Property in Spain

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Spanish Property in Spain
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Financial & Fiscal

Before buying a property in Spain it is a good idea to understand the most important financial elements of the purchase, which can have an influence on your financial situation today and in the future. Apart from the total and initial costs there are other factors such as taxes, interest rates or exchange rates, which you have to take into consideration.

Prices & Facts

The price of properties in Spain a few years ago increased during a 10 year period by 11.4% p.a. (adjusted for consumer inflation) according to a study made by The Economist™. Nowadays the prises are increasing at a much slower rate (in 2006 3,4%) due to the market slowing down, but it is important to state that it is only a slow down in increase, the prices have not dropped and in the long-term prices will go up again. For long-term investors, this is an advantage as the property industry has turned from a sellers market to become a buyers market; due to the slow-down buyers have the upper hand and are dominant in negotiations about the property.

The average price per square meter (the way house prices are measured in Spain) in 2004 was 2227€ for new properties and at the end of 2006 the price was 2763Eur (according to the Spanish minister of housing). The price per square meter is higher than in some popular tourist destinations like Andalucia (Fuengirola 3105Eur per sqm) or the Balearic Islands (2932Eur per sqm) or in big cities like Madrid (4093Eur per sqm) and Barcelona (4302Eur per sqm). In other tourist areas the price is lower than the nation average which is the case for popular destinations like Alicante (2246Eur per sqm) or Murcia (1921Eur per sqm).

Mortgage Loan

If you need a loan to finance the purchase of a new property in Spain you will first of all have to decide whether you want to finance the purchase with the mortgage provided by the promoter or you prefer another Spanish bank or a bank in your own country.

The mortgage offered by the promoter is the easiest way to finance the purchase but it is not always the best. Many times the conditions are not very favourable and the mortgage is set as a percentage (normally between 60-80%) on the initial purchase price and not on the value of the property at the moment the property is handed over. As the price increases during the construction you will in many cases be able to get a higher percentage by using another bank which will make the final valuation of the property before the handover.

When choosing a bank there are different factors we can recommend to take into consideration like; where you are going to live and work, where you have your savings, interest rates, exchange rate fluctuations, fiscal advantages of obtaining a loan in different countries, cost of financing a property, etc. If you have any doubts or questions about getting a mortgage or other financial issues please contact us and we will be happy to advice you.
A mortgage in Spain is secured in the property and are long-term loans of around 20-30 years. To obtain a mortgage the bank will normally ask for copies of your passports, either payslips or proof of savings, sale contracts and copies of the title deeds. Apart from this the bank (if it is not offered by the promoter) will send a professional appraiser to set the market value of the property.

You have to be aware of the type of interest rate the bank is offering, as it can have a great influence on the monthly cost - now and in the future. If you live or have your savings in a none-Euro country you also have to be aware of exchange rate fluctuations, as the exchange rate can change very quickly (both positively and negatively). It can be recommended to fix the exchange rate (i.e. buy a spot contract or a forward currency contract). This can be done in your bank or in financial companies specialized in these types of operations. Although you have all the money in cash to buy the property there are still other factors to take into consideration which might make it favourable to get a mortgage. As an example the relatively low interest rate available at the moment makes mortgage loans interesting to free up capital for other investments. The Spanish tax system can also make it beneficial to have a mortgage as properties in Spain are assessed for inheritance tax when the first spouse dies. As the tax is calculated on the value less the outstanding debt in the property a mortgage will mean less payable to inheritance tax.

For more buying advice see our Free Spanish Property Buyers Guide.

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