Property Guides and Information for the Costa del Sol, Spain

What are the Various Options for Buying Property in Spain

Ben Johnson / Bright

Spain, cosat del sol, marbella, property, apartment, townhouse, villa, plot ,land, holiday, home, permanent, residence, investment,

This article is designed to help you understand the range of property options available in Spain. Whether you are buying your property in Spain as a permanent residence, holiday home, for rental yield or as an investment always buy what you can afford and ensure that you have thought long and hard about whether you feel you can sell it on if you ever have to (this involves the correct research and will be discussed in future articles).

Buying and selling property is not a cost free exercise: in Spain your purchase costs are between 9 and 12% (see article ‘The Buying Process in Spain’) of the property value. Additional tax consequences through ownership should be planned for, so ensure that you talk to a Spanish accountant. Your property will also need some form of maintenance that you will also need to budget for depending on how long you plan to keep it, so bear this in mind when you build your costs model.

Most importantly, think carefully about the concept of buying a property overseas: if you are buying a holiday home you should also think of it as investment opportunity as you are not only looking for a location you will enjoy, but the likelihood of how the property will make you money over time. If you are investing ‘unemotionally’, purely to make money then this opens up a larger segment of the potential market.

The main options for buying property in Spain are as follows and some of the principal points for each type of purchase will be discussed in the following sections:

• Buying off plan


• Land


• Buying resale properties


• Distressed sales


• Renting


• Commercial

Buying off plan

You can buy any type of property off plan, off plan means that you are purchasing the property from the architect’s plans. Developers buy a plot of land and commission an architect to come up with a project plan for what ever type of building they decide to build. The developer also petitions the town hall for all the administrative permission and licenses that are required. More often than not developers use banks to finance the project and the banks often require the developer to show that they have sold a number of their properties. Therefore, its extremely common practice in Spain for a project to start selling prior to the building work commencing and there are several advantages to buying a property in this manner.

When buying off-plan it’s possible to secure a property at a significant discount to the final completion purchase price and wait while the capital value increases. New developments are constructed in phases, with development taking place over several years. Capital appreciation, and increased customer confidence in the project as it nears completion means that carefully chosen properties can be resold for significantly larger amounts.

The opportunity to buy a property off plan is the main reason why so many investors have been interested in Spanish property. Investors take advantage of the favorable payment terms, typically between 20 – 40% down payment and the rest on completion, or a smaller deposit and a staggered payment system over the duration of the construction. Developers can also be known to discount the price of the first few units from the first phase of new projects to encourage clients to invest in their product.

By law investors have the rights to Bank Guarantees (see article ‘What are bank guarantees and how do they work?’) on the project to protect their money in an Escrow account should any problem occur with the project that prevent it from going ahead. The builder must also take out a 10 year insurance policy against structural defects. A lawyer can check to ensure that these are in place.

Once a purchase contract is signed the investor can then wait until completion, pay the balance and then remarket meanwhile using the property as a rental holiday home vehicle, or ‘flip’ the purchase contract prior completion to avoid costs. The good news is that an investor who manages to sell prior to completion can avoid a lot of the extra costs and taxes associated with going to title deeds.

A word of caution though, ‘Flipping’ a purchase contract prior to completion is only as viable as the properties resale potential. So look carefully at the area and product before you go for this method. General indicators are limited product availability with good features (location, view, etc) and a good value per square meter built (this varies from area to area so do your research) in a desirable area and a long build out phase to provide the maximum opportunity to resell.

The question that everyone asks is, “is there a market for second hand new build?” The answer is obviously yes; new build properties are pristine (having never been lived in) with the right criteria are desirable because many second buyers don’t want to wait the year or so for completion and would rather buy something that they see and walk round first.

Buying Land

The main advantage of buying land from a holiday home point of view is that you have the opportunity build your own project on it, while avoiding a lot of the costs associated with profits the developer makes (see the article ‘Self Build in Spain – Building Your Ideal Home in the Sun’).

As an investor and owning a plot of land avoids of the charges and taxes associated with maintaining a property (see article ‘Taxes and Other Costs Associated with Owning a Property and Living in Spain’), and the taxes that need to be paid are generally much lower. Meanwhile you can apply for planning permission and build your project and resale for excellent returns. Choosing the right plot and sitting on it while the surrounding market booms and then reselling with a permission to build can also be an excellent way of yielding an extremely good return. However, to obtain a mortgage for land is a more complicated process, and the finance ratios are not as good (max 50%) and the recent tightening of Spain’s planning regulations can make the process a beurocratic nightmare (see the article ‘Self Build in Spain – Building Your Ideal Home in the Sun’).

