Landlords – beware of the law or face fines

Follow the rules or face fines

Property owners who rent their property out are being warned that they must abide by the law or face the possibility of stiff fines being imposed.

The British Embassy in Spain say they have been made aware of a number of cases in which landlords who failed to declare rental income or have incorrect permits have been fined up to €30,000.

It is thought that up to 70% of rental properties in Spain are not being declared meaning billions in tax revenue is not being collected by the treasury.

The British Embassy has released advice for home owners who are, or are thinking about, renting out their property in Spain.

Short-term lets

The regulations on letting tourist apartments (apartamentos turisticos) and holiday homes (viviendas vacacionales) vary by region. If you are planning on making a financial return by renting out your existing property, or buying one to let, you are recommended to seek independent legal advice and check the local licensing laws with your local town hall (Ayuntamiento).

This is particularly important in Catalonia, the Balearic Islands and Canary Islands where the rental of holiday properties on a short-term basis is strictly regulated. The authorities in these areas are cracking down on homeowners who rent out their properties to tourists (particularly through online adverts) without complying with Spanish law.

If you own or are planning to buy an apartment which is part of a Comunidad de Propietarios (Committees of property owners who are responsible for the management of communal areas of apartment buildings/complexes), you should also check whether there are any rules that prohibit or restrict short-term letting.

Long-term lets

Owners who rent out properties on a long-term basis are generally not required to apply for a special licence. However, it is worth seeking professional advice to make sure that you are complying with Spanish legislation and that you are using the correct rental contract.

There are different types of contracts depending on how long the property is being let for, such as arriendos de vivienda which are for a minimum of five years, and arriendos de temporada which are generally for one year or less.  You can get copies of these contracts from tobacconists (estancos).

Taxes

Owners of properties should also be aware that whether or not you are resident in Spain, you will need to declare rental income to the Spanish tax authorities. Homeowners may wish to seek advice from a professional tax adviser (asesor/gestor).

Managing a property rental

You may want to consider hiring a Spanish letting agent to assist with finding tenants, drawing up rental contracts and managing the property on your behalf.

FAQs on letting property in Spain (in Spanish) from the Sociedad Pública de Alquiler (Public Rental Society) 

Further information can be found on the UK In Spain website.

Is the holiday rental market at risk in Spain?

Guest post by Anna Nicholas

The holiday rental market in Spain is booming

For thousands of expats and locals alike, renting Spanish properties to holidaymakers particularly during the summer season can be one of the most lucrative and easy ways to earn money.

Cashing in on the tourism season has always proven popular in Spain but the country’s economic crisis and depressed housing market has driven many more foreign homeowners- a significant percentage of whom are currently unable to sell their overseas properties- to rent.

Until now there has been hazy legislation in Spain when it comes to short and long-term lets especially regarding the licenses and permissions required by law. And to add to the confusion, different regions apply different rules. Most of those renting out homes are completely bewildered by the system or ignorant of the law and even those wishing to declare earnings from rentals are sometimes told by local lawyers not to bother because of the administrative complexities. It is estimated that 55 per cent of rental properties are undeclared in Spain with many owned by expats.

The British government has grown concerned at the number of Britons falling foul of Spanish law, perhaps unwittingly, warning that some homeowners have already faced fines of €30,000 for letting properties without the correct permits. It offers advice on its website, suggesting that those wishing to rent  should consult local town halls and lawyers for advice as well as professional tax advisers regarding declaration of rental income.

Much as the Spanish government insists that it is cracking down on what it considers to be’ illegal’ renting, I doubt there’ll be many expats or Spaniards shaking in their boots. Last year a rumour rippled around our valley that inspectors would soon be spying on individual suspect properties, monitoring holiday rental websites, classified adverts and property agents’ rental listings. Nothing ever came of it and I’m not surprised. How in the current crisis would the country have the resources to monitor the situation when it has far more immediate economic concerns? The added problem for the Spanish government is that expat homeowners often ensure that financial transactions are conducted out of Spain and those holidaymakers staying in rental properties for limited periods are usually advised by the owners to claim that they are family or friends if quizzed by anyone in authority.

The hotel industry which is constantly lobbying the Spanish government on the issue mistakenly believes that rental properties are depriving it of footfall when in fact most holidaymakers who rent, would never normally consider staying in a hotel. For families and groups of friends on tight budgets sharing a holiday property can offer value for money as well as privacy and flexibility. And of course the Spanish authorities should take into consideration that all of those renting will be contributing to the local economy. Stamping out the rentals market would be rather like killing the goose that lays the golden egg.

