10 golden rules for investing in a house in Spain

Following with our series of golden rules for real estate investment, we summarize 10 relevant points that must be considered when buying a house in Spain.

Some of the aspects that we include in this list are a specification of issues that we highlighted in our post about the ten golden rules for real estate investment (LINK) and in which we referred to this matter from a more general point of view.

1. People who have the status of consumer have the right to receive certain information regarding the house they plan to acquire. The extent of the information to be given to the purchaser varies if the vendor is either a property developer or a sales professional, or a private individual. Apart from state law, many Autonomous Communities have their own regulations in this regard.

2. If the purchase is made before the house is built and there has been down payments, the property developer must (i) guarantee, as of the date of obtaining the building license, the refund of the down payments plus the legal interest, by means of an insurance or a bank guarantee, to cover the events that the construction does not start or does not come to a good end within the agreed term for delivery, and (ii) deposit the down payments into a special account that can only be used for the construction of the project. The account can only be open once the developer has granted the guarantee described in (i). These guarantees of enormous importance to the purchaser have been subject to a new regulation that came into force in January 2016. The new regulation leaves without effect the Spanish case law on this matter, which awarded a greater protection to the consumer.

3. The Spanish system of property acquisition requires (i) title and (ii) mode, which means that a valid title is not enough to convey the property. The property is acquired when the property is delivered, that is, when it is made available to the buyer. There is a presumption that the delivery occurs when the sale is granted in a public deed before the Notary. This issue has an impact on tax matters, since the accrual of certain taxes occurs with the conveyance takes place (and not necessarily with the purchase agreement).

4. As regards the taxation of the purchase and considering exclusively the obligations of the buyer in relation to the formalization of the purchase transaction, it is necessary to differentiate whether the purchase is considered the first delivery carried out by the developer (new homes) or a second or further delivery.

First delivery is the purchase carried out by the real estate developer after the construction. In this case, the Value-Added Tax (VAT) accrues on the dwelling as well as the parking lots and annexes, provided that the number of parking lots purchased does not exceed two. The general rate of VAT applicable to housing is currently 10%, but there is a subsidized rate for social housing ( for both systems “official protected” and “public protected” dwellings). Along with VAT, the Tax of Legal Acts (AJD) is accrued in the percentage determined by each Autonomous Community (between 0.5% and 2%, although reduced rates apply for specific cases).

In the case of second or subsequent delivery, the VAT does not accrue but another tax called Transfer Tax (ITP) in the percentage established by each Autonomous Community (varying between 4% and 10%, although reduced rates apply for specific cases).

VAT is paid directly to the seller along with the purchase price at the time of accrual. The AJD or ITP must be paid to the Treasury through the self-settlement procedure within a period of 30 business days from the date of accrual.

5. As we indicated in our post referring to the general aspects of a real estateinvestment, it is essential to make a series of checks on different aspects of the asset. The more exhaustive the check, the lower the risk assumed. Together with the most elementary questions that need to be reviewed to rule out the existence of charges over the property or debts for the new owner (urban charges, receipts from the Real Estate Tax-IBI-, or unpaid Community of Owners’ expenses), it is also appropriate to discard, for instance, (I) any obstacle to the enjoyment and use of the asset, such as difficulties in changing the supplies contracts, or (ii) additional economic burdens such as other local taxes that fall on the asset or its use.

6. Since 2013, if at the time of the conveyance there are outstanding debts with the Community of Owners (unpaid receipts of the year in which the acquisition takes place and of any of the previous three calendar years) the new owner is to face this debt. In Catalonia since 2015, the new owner’s liability extents to debts of the four years prior to the purchase and to the amounts that should have been contributed by the former owners to the Community of Owners’ reserve fund.
One aspect that generates considerable uncertainties (and a few judicial conflicts) is the interpretation of the content of the certificate that proves the existence or non-existence of debt with the Community of Owners because the certificates are often written in an ambiguous and non-exhaustive manner.

7. The process of buying and selling usually starts with the signing of a reserve document. Sometimes the first document is an “arras contract” (whose content may vary). The “arras” are signed for the purpose of fixing the price and establishing a period between the signature until the granting of the deed before a Notary, this timeframe allows to carry out the necessary checks and the management of the formalities to obtain the bank loan if it is a financed purchase.

8. The Certificate of Energy Performance is mandatory for sale since 2013, so that the sellers must make it available to the buyers. The process of certification by a competent technician results in the drafting of a report that includes information on the energy characteristics of the building, which is concretized in (i) obtaining an energy performance certificate and (ii) assigning an energy label.

9. Due to the competences of the Autonomous Communities and Town Halls, according to the location of the house, there are different obligations regarding the documentation required for the conveyance. For example, in Catalonia it is necessary to grant the “habitability certificate”, which is a document that proves that the dwelling meets the minimum conditions of habitability required by the current regulations. In other locations, the building to which the house belongs must have a “first occupancy license”, but the accreditation of obtaining it is not a requirement for granting the deed. Normally without these documents it is not possible to contract the supplies.

10. In our experience one of the aspects that are most overlooked during the acquisition is the performance of a detailed review of the physical state of the property. It is advisable to do so if possible accompanied by a technician (architect or surveyor) to try to detect any defect.

11. It is also important to know if the technical inspection of buildings (ITE) is mandatory in the locality where the property is located. If so, it is advisable to confirm whether the inspection has been carried out and what the outcome of the report was, since if there is an unfavorable report it is likely that the Community of Owners will be obliged to approve and make future disbursements to repair the defects.

To acquire a house represents a significant economic effort for nearly everyone. Therefore, our recommendation it to get professional advice to review all the information and carry out the checks on both the asset and the seller if it is a company. To carry out the purchase of a house with guarantees, it is advisable to request professional advice from the beginning (prior to the signing of the reserve and the “arras” document) until the end of the process

Real Estate Department.

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