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MALLORCA INVEST

HANS OLOF SAVASEN

Cyberspace Real Estate @gent

World Wide Real Estate $ervice

If you are looking for a piece of Paradise, this is a great place to start your quest”

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Cuadro de texto:


Fundamental points to be taken into consideration
when buying a property in Spain.

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 First of all, whether you have chosen to buy your property from a Real Estate Agency or directly from the owner, the first thing that may concern you is how you can make sure that you obtain al legal guarantees covering your purchase.
   

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Before paying for your property you should take a few things into consideration and these should never be forgotten, otherwise you might find yourself without the property and in trouble trying to recover your money. Even though these things rarely happen, if you want to be sure they don’t happen, here are a few tips on what you should look out for.
   

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Make sure that the seller is actually who he says he is, i.e. check the Land Register where you can find all the information regarding the property. You should also ensure that the property is clear of any debts such as mortgages, legal seizures or even some remaining revelatory conditions which might exist on a previous contract signed by the owner.
   

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Check in the Town Hall that all the taxes regarding the property have been paid by the owner, because the Spanish Public Treasury can reclaim them for up to five years after they were due.
   

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Find out if any urbanistic (building) infractions were committed in the construction work. Possibly work done without the necessary building License or maybe exceeding the conditions held in that License or even work done outside Land Planning may bring you problems after your acquisition.
   

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In the event that you wish to build on the property you propose to buy; before buying you should find out what your building limitations are, i.e., how many square meters can be constructed (this usually depends upon the size of the land) volume, hight allowed. This information is relatively easy to find in the Town Halls who will be pleased to advise you on this matter.
   

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All of these aspects which I consider of vital importance as well as others depending on the above mentioned, should be studied carefully and cleared by the buyer before going to a Public Notary and making the inscription of the title deed in the Land Register.
   

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The Notary, whose main function consists in giving public faith of the identity of the signing parties, as well as defining the object of the contract, the price and form of payment, may or may not check the situation of the property in the Land Register, but this is something that the buyer has to look after in his own interest.
   

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Regarding the inscription of the property in the Land Register, contrary to some European legal systems where the plain inscription in the Land Register automatically transmits the property, the legal system in Spain doesn’t consider the inscription as constitutive - now what does that mean? Simply that the laws in Spain allow the property (as well as other rights) to be transmitted without it being registered. For example, you can sell or buy your property by means of a private contract without it being registered and the property will be fully transmitted
   

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The derived advantage of inscribing your title deed in the Land Register is that the inscription certifies to whom the property belongs and it’s a valid assurance for anyone who needs to know. This also protects the property from inscriptions attempted by others (banks, Public Treasury, creditors). These legal guarantees will not cover your purchase if you only use a private contract, as the contract conferred in this manner will only be effective between the signing parties, buyer and seller. Therefore it could be possible for a third person (bank, creditors, etc) to inscribe charges such as mortgages or even seize the property for debts left by the last owner.
   

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The ideal purchase operation for someone wanting to buy, would be where, regardless of whether you’re planning on paying the full price immediately or by instalments, the operation is done through a Public Notary, who will give official credence to the contract, the signing parties, the price and the object of the contract.
   

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Another item to be considered is the option contract signed prior to the final purchase contract. There is no need to do this before Notary as it is not necessary to register it in the Land Register, but you should be aware that this previous option contract consists on an amount of deposit handed over by the buyer and accepted by the seller on behalf of which the seller compromises to reserve the property until the option contract expires, with the legal penalty of repaying double the amount in the event that he fails to fulfil this option, and the buyer assumes the obligation of purchasing the property within that period of time, risking loosing the deposit should he not go ahead. The price of the option contract will be deducted from the final price, and until then the buyer has time to investigate the property he is about to purchase.
   

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To summaries, we could say that the legal system in Spain provides us with the necessary legal guarantees and ways of investigating to avoid falling into any possible traps ready for the naive investor who has not acquired adequate advice from his legal advisor.

Cuadro de texto: A guide to the hidden costs If you are thinking of buying property there are several expensive transactions you will have to pay for that are going to add to the original price before you can consider yourself the proud owner of a new house or flat. In order to avoid any nasty surprises you must know, step by step, the additional payments you will have to make; legal transactions, taxes, professional fees and bank commissions, which will increase the initial outlay by about 10 per cent. The purpose of this information is to help you understand and budget these extra costs. I have chosen a property costing 18 million pesetas as an illustration and I have assumed you will need a mortgage of 13 million pesetas.


Cuadro de texto: Leisure and economy It’s well known fact that the Balearic Islands were the first in Spain to recover from the recent economic crisis. The Balearic islands are also very proud of the fact that they hold the record of being the leaders of highest income per head. This record is revalidated every year due to a combination of work and new business opportunities. It was published recently that, compared to other autonomous communities, in April (95) the Balearic islands produced the highest level in history of employment and creation of new job opportunities. It is, therefore, evident that the economy on the islands is definitely on the rise. One should still remember the prudence taken during the not too distant past when the panorama wasn’t very bright - as by rule, the high is not eternal, what goes up, must come down, and the result can be devasting to those enjoying the present high. One should always remember the golden rule - to know how to enjoy within reason. Without doubt, the present situation and the foresable future looks very promising and clearly point towards optimism. Currently, it seems apparent that the Balearic islands economics, under normal conditions and circumstances, are dependant upon the leisure industry and quality of the same. In this respect I would like to emphasize that this industry is much larger than the tourist industry, as it comprises tourism and all the complementary offers extended to tourists. The Balearic islands holds all winning cards - climate, scenery, good communications system, a great variety of leisure activities which are improving continually, these all lead towards becoming the winning area of Europe in this respect. Possibly, the only thing missing at this moment in time is another powerful and competitive Mediterranean region in this sector, because, as is common knowledge, competition stimulates and is the best antidote against becoming too complacent with the honours received.


