the buying process
- The buying process in Spain is very different from what is known in Iceland and there are many things to be aware of. It is invaluable to have the help of Icelandic people who have many years of experience and knowledge of the entire buying process in Spain. Spanarheimili offers assistance and support from Icelandic and Spanish lawyers living in Spain. Below, we will trace the process of buying real estate in Spain and refer to banking transactions, financing, costs of purchase, operating costs of real estate, etc.
The buying process always begins with interested buyers inspecting the property either on their own or going on organized excursions on behalf of the Spanish Home to Spain. When the dream property is found, a certain buying process begins, which varies depending on whether it is a new building or a used property. This process will be well understood and an attempt will be made to explain the process briefly.
Conditions for purchase
Purchase of used housing
The whole buying process in Spain is different from what is known in Iceland and in many cases safer and simpler. As an example, properties are generally not mortgaged to multiple creditors with multiple liens. Also, all finalization of the purchase agreement/surrender takes place at the Notario's office. A notary plays the same role as a magistrate in Iceland. The notary is always a certain safety valve for all parties in this transaction. If the magistrate (Notario) finds something wrong with the purchase process or with the submitted data about the sold property, the signing is postponed until the things that can be put out have been corrected or he can completely reject the transaction and sign the waiver. The power and responsibility of the magistrate (Notario) is therefore very large in the transaction.
When a buyer has found their dream property after a thorough inspection, they make an offer through Spainhome. The asking price for used properties in Spain is not fixed and fixed, so the buyer is free to make an offer. The buyer can offer the property and when a final agreement on the purchase price has been reached between the parties, a "Reservation contract / compra de venta" is drawn up and a confirmation payment is paid, which is usually around 3.000 to 6000 euros and is negotiable. In some cases, the confirmation payment may be a certain percentage of the purchase price. The confirmation payment goes directly to the seller of the property or his agent and is usually non-refundable. If the buyer cancels the purchase, he will not receive this amount refunded and by receiving the confirmation fee, the seller undertakes according to Spanish law not to offer the property for sale to others and will remove the property from the sales register. In other words, the property is reserved for the buyer until the waiver is signed, and then the buyer is given time to obtain a Spanish identification number and/or finalize financing, but that process can take 4-8 weeks.
It should be borne in mind that before the confirmation payment is handed over to the seller, it is necessary that he has presented the last receipts for water and electricity as well as for real estate taxes and housing association fees. It is important that these fees are all paid. You also need a copy of the waiver (copia simple) and a mortgage certificate confirming the seller's ownership. It must be carefully examined whether everything is paid and that the mortgage certificate is clean, but if this is not the case, it must be ensured that the district commissioner ensures that all purchase contract payments are used to pay off possible arrears and / or to repay the loan. Spánarheimir's lawyers look after the interests of buyers in this process.
The buyer can always set up and distribute purchase agreement payments as he sees fit. But if part of the purchase price is paid with a loan from a bank, it will not be paid out until it is waived. In Spain, it is customary for a purchase agreement to be usually never notarized, but the registration of a waiver is completed immediately, as all payments are made at that time and therefore it is not customary for the purchase price to be spread over some months as is customary in Iceland. Also, property is never handed over until it is sold, unlike what happens and goes on in Iceland, and there is therefore a strong duty of inspection that rests with the buyers.
When the property is ready for delivery and the buyer is ready to pay the purchase price, minus the confirmation fee, the sale is completed (Escritura Publica de Compra Venta). An employee or lawyer of Spánarheimil processes the relinquishment and prepares all finalization in cooperation with the sheriff (Notario). The buyer and seller then meet at the notary and sign the waiver. The buyer receives a copy of the relinquishment (copia simple), but the original is notarized and officially registered at the Property and Land Registry of Spain (similar to Iceland's Real Estate Register). A notary takes care of this registration and when the registration is completed, the original of the waiver is sent to either the buyer or the bank, if a bank has financed the purchase.