In order to tackle the problem, the Spanish government needs to devise a simple and fair nation-wide accommodation grading system that protects the consumer and encourages those renting to declare income. Publicity material -in English, German as well as Spanish- should be made freely available at legal offices, gestorias, and at town halls.

For now at least those renting properties without permits are likely to be able to continue doing so without much threat of being caught. On the other hand, rather like Russian roulette, someone somewhere is likely to cop it which is a risk that some might prefer not to take.

Find out more about Anna Nicholas here or follow her on Twitter @MajorcanPearls.

Article source: My Telegraph. 

10 Things you can do to grow your real estate business in Spain

Guest post by Roxanne Peterson.

Growing a real estate business in Spain is not for the faint-hearted. The market is fiercely competitive. In addition, the recession has left its mark, but there are simple steps you can take to realise your real estate goals.

Marketing

It is essential for any growing business to spend a significant portion of its time marketing their product or service. This should be your first priority and if done well, you will generate the leads you require for growth. Marketing your business doesn’t have to be expensive. Get involved in local business groups and networking clubs, utilise free classifieds, sponsor a school sports team or offer a free informative seminar. If you do have a budget to hire a professional marketing company, choose one that has extensive experience working with real estate businesses and check references.

Return Calls Promptly

This seems like common sense, but on busy days returning phone calls can often get pushed to the side. It’s a competitive market out there and chances are the person on the other end of the phone will be calling more than one real estate company. If you know you won’t be able to answer calls for an extended period of time, do try to leave a voicemail message detailing when you will get back to the caller.

Chase Your Leads

When you have a motivated customer it is important that you act as quickly as possible. Don’t let too much time pass or they may change their mind. Deliver a call to action and try to move on to the next stage within a day or two as opposed to a week down the line. Do your research and be aware of what the customer is looking for, as you don’t want to leave them with any doubts over your product or professionalism.

Picture Quality

Good quality images are essential in the real estate business. Customers trust you with high value transactions and poor quality images can leave you looking like an amateur. Images should be clear, bright and high resolution. When customers are searching for online estate agents they will spend less than five seconds deciding if the images they are presented with represent a company they want to do business with. This isn’t an area to skimp on, so if possible enlist the services of a professional photographer or graphic designer.

Communication

Do make an effort to learn Spanish and at the very least have someone on your team who is fluent. Knowing the language will make it easier for you to make local connections and sell your services, but it also shows that you value the Spanish people and country you are doing business in. If you are employing local contractors you will be in a much better position if you can be certain that everyone is on the same page and clear about the task in hand.

Social Networking

You may not like it or feel comfortable using it, but social networking is here to stay. Get your business online and utilise every social networking platform that is available. Use twitter, Facebook and Google + to build an audience by delivering consistent and useful tips that encourage readers to share your business details.

Transparency

Ensure your online business persona and your physical business match. It can be tempting to over promise on what you can actually deliver or to pose as something you’re not. Transparency creates trust, which is key to forming successful business relationships.

Legal

Research the Spanish laws relating to real estate and enlist the services of a local lawyer who has real estate experience. Spain has a very unique set of property laws and the licensing process can be very bureaucratic. Don’t assume that if you’ve been through the process once it will be the same next time round. The key is to understand the potential pitfalls and to plan for every eventuality with cash flow in mind so you can avoid ploughing all your resources into one area.

Offer Value

You have a lot of competitors out there all trying to increase their market share. Ensure your potential customers want to engage with your business by offering an incentive such as a small freebie, discount or competition. Try to keep things interesting for your prospects and offer them something they will want to share with others.

Show Commitment

The real estate market has experienced some turbulence lately and consumer confidence is low. Show commitment to your business through presentation, organisation and attitude to ease consumer worry. Displaying commitment is a great way to grow your brand and develop the reputation of your business.

Roxanne Peterson writes regularly on a variety of topics encompassing business development, finance and marketing. This includes giving advice on what to look for when searching for online estate agents for a range of specialist websites and blogs.

Spain Still Proving to be a Golfer’s Paradise

Guest post by David Showell

Valderrama – one of many stunning courses

Even during the difficult months of an economic recession, there has still been an almost constant influx of golfers from northern Europe into the many golfing locations across Spain. Needless to say, the climate lends itself perfectly to the sport, so it’s perhaps not surprising to discover a great number of players return year after to the area.

