Buying property

Immediately you decide that your future really does lie on the Costa del Sol, you should buy. Prices are increasing rapidly at the moment and the bubble shows very little sign of bursting in the foreseeable future especially with the enlargement of the European Union. That wonderful property which you can afford this year may be unaf fordable by next year. Buying is not difficult, it is just a bit different from the process in the UK. Detailed information on buying is included in many other books and it would not be appropriate for me to repeat what fellow authors have already written but in principle you need to add 10% to the official price of any property which you are shown, in order to cover the costs of buying. A good local Spanish lawyer will take you through the process in detail. The purpose of this book is to tell you what it is like to live on the Costa del Sol.

Legal implications

The legal aspects of buying property properly belong to the buying process but there are some which could have implications on your life here either before or after you have moved and some which may come back to haunt you if you make the wrong decisions at the time of buying.

Official and unofficial prices

When buying property in Spain it is quite common (although illegal) to have two property prices. One price is the actual buying price exclusive of all fees and taxes – this is the price you actually pay – in a combination of personal cheque or mortgage plus cash. The other price is the price on the escritura and this can be considerably lower. Everyone involved in the buying process is aware of what is going on but generally they turn a blind eye to it. It is done because taxes paid on the transaction are paid on the official price, not the full price, so it is a way of avoiding tax for both buyer and seller although it is the seller who saves more tax. On one occasion we were shown a property which we absolutely loved but the seller only wanted to put 30% of the price on the escritura. We walked away with no hesitation.

Personally I do not think that any buyer should turn a blind eye to this process. If you need a mortgage the mortgage may only be granted as a proportion of the official price, the escritura price. If you are paying cash, in theory you do not need to worry. After all you will pay the same price in the end but if you are counting on a mortgage of say 60% of the buying price and the official buying price is 20% less than the real price then your maximum mortgage could be a maximum of 48% of the actual price which is being asked. This could make a tremendous difference to the affordability of your chosen property.

As I said, this book is not meant to be a comprehensive guide to the buying process, but agreeing to a low official price for your selected property could have serious implications for your future life in Spain. By this time the seller who benefited from a low official price will be long gone. What could happen to you?

The local town hall can check up on the reported price you paid for your property and if they believe that you have underpaid they can question the difference between what you paid and their valuation of the property. You could also be fined for this underpayment. It does not happen very often but it can happen. Incidentally, this could also happen if you are offered a ‘bargain’ property – a property which someone may need to sell very quickly because they are desperate for the money. I know of people who have been challenged by the local town hall on the actual price they paid and they have had real problems in proving that this was actually the price because the difference in prices is usually paid in cash and there may be no receipts. Spanish law does not encourage the sale of property under market price.

The other problem you are storing up for yourself in your new life is the fact that should you wish to sell your Spanish property you will be liable for capital gains tax and this will be based on the difference between the official buying price and the official selling price of the property when you sell. In simple terms if you initially agree to a low official price when you first buy you will in future have to find a buyer who also agrees to a low selling price. Fine at the moment, but if the authorities decide to tighten up on the rules what you think now is a major saving could become a millstone around your neck in a few years.