Land is always touted as being a safe investment in the ‘Hot Markets’, and in Spain the Costa del Sol and Costa Blanca land that can be/or has the potential to be subdivided for development is in great demand.

Buying resale properties

A resale property is a property that has already been previously owned, it doesn’t necessarily mean an older property as new build projects often resell after completion. There are huge variety of properties available and consist of everything from one bedroom apartments to mansions in very exclusive locations to frontline beach and golf properties, city, town and village center dwellings and rustic farmhouses set in the country.

Buying a resale gives you the opportunity to walk round your property, check the views, speak to your potential neighbors and generally do a lot of good research before moving ahead with the purchase.

Generally the payment terms for re sales are not as flexible, normally a 10% deposit is required and the rest at the signing of the title deeds usually one or two months after paying the deposit. The re sale market is rapidly maturing and consolidating in Marbella and this segment of the market often present the best deals for buying property as owners have become increasingly realistic in their returns.

Renovation of older property

The most popular renovation projects for foreigners in Spain are fincas (farm or rural properties) near to the major tourist destinations. Most coastal or resort based properties are still fairly new; therefore, buying to redo in these areas is rare. This form of investing is for mature inner city markets and rural areas, which can offer many attractive investment opportunities.

Using an agency which specializes in country transactions will certainly provide you with the types of product you may be looking for. They will also be able to put you in touch with a country lawyer that will help you negotiate the title deed transfer, apply for planning permission or renovation licenses to upgrade the property. Be aware the country lawyers are the experts in their field, when buying in the country never use a normal conveyancing firm from a town or city, as the transactions often require specialised help.

Distressed sales

Distresses sales occur through the owner no longer wishing/being able afford the property and needing to get out immediately, pending foreclosures by banks, divorce, death duties, etc, are all reasons for quick sale at a good price. Our recommended agent Martin Brown on our Property Deals page has an established network with the relevant government agencies and private companies that deal with these kinds of quick sale.

The most common form of distressed sales scenario that you will find and one that offers some real bargains is people who bought off plan and for whatever circumstances can’t or don’t want to complete on the purchase. This offers the possibility of buying a property at a price from two or three years ago, with further discounts as the property is already in part paid and the owner being a in a position where they have to get part or all of their money back.

Renting long term and short term

The best investment prospects for short term will be those in the most popular resorts or in areas that offer the most interesting features related again to their location. Easy travel time and access to amenities are also other important concepts to bear in mind.

Short Term

With more than 45 million tourists last year, and 8 million people arriving at Malaga airport alone, it’s possible to see why many investors have been making back between 5 and 7% normally from their investment before costs.

The general rule is the more popular and expensive a resort, the easier it will be to rent out with a greater yield, but have a regard to the length of the holiday season and the facilities of the area that affect the season. The number of golf courses is an extremely important consideration as golf is driving factor behind winter and off season rental in Spain.

Short term letting requires that you have a rental management company and they can charge between 10 to 25% depending on the level of service you require.

Long Term

With Spain’s admission into the EU, with the economy growing, the increasing importance of IT within industry and finance sectors and many multinational and corporations opening braches and offices in Spain (for example many of the world’s banks now have branches in the Costa del Sol) has resulted in an increasing number of people being posted to Spain on one or two year contracts.

Long term lessee’s requirements are similar to those of owner occupiers looking to relocate permanently, but require a less intensive service from a Management Company, therefore a reduced cost on this front. Most management companies will take a flat fee for the whole term for finding a client for a property.

Property on a leaseback or guaranteed income

It is now possible to buy properties in new developments in Spain and lease them back to the developer on a long lease. Although the rent will be lower than you would achieve yourself, it would be guaranteed. The developer will also cover maintenance costs and even furnish the apartment for you. This means you can buy with certainty, knowing what return you will receive and over what period, while at the same time the properties appreciate in capital value. There is certain tax and cost incentives for this scheme, and due to its popularity will definitely become more prevalent in the popular resort areas.

Commercial Property

Frequently commercial property is referred to as a safe investment in a hot market. As resort areas become more popular, there is a tendency for the holiday seasons to spill over into the winter months and with that the number of people who are looking to live full time in the area and set up businesses increases. There is currently a commercial property boom in the Costa del Sol, particularly in Malaga center, and many agents are beginning to look at this as a new viable market.

Office and shop rents fall into long term renting category and capital appreciation, however there is the possibility for long term lease hold usually over a period of ten to fifteen years (termed as a ‘Trespasso’ agreement in Spain). With this the lessee places a lump sum on the property to have the rites to rent it exclusively for the duration at a lower rent.

November 15, 2005 | Category: Buying Property