Although there are several other nations which have warm summers and a number of top quality courses, nobody quite does golf like they do in Spain. Some of the sport’s most famous names have designed courses in recent decades, and many of them have found innovative ways to make the best use of the spectacular landscape.

A decade or so ago, it looked like Portugal would start to eclipse Spain as the top European golfing destination, but that hasn’t transpired. While the Algarve is a fine region with several excellent courses, the general feeling among players from the UK and elsewhere is that prices are simply too high on everything from green fees to cold beers in the local bars.

With Spain offering significantly better value in almost all areas, those golfers who are looking to invest in holiday homes have continued to keep the property market ticking over, even during hard times. The bottom line for many is that the opportunity to own a villa close to a fine golf course is simply too good to turn down.

Enjoy the golf, enjoy the views

Many of Spain’s most spectacular courses offer stunning views across rugged coastlines and picturesque countryside. Designers have worked hard to ensure a walk down the fairway is more than just a disinterested stroll, and many players find themselves reaching for the camera before they reach for their eight-iron.

The very best courses in Spain offer a once in a lifetime experience, although it should be pointed out they’re not cheap to play. However, the chance to indulge yourself with 18 holes  at venues such as Valderrama, Sotogrande and Santander is perhaps a justifiable treat. In 2012, Spain hosts more PGA Tour events annually than England, and it’s extremely easy to see why.

While there are many superb courses in all areas of the country, the southern coast offers perhaps the most impressive choice. The region around Marbella is a particular favourite, and anyone who is interested in purchasing a villa locally can be sure of a great selection of property options.

David Showell is based in the UK and is a keen golfer. When he’s not teeing off he’s working for a car hire company. Their website offers excellent deals throughout the year.

Property in Spain to recover in 2013

According to the latest Real Estate Pulsometer, released by the Corporate Practice Institute (IPE), new constructions will begin to rise in 2013.

They also predict that Spain’s stock of unsold properties will be reduced by 23.6% this year, representing up to 611,250 homes.

The report also pointed to a growing trend in buying homes for cash and they predict the number of new mortgages taken this year will be 60% fewer than in 2006.

El Mundo reported that it was demand for property from non-residents that was key to enable the sectors recovery.

“To liquidate the ‘stock’ in the shortest time possible it is crucial and strategic to restore the confidence and legal security, in commercial and urban developments, with the European markets, especially the English, German and Scandinavian, providing the greatest possible transparency in public-private collaboration,” the report said.

The report also stressed that construction is currently at a level 80% below that of the peak in 2007.

Property investment from abroad increases

2011 saw an increase in foreign property investment

Spain saw a 27% increase in property investment from foreigners in 2011 rising to 4,748 million euros, compared to the previous year. Meanwhile, Spanish investment abroad saw a decrease of 23.4%.

The Bank of Spain say this is the first time investment in Spanish property from abroad has exceeded 4,000 million euros for three years. It is also the largest single increase since the property bubble burst.

The results are similar to 2006 when the total property investment from foreigners stood at 4,716 million euros.

Despite these encouraging figures being much higher than those achieved in 2009 and 2010, investment is still some way off the amounts reached in 2007 and 2008, when foreign investment exceeded 5,300 million euros.

However, the 23.4% decline in the amount spent by Spanish investors abroad is now a staggering 81% below the peak of 2007. In 2011 Spanish investors put 618 million euros into foreign property, compared to 807 million in 2010.

High unemployment, economic uncertainty and low incomes are among the reasons cited for the drop in Spanish investment.

Property sales figures still falling

The Instituto Nacional Estadística (INE) have released data showing the number of property transfers decreased 8.7%, compared to February 2011.

The number of property transfers recorded in the land registries, from public deeds previously registered, was 150,422 in February, that is, 8.7% less than for the same month in 2011, and 0.5% lower than in January 2012.

In the case of registered merchantings of property, the number of transfers was 67,217, representing an interannual decrease of 22.7%, and a decrease of 6.2%, as compared with the previous month.

Merchantings recorded in the land registries 

85.9% of the registered merchantings corresponded to urban properties and 14.1% to rustic properties. Among the urban properties, 53.2% were merchantings of dwellings.

