite the fact that there are rumours that one day this will change. At the present, any one can go and sell property without any qualification or passing any knowledge test.
What documents does a potential buyer need before they can proceed with the purchase?
It is not about one or two papers it is about a whole legal search. One small paper can become a nightmare if you don’t know the problems that could come after it.
Where is the best place to start when looking for a mortgage in Catalunya?
I recommend going to different banks and trying to get a good deal. Don’t be shy about comparing prices and offers. The evaluation is a cost, but certain companies’ work for different banks so the same survey report works for several ones. The survey report is yours, not that of the bank, that´s why you pay it. Because of many previous transactions you see what it is a fair rate and what it is not. Also if the client asks me I can recommend a bank according to their circumstances. Recently, the property mortgage market has changed a lot. Interest rates have gone up a lot and many people have decided to remortgage their homes on foreign currency, Japanese yens or Swiss francs. Not all the banks offer those products, but they do exist. Not many people know about those mortgages, especially in the international community; but talking to banks who deal with them, they say that about 60% of applications are for those kind of mortgages, and most of them are remortgaging. If any of the readers are interested I´d be happy to explain it more as I can also provide this service if requested.
Do you think that in general buying in Catalunya is a good investment property?
Yes. It is a very desirable place. Consolidated market, not great profits any longer, but stable. Good quality of life, good rental income.
How do you think the boom and recent slowdown of the market in Catalunya is going to affect the way people buy in the future?
It wasn’t healthy for prices to keep going up in that way. It was insane, however when people talk about empty houses and stock in the market, mainly this is in the south of Spain. If you go to desirable places, like the centre of Barcelona, Sitges, Costa Brava, etc, you don’t see the crisis... or not in the scale they want to makes us to believe. Expensive properties are still sold. It is true that banks are more conservative than ever, and that most people need a mortgage to buy, but if you pay attention, there ´s lots of empty flats in BCN and in Sitges, owned by rich families, which have been empty for many years. The people who sell now are the people in need, and those are the people who have to drop the prices as there ´s not much cash around. It is a good buyer’s time, but I don’t see more or less property to sell than a year ago for instance. If we talk about commercial property it is not the same. Shops are paying high rental fees, and some of them are suffering the decrease of cash on circulation.
Is it generally better value to rent rather than buy in Catalunya at the moment?
Renting is always a good choice, if you rent for the right price. Also it is an opportunity to know the place before investing. However prices of rentals are not dropping despite what many people think, and that’s because many people are not buying, those potential buyers are going to the rental market. More demand and not more flats or houses to rent, as a result of that in some cases prices are going up in desirable areas.