In the case of bank financing, the branch manager of the buyer's commercial bank usually attends the notary when the waiver is signed. He also signs the waiver with the buyer, seller and notary public. The branch manager does this because, unlike in Iceland, the tithe in the Spanish relinquishment is everything related to the real estate loan and the terms and conditions of the bond. In fact, it can be said that all the terms of the bond underlying the real estate loan are detailed in the waiver. Once the waiver has been signed without comment, the branch manager hands the seller of the property a check for the value of the loan the buyer has taken out from the bank. The buyer then pays the notary the equity that he pays at the time of the purchase, but that payment is often included in the total payment that is in the check from the branch manager, since the buyer has already deposited the equity that is according to the purchase agreement into the Spanish bank account. Thus, the method is that the buyer deposits the down payment for the purchase into his bank account in Spain before signing the waiver and the branch manager arrives with a check addressed to the seller of the property, thereby taking care of all payments on behalf of the buyer and paying the purchase price in full.
When a property has been delivered and it has been relinquished to the buyer, it is necessary to change the name of the contracts that accompany the property, i.e. water, electricity and gas contracts together with membership of the relevant housing association. The change of ownership is reported to SUMA, which is a form of real estate tax collection. Spain Home's lawyer takes care of all these name changes for the buyer and takes care of all the follow-up after the relinquishment.
As can be seen above, the purchase process is long and extensive, and it is therefore very understandable that the buyer, who may live in another country, does not have the opportunity to be present to sign all documents during the process. Therefore, it is well known in real estate transactions in Spain that the buyer gives a power of attorney (poder de compra) to a responsible and trustworthy person to sign all the necessary documents on his behalf. If the buyer cannot give such a power of attorney in Spain, it is possible to give such a power of attorney in Iceland. If so, the power of attorney is sent in Spanish to the buyer and taken to the next Sheriff, where the power of attorney is signed in the presence of witnesses and the Sheriff gives a Notary stamp. Finally, the power of attorney is stamped and certified to the Ministry of Foreign Affairs, where the papers are stamped again with an "Apostille" stamp. After this, the agency is sent out to Spain. The Spanish home staff helps with all this finishing. If the buyer chooses this way, the buyer can also have the branch manager arrive with a check from the bank for the purchase price and the branch manager take care of all payments on behalf of the customer so that the agent only has to come to sign documents and not handle or be responsible for payments .
Purchase of a new building or a property under construction
If the buyer has chosen to invest in a property under construction or new construction, a "Contracto de Compra Venta / Reservation contract" is made and a confirmation fee of at least EUR 3.000 is paid, but the amount can take into account a certain percentage of the purchase price. This confirmation payment is non-refundable, ie if the buyer cancels, he will not receive this amount refunded. Once the confirmation payment has been paid, an agreement is reached between the parties and the property is removed from the sales register.
If the property is under construction when the reservation agreement is signed, it is common for 30-40% of the purchase price to be paid during the construction period and after the progress of the construction work. It should be clearly stated that if requested, the builder is obliged to provide a bank guarantee against all installment payments made during the construction period. If the buyer intends to finance the purchase with loans from a Spanish bank, it is not possible to take out the loan and register it until the property is fully completed and upon signing the waiver and handing over the property. But, of course, the loan promise from the bank can be made some time before the bank loan promise is valid for 3 months.
In Spain, it is customary that a new building is never handed over to the buyer until some time after the official completion of the work, or when the relevant building authorities have issued a final appraisal certificate for the property and that certificate, together with other supporting documents, has been officially registered with the Property Valuation Office of the relevant municipality.
It is regular so that the delivery of the property takes place simultaneously with the signing of the waiver, unlike what is customary in Iceland, and the waiver (Escritura Publica de Compra Venta) is never completed until the new building is completed.
An employee or lawyer of the Spanish Home works on the preparation of the waiver and prepares all the finalization with the relevant magistrate (Notario). The buyer and the builder then sign the waiver in the presence of a notary and the buyer is given a copy of the waiver (copia simple), but the original is notarized or for official registration as referred to in the section above. In the case of financing through a bank, the bank will pay out the loan upon signing the waiver as stated above.
