Buying a property in Spain?

The economic uncertainty in Europe seems to be all I write about these days as it has had, and is continuing to have, a dramatic effect on property sales.

With the crisis continuing the cost of a home on the Costa del Sol has almost halved (compared to five years ago). Bargains can be found all along the coast from Gibraltar to Malaga and with the banks repossessing more and more properties the availability of these bargains seems unlikely to dry up.

As unemployment spreads (Spain currently has the highest unemployment in Europe at over 22%, the highest for 15 years) the banks are dealing with an ever growing list of defaulting clients who can no longer keep up with repayments. This is good news for buyers that are new to the market and who are looking to purchase a discounted property especially as a few Spanish banks are now beginning to lend again.

Bank repossessed properties can be offered for as much as 40% below market value although some banks have been accused of “marking up” prices in order to cover their own expenses. I’m not aware of any proof of these allegations, yet, and of course the banks deny this. Some banks will only agree to lend if you’re purchasing one of their properties. In this case I would suggest getting an independent valuation on the property to ensure the bank is playing it straight. Cash buyers are in a stronger position as they are not reliant on the banks to finance their purchase and therefore can receive bigger discounts. If you are a cash buyer my advice would be to keep this to yourself until a sale price has been confirmed or you may not get the level of discount you expected.

New properties don’t come with such discounts but with the reduction in VAT for new properties, introduced in August, you could still make substantial savings. The reduction from 8% to 4% was introduced to attempt to reduce the growing number of unsold properties and try to breathe life into the struggling market. However, the reduction is only temporary and the rate will revert back to 8% in the new year (newly elected Rajoy has made reference to extending this reduction but has not confirmed anything yet).

Regular “subastas” (auctions) are held in various locations along the coast and these are another good place to pick up a property bargain. Some banks send their properties for auction at these events but private sellers are also able to list their homes. There are many auction houses on the coast so the easiest way to find one is to do a web search for the town nearest to you for example “property auction Marbella”. Alternatively contact any Spanish bank to enquire about their repossessed properties.

If you decide to go down the auction route then beware – auctions can be a battlefield and spontaneous decisions can end up costing you more than you planned (Sit on your hands if you don’t intend to bid. A casual eye-scratch could cost you your life savings!). Fix a budget and do not exceed it. Be sure the property you’re bidding on is the right one, is in good condition, with all due diligence, licences and paper work in place and available to view. It’s not always possible to view a property prior to the event but if you can you most definitely should.

If you choose the real-estate agent route then remember that there are thousands of real-estate agents covering the Costa del Sol so be sure to look at as many as you can. Many agents use a system by which they share property listings so a property listed by Estate Agent 1 may well also be listed by agent 2, agent 3 and agent 4. Most agents do list a number of exclusive properties as well.

There are definitely bargains to be had at the moment. Follow my checklist to ensure you get the best deal:

  1. Decide what you want – apartment, villa, studio etc
  2. Where do you want to live? Coastal or inland?
  3. Where do you want to live? The Costa del Sol stretches over 200 kilometres and one end is very different to the other. The majority of ex-pats are to be found between Benalmadena and Estepona. This includes Marbella, Puerto Banus, Nueva Andalucia, Fuengirola.
  4. What is your budget? Decide and stick to it. Do not be pressured with sales tactics assuring you that an extra 10k will get you a palace.
  5. What is your time frame? Are you ready to buy now or is this a long term plan? The price of a property today is likely to be very different from the price next month or next year. Currently prices are steadily slipping but one month of good growth could bring enough encouragement and confidence to the market to increase prices.
  6. New or resale? Do you want to buy a new build or a resale? Following the many corruption trials that have taken place in Spain my most important advice would be to ensure the property has the correct licences in place, whether is it new or old. Older buildings in Spain tend to have no heating and, to be honest, pretty poor construction. Ensure you carry out the necessary surveys on any resale property. New properties are just that; new. Nobody has lived in them so there may be unforeseen problems. If there are occupied properties within the same development then try to talk to the residents – ask them about the property and any known issues.
  7. Fees. Be sure you are made aware (ask to be really sure) about community fees, and local taxes. Community fees are in place to pay for gardeners, refuse disposal, access roads, lighting etc. Costs vary from development to development. I would suggest including a figure of 100€ per month in your overall budget. It may be less, it may be more. Ask.
  8. Your signature. Many agents will ask you to sign a client agreement prior to viewing any properties. This is in case a property you view through them is listed by a third party (for example another agent) in which case they are likely to have to split the sales commission between them. You are the bread and butter for the agents. If you don’t buy they don’t get paid so remember that when you’re listening to the pitch.
  9. Your current property. If your purchase is dependent on the sale of your current home then be careful not to sign or commit to anything until you are sure your own sale is complete. It’s not uncommon for people to sign for a new property assuming that their own property deal is complete, only to be gazumped at the last minute leaving a rather nasty double mortgage payment.
  10. Payment. Are you a cash buyer or will you need a mortgage? Mortgage rates are not too favourable at the moment and getting a mortgage at all is not easy. There are some banks that are lending so shop around. Check the Euribor rate (http://www.euribor-ebf.eu) regularly as Spanish banks base their fees on this. Cash buyers will always be in  a better position to negotiate as they are not relying on anyone else for finance.

Buying a property in any country can be a long and daunting task. Be careful, be sure what you want and don’t be swayed. Look around and take your time. There are savings to be made!

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