The number of merchantings of rustic properties increased 9.5% in the interannual rate in February, while that of urban properties decreased 26.2%. Within the latter, merchantings of dwellings decreased 31.8%.

Registered merchantings of dwellings, by protection system and status 

85.6% of transfers of dwellings by merchanting in February were free housing, and 14.4% were protected housing. In interannual terms, the number of transfers of free dwellings by merchanting decreased 32.4% and that of protected dwellings decreased 28.6%.

53.5% of the dwellings transferred by merchanting in February were new, and 46.5% were used. The number of transactions on new dwellings decreased 26.5%, and the number of used dwellings decreased 37.1%, as compared with February 2011.

Geographical distribution

In February 2012, the total number of property transfers recorded in the land registries per 100,000 inhabitants¹ was highest in the Autonomous Communities of Castilla y León (642), Aragón (636) and Castilla-La Mancha (635).

In Andalucía there were 21,380 property transfers recorded in the land registries. This represents 322 transfers per 100,000 inhabitants¹. This can be further broken down by property type. Of the total transfers 3,548 were rustic properties, 10,413 were urban dwellings, and 1,267 plots. “Other urban properties” made up the remaining 6,152.

The Autonomous Communities showing the highest number of registered merchantings of property per 100,000 inhabitants¹ were La Rioja (273) and Castilla-La Mancha (261).

By registered merchantings of dwellings, the Autonomous Communities in which the number of transfers per 100,000 inhabitants¹ was highest was Illes Balears (104).

59.5% of merchantings of dwellings in February 2012 were recorded in four Autonomous Communities: Andalucía, Cataluña, Comunidad de Madrid and Comunitat Valenciana.

You can download the full press release here: Statistics on Transfer of Property Rights – February 2012.

¹ This data was calculated from the revision of the figures of the Municipal Register for the year 2011. Only the population aged 18 to 84 years old was considered.

House prices fell 11.5% in March

TINSA have released their house price index report for March 2012.

The General IMIE Index recorded the highest year-on-year decrease in the historical series during the month of March, with a drop of 11.5%, leaving the index at 1631 points. Since peaking in December 2007, house prices have seen a fall in value that now stands at a cumulative figure of exactly 28.6%.

With regard to the performance of the different market segments, “Capitals and Major Cities” once again recorded the steepest decline of 12.6% in March, followed on this occasion by the “Other Municipalities” with a fall of 12% compared with the same month last year. In both cases the reduction exceeded the market average. Below the market average were the municipalities of the “Mediterranean Coast” which saw a year-on-year decrease of 10.8%, followed by the “Balearic and Canary Islands” and the “Metropolitan Areas”, which both presented a drop of 9.8%.

Below the market average were the municipalities of the “Mediterranean Coast” which saw a year-on-year decrease of 10.8%, followed by the “Balearic and Canary Islands” and the “Metropolitan Areas”, which both presented a drop of 9.8%.

In relation to the overall decline since the market peaked, the “Mediterranean Coast ” showed a fall of 34.9% in March; followed by “Capitals and Major Cities” with 30.8%, “Metropolitan Areas” with 29.4%, the “Balearic and Canary Islands” with 25% and “Other Municipalities”, which refers to those not included in the other categories, with 24.9%.

You can download the full press release here: March 2012 Imie Index

The Catastral – the record of a Spanish property

Anyone who either owns or is planning to buy property in Spain needs to know about the Catastral value of the property (or Cadastre to use the French term).

Unlike the Land Registry, which records legal ownership and with which it is often confused, the Catastral is not a legal record of ownership, but is an estimate of the capital value of the property, which is used as a base figure for a number of property taxes. The easiest way to find the Catastral Value of a property is to check the amount listed on the IBI (local property tax) invoice or to visit the Catastral office in the town hall. However, note that the value should only be given to someone who can show a registered interest in the ownership of the property or their representative, which can make comparison with your neighbour’s difficult.

The value is drawn up by independent government employees using strict and complex valuation guidelines to ensure consistency. Initially, they depend upon a description of the property and its use, which is obtained by observation, licence applications and increasingly, studies of aerial photos. As the Catastral description lists the best estimates of the site’s registered boundaries, obtained from historical records, title deeds, agricultural ‘parcelas’, planning applications and any other source where change has been detected, it can be one of the more reliable sources of information and help to settle boundary disputes and the like. However, it is by no means infallible as it will not catch all extensions and changes, ranging from integral garages to bedrooms, structural problems, and the many other alterations that can be made to a property and that affect its value.