The finalization process for the purchase of a new building or a property under construction is similar in many ways to the finalization of the purchase of a used home, but much more data collection must take place with public institutions and authorities before the waiver is made. All audits by building officials and relevant offices must have taken place and confirmations of this must be available. Unfortunately, there have been tricks so that this data is not submitted in some cases. This has often led to problems later on. The staff of Spánarheimilis look after the buyer's interests in every respect.
The employees of Spánarheimilis have had the manner, when a property is under construction, that the employees of Spánarheimilis in Spain have monitored the progress of the building and then regularly send pictures to the seller for information on the status and progress of the work. In this way, the buyer is kept informed about the progress of all constructions.
Banking and financing
All real estate buyers find it necessary to open a Spanish bank account, but it is customary in Spain that all payments for the operation of the property go through the bank's payment service. Normally, it is not possible to open a bank account until the NIE number (Spanish National Identification Number) has been assigned. In practice, things are handled in such a way that some banks agree to open a bank account for the property buyer without a NIE number and then use the passport number or until the NIE number is received. The relevant bank can then undertake all payments of standard operating costs and fees, similar to what is known in the payment service of banks in Iceland.
Interest rates are either fixed or variable. With variable interest rates, the interest rates are structured in such a way that they are based on the EURIBOR interest rate at any given time, together with the interest rate spread of the bank in question. However, the variable interest rates are usually fixed for the first 12 - 24 months and then they are always revised every 12 months and raised or lowered depending on the level of the EURIBOR interest rate at that time. The bank's interest rate spread never changes. The loan terms also usually include a provision that the interest rate never exceeds a certain percentage and never falls below a certain percentage. With a fixed interest rate, the interest rate is determined right from the start and is fixed throughout the loan period.
There is a lot of competition for these loans, so it is important to look carefully at what is available and look for the best terms. Hrafnhildur Ósk Eiríksdóttir, an employee of Spánarheimil, is a former branch manager of a Spanish bank and undertakes for Spánarheimil's clients to look for offers on real estate loans for the purchase of apartments in Spain. An interested buyer can submit all the requested financial data to Hrafnhildar, who can request an offer from banks for possible financing and receive a formal loan agreement that tells them how expensive the property can be bought. Armed with such a loan promise, the buyer can look for the right dream property in Spain. Otherwise, the terms can be these:
Loan period: Up to 30 years and the loan period depends on the age of the borrower. For example, people in their 30s would get a loan of up to 15 years, but people in their 20s would probably only get a 75-XNUMX year loan, because banks aim for the loan to be fully repaid by the age of XNUMX.
Mortgage: Up to 70 percent of the bank valuation or sale price of the property. It is the bank that sends its representative to inspect and value the property that is being requested for a loan. The bank's assessment (bank assessment) is the assessment that the bank uses for a possible loan amount. The bank valuation does not have to be the same as the purchase price, so the situation may arise that the bank wants to lend more or less than requested. The bank appraisal costs the borrower around 150-400 euros (depending on the size of the property).
Interest rates: Have been around 2,5 to 4,00% (May 2019) based on non-indexed fixed interest rates.
The bank's interest rate decision is based on the view that the longer the loan period, the higher the interest rate. The bank also evaluates the applicant's payment and Spánarheimili can act as an intermediary to provide an interested buyer with a loan guarantee from a Spanish bank, but several Spanish banks specialize in loans to foreigners who do not have a permanent residence in Spain.
Borrowing fee: Is from 1,0% to 2,0%.
Debt service burden: The estimated debt service burden per 100.000 euros (about ISK 13,6 million) with 3,0% interest for 30 years is about 450 euros (about ISK 57.500) per month. (Exchange rate reference - 1 euro = ISK 137).
Advance or advance payment fee: During the first 5 years of the loan period, there is a 0,5% advance or advance payment fee, but after 5 years this same fee is 0,25%
Deposit authorization: The borrower is allowed to pay in the principal of the loan at any time and either reduce the payment burden or shorten the loan term. It should be noted that since there is no indexation on loans in Spain, the debtor sees the principal decrease every year and the balance of the loan decreases visibly in the first months.
