Common pitfalls when buying property in Spain
It is safe to buy a property in Spain as a foreigner. However, while there are many strong legal protections for buyers in place, there are still some financial, legal and tax risks that you should be aware of, as well as some less obvious risks associated with the location and type of property. Being aware of these risks will help you avoid them on your next property purchase.
With the right guidance and experts on your side, however, the potential pitfalls associated with buying property in Spain can be avoided.
Financial risks – currency risk and your budget
As a foreign buyer, you need to be aware of the financial risks tied to currency fluctuations when buying property in Spain. This often-underestimated factor can impact your ability to complete a property purchase.
The property buying process can take several months, during which exchange rates between your local currency and the euro may vary. In the timeframe between signing the sales contract and its completion, the price in euros for the property in Spain remains constant. However, its value in your local currency may fluctuate. For instance, a 3% drop in the value of your local currency against the euro would mean that the property will now cost you 3% more in your local currency. With the size of the purchase amount, that 3% could work out to a substantial additional cost that you may not be able to cover.
To navigate this, consult with a currency exchange specialist before viewing properties or signing with an estate agent. They can help you understand your budget in euros and prepare for potential fluctuations in your local currency. They should also be able to offer a tool called a forward contract, which will allow you to secure an exchange rate for the entire property price, protecting you from future exchange rate changes and removing the risk of a nasty surprise when it comes to completion.
Our recommended currency exchange specialist, Smart Currency Exchange, has over 20 years of experience assisting international property buyers. They can provide you with a forward contract that fixes an exchange rate for up to a year, without any extra fees. This can give you peace of mind, knowing exactly what you’ll pay upon completion.
Legal landmines
When buying a property in Spain, it’s important to employ an independent lawyer. The estate agent or developer may recommend their in-house legal services, but you need to know that your lawyer is working with your best interests at heart, not their colleagues’.
You should choose a firm with a specialism in property law. If they offer associated legal services, such as inheritance and planning, this will be helpful as well.
Speak to a lawyer early in the process – not just when you are given a contract to sign. Before taking a viewing trip, consult a lawyer about your plans. For example, are you aiming to offer rentals? Do you wish to renovate, or add a swimming pool? Are you buying as an unmarried couple, each with your own children? There are potential pitfalls for buyers around all of these issues – easy to sort out early but potentially expensive further down the line.
Tax traps and fees
One thing that can catch people out when buying a property in Spain is not accounting for the buying fees and only finding out on completion day when presented with an extra bill. Budget for between 10% and 15% of the property value to cover all associated buying fees.
The main costs are:
- Property transfer tax (if buying a resale property, 6 to 10%)
- VAT (if buying a brand-new property 10%)
- Notary (up to €1,000)
- Land registry fees (fixed rate, usually between €500 and €700)
- Legal fees (1% to 2% property value)
Additional costs to budget for may include a property survey, utilities connection, mortgage fees, or insurances.
Property surveys in Spain
Having a structural survey before you buy isn’t as common in Spain, but that doesn’t mean you cannot have one.
Spain’s building boom of the early 2000s saw some poor practices, so while things have improved greatly, a survey may still offer peace of mind. Moreover, it is not just about the property itself but also the land it sits on.
If you wish to commission a survey, and if your offer depends on the results, then speak to an independent lawyer early so they can build it into your contract.
You can find a list of regulated firms and surveyors that cover Spain on the Royal Institution of Chartered Surveyors’ (RICS) website, where you can filter by location.
Choosing the right location in Spain
Spain is a large country with 10 wonderful islands as well as the mainland. Settling on one location can be the first conundrum.
Choosing the right location means looking at the bigger picture. While the appeal of the costas and their beaches is legendary, it’s not always the most attractive or cost-efficient place to live. Being 15 minutes’ drive from the sea can be just as nice in practical terms.
Others might be overly optimistic about how easily they will integrate into the local community. Eschewing the more overtly expat areas for somewhere rural and traditional can be wonderful, but it’s a brave move if you do not speak good Spanish.
Should you choose a more touristic area and somewhere with a settled year-round population? This is a particular issue for investment buyers and relocators. While some Spanish coasts and islands have virtually 12-month seasons now, others are deserted off season.
The simple answer to these pitfalls is to work closely with your estate agent. The buyer/estate agent relationship in Spain is much more holistic than you might be used to. They are local experts and will be able to recommend areas, neighbourhoods and towns that best match the lifestyle you want to live. Consider their suggestions and ask lots of questions.
Off-plan potential pitfalls to avoid
Spain’s property industry is almost unrecognisable from pre-financial crisis of 2000s, when some new developments were left unfinished, and buyers left out of pocket. Today there are legally cast-iron bank guarantees.
However, there are still potential pitfalls to avoid. An off-plan property will usually be part of a wider development, community or resort built by the same developer. Most off-plan properties in Spain take between 12 and 24 months to complete, and this can create some issues.
Potential pitfalls include:
Living on a building site
If you buy early in the build your completed and paid for property will be on an unfinished development for some time.
Delays and uncertainty
Delays in the construction process can occur for various reasons including shortage of material or labour, or unforeseen complications.
Financial Commitment
Buyers must pay a deposit of between 10% and 30% of the property’s value, then more payments as the building progresses. You will part with a substantial amount of money many months before enjoying the property.
Falling prices
If property prices decrease during the construction period, buyers may find themselves in negative equity.
Disappointment
The property may simply not be what you hoped for. The best way to avoid that is to see other projects from the same developer first. There will also be a snagging process and defects in finishes etc can mean withholding payment until rectified.
Under Spanish law, you may be able to claim for these damages and hold the promoters or builders responsible. It’s recommended that you speak to your legal advisor and estate agent about these potential issues early in the process if planning to buy off-plan property.