BUYERS BEWARE
Is the agent you are dealing with qualified and registered? Are they solely internet based ? Do they only a mobile telephone number in the newspaper?
It takes more than above to be an estate agent and at Clear Mallorca we are available and on call 7 days a week from our office in Puerto Portals. We offer a “One stop service” to guide you through every step of either your sale or purchase.
To help clients wishing to sell or buy property in Mallorca, we have set out a brief document to explain the general procedures and mechanics of the negotiations, prior to sale and the ultimate transfer of the property. This is not a substitute however for professional advice and you are recommended to obtain a legal representative. We have a list of the best and most respected and qualified Law firms, Architects, Valuers and surveyors here on the Baleares to assist you in your needs.
SELLERS
When selling your property you may wish to enter into a sales agreement with your chosen agent. Regardless of the value of your investment, most reputable agents will offer an exclusive contract of sale whereby your property will be aggressively marketed in several countries, including the production of glossy colour brochures for a period of not less than six months. This ensures that your property is not left to “sit on the shelf” and encourages the agent to push your property foremost, amongst others in the timescale given.
You will require to present documentation either the original or a copy of your Escritura de Compraventa (title deeds). This will accurately and legally describe the property itself, the boundaries, whether the taxes and registrations have been paid in full as well as any encumbrances affecting the property.
The Exponen is a detailed description of exactly what you are selling. The land registry number, plot boundaries and the built area. The Otorgan (declared price at last sale) details the declared price paid against which any capital gains taxes to be paid are calculated. The final pages should contain stamps pertaining to the taxes paid ensuring that there is no additional liability passing to the new owners. Any mortgages, embargoes or fines should be attached to the Escritura. A copy of the last IBI (local rates) bill should also be supplied as well as other utilities such as Telefonica (telephone), Gesa (Electricity) and community charges.
If you purchased the property more than ten years ago it is possible that you do not have an NIE number (personal tax number for foreigners). By Law you are required to have one to either buy or sell a property. This we can arrange for you and it normally takes with one to three weeks to come through.
BUYERS
When buying a property in Spain the system is different from the UK. Sales move much more quickly and are more thorough than in the UK. Either you can contact an independent Lawyer who will check and approve the contract of sale provided by the seller or prepare a contract themselves. On signing of the contract it is normal to pay a holding deposit of 10% of the purchase price to take the property off the market.
It is advisable to inform your Bank that you intend to buy a property abroad and you will wish to transfer funds to your new account by “SWIFT” transfer. We can arrange the opening of a Bank account here in Spain in your absence with only your Passport Number however it may take up to 7 days to activate the account.
It is most important to seek the services of an English speaking Lawyer experienced in Spanish property law and a good working knowledge of the area where you wish to buy. Your agent should be able to introduce you to an attorney and will open a local bank account with you at this time. Your lawyer will check that the seller has legal title to the property, that it is free of any fines, debts or taxes and has all the necessary permissions. If you are buying off plan, the same checks will be applied as well as a financial check on the builder. When your lawyer is satisfied on the above matters, your signed contract and deposit will be released to the seller. Your sales contract will state the date(s) for the subsequent payment(s) that make up the balance due, which need to be observed carefully. Your lawyer can help you with your Spanish Residency if appropriate.
On the date of transfer, the seller, yourselves or representatives with power of attorney, will appear before the Notary, who is a government official responsible for the execution of public documents and to ensure compliance with Spanish Law. The Notary is impartial and acts for neither party, he only oversees the signing of the Escritura de Compraventa (transfer deed). At this point the balance shall be paid to the seller and any remaining taxes or fees must be paid. You will be given the Copia Simple of the title deed until the formal title deeds come through from the Registro dePropiedad (land registry).
At every step we will be with you to answer your many questions that may or may not be covered by your lawyer. Both parties must sign in person on the transfer date or be represented by a lawyer. Powers of attorney appointing lawyers to act, must be arranged before a Notary either in Spain or abrad, or before a Spanish Consular officer having notarial powers. A non-Spanish Notary’s signature and seal must be legalised with the “Apostille” legalisation under the Hague Convention of 5th October 1961 or, failing this by a Spanish Consulate.
After signature, the first official copy of the new escritura (the original being kept by the Notary for statistical purposes and notification to the Foreign Investment Registry) must be presented to the tax office within 30 working days of the date signing, so that the transfer tax can be paid. This is arranged by your lawyer.
As mentioned, a holding deposit is required of 10% of the purchase price, which is paid immediately you have agreed to purchase. The agreement, having been drafted by a Spanish Lawyer and the deposit being paid directly to the agents Holding Account.