The ‘construido’, gross overwall external floor area is used, with allowance for open-sided covered areas being calculated at 50% and areas under 1.5m high being ignored. This can differ substantially from the ‘util’ or net internal floor area, which is an internal measurement used in construction and excludes external walls and certain other items.

Since the details used in the Nota Simple and the Catastral are obtained in different ways, it is not unusual for variations between these property descriptions to occur. The most frequent problem found here is that the Land Registry is compiled at the point of construction and it is a legal nicety that the sizes recorded are given by ‘declaration’ and are not guaranteed or checked by the Registrar or Notary or other independent body. Also, changes to the property thereafter are often not noted, which can also affect the Catastral records where there can also be discrepancies due to human error or failure to update information.

After the size and nature of the property are determined, a rate per square metre is applied to it. This rate is an estimate of the sale value of the property, calculated from actual registered sales and other property information. Naturally, this information has to be reviewed every few years in order to keep the comparative values of neighbouring properties relatively accurate. This is done on a municipality by municipality basis, so that all neighbouring properties are valued in a similar way. Unfortunately, this can mean that values of a few years ago can become the basis for a Catastral value that may not bear any real relationship to the current value of the land and property. This is certainly the case in Estepona where values have been based on sales in 2007, when prices could be up to twice what they are now. In the past, when sale values have been increasing over the years people have been less disturbed at the low Catastral values.

However, the main concern should not be the individual Catastral value, but its relationship to those of its neighbours. This is where consistency is essential so that everybody is treated in the same way. Equally, the level of value is really of little importance as it is the multiplier that is applied, by politicians and tax authorities, that decides how much actual monetary value it has. The Catastral value is used for calculating capital gain on a property when it is sold and also for the amount of IBI or local property tax that an owner has to pay each year.

It is possible to appeal the Catastral value of a property, but only at the time of revaluation. The timescale is short and the methodology is complex, so that unless there are gross errors it can often just add more expense without an effective result.

When purchasing a property it is important to have sight of both the Land Registry and the Catastral records to ensure that any errors are noted and corrected. If this is not done, it can be that the buyer will be responsible for obtaining licenses and/or paying fines for unauthorised works or even for changing the property back to its former legal state. Whilst conscientious solicitors may endeavour to assist the client in this way, a member of the Survey Spain Network of Chartered Surveyors will often be the only one to compare the size and use of the actual property to the recorded descriptions on the Nota Simple and Catastral records. Differences in these records to the actual building are often a means of identifying potential problems of ownership and/or legality. With this knowledge the potential buyer can then instruct his or her lawyer to ensure that corrections are made prior to purchase and at the cost of the seller.

Addendum: The Spanish tax authorities have announced that they intend to review 4.2 million Catastral values this year throughout Spain. That will almost certainly add to the value and increase to the likelihood of IBI and other property related taxes being raised.

Article courtesy of Campbell D. Ferguson, FRICS. Chartered Surveyor in Spain. www.surveyspain.com

Brits to the rescue?

The English love for Spain continues

According to reports, the number of British people climbing on the Spanish property ladder has increased since the beginning of 2012.

Marketing manager at Taylor Wimpey de España, Marc Pritchard, said his company has seen a 100% increase in the volume of sales to British buyers in the first quarter of the year, compared to the same period in 2011.

Mr Pritchard noted that there has been rising numbers of British tourists visiting the country where, according to figures from the National Statistics Institute (INE), the number of overnight stays increased by 3.5% in January,  year-on-year.

Reports from other sources confirm this. Frontur published figures showing that 19.1% of all tourists visiting Spain at the start of this year were British.

“I really do think that the British love affair with Spain will be stronger than ever in 2012,” Mr Pritchard added.

Grim forecasts

This news comes on the same day that The Economist forecast the Spanish economy will contract by 1.4% this year and register zero growth in 2013. It also suggests that the unemployment rate will climb to 23.3%. Spain already has one of the worst unemployment rates in Europe and has introduced unpopular labour reforms to help to tackle the problem.

These estimates are however a little more optimistic than official forecasts from the Spanish Government, which anticipates a GDP contraction of 1.7% this year and a year-end unemployment rate of 24.3%.

Can the British interest save the country from collapse? I doubt it, but as a certain British supermarket says, every little helps!