Loan application and documents: Spain Home takes care of all the assistance in the provision of capital. You must submit a formal application and submit a tax return, payslips for the last 3 months, bank statements for the last 3 months, copies of payment slips and more. The requested data varies from bank to bank, and Spánarheimil's staff takes care of all translations of data for the bank for a small fee.
Cost of the purchase
The buyer's cost of buying real estate in Spain is higher than in Iceland. For example, a buyer of real estate has to pay value added tax / sales tax on the declared purchase price to the Spanish government upon signing the waiver. In general, the buyer's cost of purchase can run into around 11% -16% of the total cost calculated from the purchase price of the property and paid upon waiver. The cost of the purchase is broken down roughly as follows:
VAT:
Is 10% of the stated price.
10%
Notario costs:
There is a fixed document and administration cost that varies depending on the price of the property, but can be around 0,5% of the stated price.
0.5%
Registration fee for purchase agreement:
1,5% of the stated purchase price.
1.5%
Registration fee w/loan:
0-1,5% of the loan amount if a loan is taken. Depends on banks.
0% - 1.5%
Borrowing fee w/loan:
About 1.0% -2,0% of the loan amount if a loan is taken.
1% - 2%
Banking:
150-400 euros depending on the size of the property - if a loan is taken.
150-400
euros
Energy contracts:
300 – 500 euros for the establishment of water and electricity contracts for the purchase of a new building.
300-500
euros
NIE number:
150 euros per person for the creation of a NIE number.
150
euros
Legal costs / administration fee:
The amount depends on the scope of the purchase and its nature. It can be assumed that the cost of legal assistance, interpretation into Icelandic and advocacy through the purchase agreement process is around 1000-1500 euros and an additional administration fee depending on the scope of the transaction.
1000-1500
euros
Credit:
If the applicant takes out a loan, he has to expect to pay about 3-4% of the loan amount in the cost of the loan. Included in this amount are translation costs, but all financial data must be translated by a certified document translator into Spanish, but such a translator is provided by Spanarheimil.
3%-4%
Real estate operating costs and annual taxes
All properties have varying operating costs depending on the size and type of property. Most properties have access to a swimming pool garden, and the arrangement in Spain is that each owner pays a "Community fee" to cover all common costs, for example cleaning the swimming pool, gardening, lighting the common property, etc. The amount of water, electricity and gas bills varies and depends on usage at any given time. Real estate insurance is advantageous.
Example of operating costs and taxes on an annual basis based on a property valued at 180.000 euros.
Housing association fee:
500-1100
euros per year
Insurance:
300-450
euros per year
Energy bills:
Around 1000 – 1500 euros based on 50% utilization
1000-1500
euros per year
Property taxes:
250-350
euros per year
Property tax:
100-200
euros per year
According to the above, the operating cost of a property to the value of 180.000 euros or about 25 million Icelandic kronas can be around 180 - 300 euros per month based on 50% utilization of the property per year. This cost corresponds to ISK 25.000 - 40.000 per month.
Purchase of property through Icelandic companies.
Icelandic private limited companies (ehf), public limited companies (hf) or partnerships (sf) can buy real estate in Spain as well as open bank accounts and establish banking transactions in certain Spanish banks..
It is necessary to apply for a Spanish identification number for such a company or a so-called CIF number so that the company receives a limited work permit in Spain and enjoys all legal rights in Spain. The tax domicile of the relevant company will remain in Iceland and it is therefore not necessary to have a Spanish bookkeeper or accountant for the Icelandic company.
Spánarheimil's staff assists the representatives and owners of such companies to obtain a Spanish identification number and to establish banking transactions in Spain, but all this work can be done by proxy.
For many people, it can be an enormous tax advantage to have companies in their possession buy real estate in Spain, but the staff of Spanarhomeli provides all advice to interested parties.
Today, Icelandic companies can obtain financing in Spain through certain Spanish banks for the purchase of real estate in Spain. Under certain conditions from the banks, loan terms for companies can be the same as for individuals, cf. above.