MORTGAGES AND FINANCE
Contrary to common belief, mortgages and finance from Spanish Banks are available to clients who are not resident in Spain. For non residents a mortgage up to 70% of the banks valuation is available. For residents up to 80% of the value can be available. The banks will organise the valuation for you and this will be carried out by an independent firm. This detailed report will specify the quality of the construction, materials used, location, state of repair, size of the plot etc,etc. The market price of the property will be accurately calculated factoring in all of the above. There will also be a search in the Land Register and an official certificate of the corresponding entry to check that it is clear of any existing liens or mortgages. The cost of a valuation of a small apartment is about 200 Eu .
You will also be required to provide a letter from your bankers to confirm that you have the necessary income or funds to service the loan.
On presentation of the above paperwork, Spanish banks will usually take from two to four weeks to organise the loan and the interest rates are much more agreeable than in the UK, currently being 3.5 % (June 2004).
We work closely with all the Banks and can advise you which will be better suited to your needs/location. We favour Banks with English speaking Managers as to those who have English speaking assistants and would strongly recommend that you consult us before proceeding.
ADDITIONAL COSTS
As a general rule we recommend that you budget for 10% of the declared value of the sale to pay for taxes and costs, more detailed analysis will follows below. Banks fees are similar across the board and vary little. Notary fees are calculated at a percentage of the loan. For example for a mortgage of 60,000 Eu the Notaries fee will be 500Eu. The Land Register fee on the above sum would be approximately 250 Eu. Your insurance will be calculated according to the minimum valuation of the property and the current cost is one Euro per one-thousand Euros insured.
CONTRACT OF SALE
On acceptance of your offer, within three to four days you will be required to sign a private “Option to Purchase” contract which is usually drawn up by the sellers abogado (lawyer). Take particular note of the completion date as this can be punitive on the purchaser. We have several excellent lawyers in most parts of the island which we can introduce you to.
Those used to the British system will find that sales go through much quicker here, within three or four weeks. The main reason for this is that there is no local authority search as in the Uk. Within two or three days, your abogado will conduct a land registry search which will confirm ownership and highlight any outstanding mortgages or encumbrances.
TAXATION
Selling your property is subject to Capital Gains Tax at a rate of 35% for non-residents or 18% for residents. Your lawyer will have to make this calculation for you. It reduces based on the number of years you have owned the property and if applicable is paid on the difference between the declared price on your existing escritura (Title Deed) and the new declared price.
Properties owned for more than ten years as of the 31st of December 1996 and which have not had improvement work done on them are exempt from tax.
There are two taxes to be paid which take up the majority of your 10% costs. The following is not completely precise but it does provide a reasonable indication of the costs to be borne by the purchaser.
For new property 7.0% IVA (VAT) plus 0.5% Stamp duty.
Resale property you pay 7.0% Transfer Tax.
Plots, land and commercial properties 16% IVA(VAT) plus 0.5% Stamp duty.
Notary fees, Municipal Tax , Legal fees. Property Registry (Land) and bank arrangement fees are between usually 3%, sometimes less.
It is worth noting that if you are purchasing a new property and propose to add a pool later this should be included with the sale. Failure to do this will result in the higher tax rate of 16%.
If both buyer and seller are non-residents in Spain, payment can be made outside Spain. In this case, a statement to that effect will be inserted in the Escritura(Title Deed) transferring to the property.
If the seller is a Spanish resident, the purchaser must provide evidence that the funds for the purchase of the property have been transferred to Spain from abroad. The Notary who witnesses the escritura will require this evidence before completion takes place.
If the seller is non-resident, the purchaser is required by law to retain 5% of the agreed price and deposit it with the Spanish Tax Office.
Spanish Law states that unless stipulated in the Contract, taxes and fees are split between the buyer and seller as follows.
The buyer pays the Transfer Tax or IVA, Registration fees, Notary costs and usually the Plusvalia Tax (Tax on the increased value of the land).
The seller pays the agents fees and Capital Gains tax.
SERVICE BILLS
It is important to note that unpaid service bills and utility charges pass with the property, not the owner. We will handle this with your lawyer however, it is important to ensure that this covers all of the services provided to the property and that the information obtained is correct and up to date.
ON GOING EXPENSES
Like any property there will be regular expenses to be paid.
Rates or IBI (Impuesto sobre Bienes Inmuebles ) is charged yearly whether you live there or not. This covers your refuse collection and council tax. These are set by the Local Authority based on the “cadastral value” or property value for tax purposes.
Gas, water, electricity, telephone etc. These are generally cheaper than in the Uk except the charges for water which is slightly more expensive.
Community charges may well affect your property if it is within a development complex with shared facilities such as swimming pool, gardens, parking spaces, tennis courts etc. This charge will be set by the administrator of the development and the purchaser will have to become a member of the Community of owners and know and comply with its regulations.
These bills can be handled through our office if required. Please ask for details.
To help in paying for these bills and expenses why not talk to us about renting the property for you ? We can put a package together to suit your need, just ask for details.
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Disclaimer: The information provided here by Clear Mallorcais not intended to be legal advice, but merely conveys general information related to legal issues commonly encountered. Tax rates and the law are subject to change. The accuracy of this general information should not be relied upon.