Cuadro de texto: The Notary Notary expenses are the second most important expenses you will make when purchasing property. This cover the title deeds, the loan application, legal copies of documents, revenue stamped paper and, of course, the notary´s fee. This come to 111.737 pesetas. The notary is a fundamental figure in the purchase of a home. Their fees are usually substantial but notaries are now under a legal obligation to help and advise with all legal transaction. Now that you have bought your future home, you have to apply for the title deeds and this is where the notary comes into the picture again. Their fees are officially controlled by and what they charge depends entirely on the purchase price of the flat or house. The minimum legal fee is 15.000 pesetas on property transactions under one million pesetas and charges are then scaled according to the purchase price of the property. For properties valued at between one and five million pesetas there is an additional charge of 4.5% per thousands pesetas; between five and ten million, the charge is 1.5% per thousand; between 10 and 25 million, the added charge is 1% per thousand and between 25 and 50 million it is o.5% per thousand pesetas over the purchase price. There is also a 16% VAT-charge on these fees. For example, on 20 million peseta flat, the notary´s fee will be 15.000 pesetas plus 4.5% per thousand on four million (1to 5), plus 1.50% per thousand on five million (6to10) plus 1.0% per thousand on 10 million (11 to20). If you have also applied for a mortgage you will need mortgages papers. The fees for this transaction are the same scale as for the title deeds but are based on the amount of the mortgage instead of the property value. Good news. There are no VAT charges on this payment and a 25% discount on the final total. However, notary fees do not end here as copies of deeds have to be made; one authorized for Hacienda and two copies, one of which also goes to Hacienda while the other copy is for the local town hall. Two copies of the mortgage certificate, one authorized, are also needed. The price of authorized copies are 500 pesetas per single sheet up to 12, thereafter the cost per single sheet is 250 pesetas. Copies cost 100 per single sheet, plus VAT of course. Moreover, the original official sheets used for title deeds, called *timbrado* or revenue stamped paper cost 25 pesetas for each sheet, plus the cost of the sheet itself. Remember that all title deed transaction had VAT payments added while mortgage certificate do not. By this time you will be at least another 111.737 pesetas out of pocket.


Cuadro de texto: Legal expenses Once you have found the home of your dreams and have made up your mind to buy it, before taking another step, go to the Property Register and ask for a simple memorandum of the flat or house to make sure that there are no outstanding debts or mortgages against it, This will cost you 575 pesetas including VAT. If everything is, as you hoped, in order, you can go ahead with the purchase transaction and pay the required taxes. When buying from an estate agency, you will have to pay VAT equal to 7% of value of the property plus 0.5% for a Documented Juridical Acts or Legal Proceeding fee. However, if buying from a private individual there is a 6% Property Transfer Fee to be paid. If you are going to apply for a mortgage to enable you to buy your home, you will have to pay 0.5% of the total mortgage amount, which includes interest payments, costs and expenses, as a Documented Legal Proceedings fee. This has to be paid irrespective of who you are buying the property from. Don´t forget that VAT is due at the time of purchase while other taxes are due when you apply for the title deeds. By this time, depending on whether you are applying for a loan, buying new property from an agency or a private individual you will have spent a minimum of 1.466.530 pesetas.


Cuadro de texto: Lawyer After the notary has carried out his part of the transaction, it is now the turn of the *gestor*, or lawyer who will take the title deeds to Hacienda (tax office) together with the copies made by the notary, and receipts of all taxes paid up to this moment. A record of the title deeds will be written in to Property Register. The lawyers fee for this simple transaction - 40.600 pesetas. You have to take into account that although you can carry out these transactions by yourself quite easily, some banks, when granting a loan, insist on lawyers of their choice or their own financial advisors to take care of this official paperwork. Lawyers fees will depend on the price paid for the property and whether or not you are applying for a loan. After this is taken into consideration, there are no ground rules and lawyers can charge what thet want. As an example, for an 18 million peseta property with 13 million peseta mortgage, a lawyer will charge an average of 35.000 pesetas plus VAT or 28.000 pesetas for a 13 million pesetas flat with 10 million peseta mortgage. Banks usually prefer that these transaction be done by their lawyer as they are the 100 per cent sure that all legal procedures have been carried out properly. You will now have spent a further 40.600 pesetas.


Cuadro de texto: Property Register To put your new house or flat in your name, it has to be officially registered. The initial fee is 1.000 pesetas simply for presenting the papers for inscription into the register, plus VAT. To this you must add the cost of revenue papers, costing 500 pesetas each plus VAT. The cost of this transaction varies according to the property value. The minimum cost is 4.000 pesetas for a property of up to one million pesetas with added percentages of between 1.75 to 0.2 per thousand pesetas on a scale almost similar to that used by the notary to calculate his fees. The more expensive the property the less persentage per thousand pesetas you will have to pay. The final cost is subject to a 16% VAT tax and, as with notary fees, the charge. The total cost for this registration is a minimum of 54.691 pesetas.


Cuadro de texto: Loan With your Property Registration papers in hand, you may think that you are home and dry and there is nothing else to do put apply for a loan. The simple act of asking the bank for a mortgage to buy your home has to be paid for. The bank or building society will first ask you for the certificate signed by the register which guaratees that the property has no outstanding debts or mortgages since it was registered in your name. This will cost 5.500 pesetas plus an additional 500 pesetas for cancellation notes, usually one or two for every property, made when previous mortgages or debts have been fully paid. This is subject to 16% VAT, The bank will also apply a ratable value to the property costing a further 25.000 pesetas and will charge a loan commission fee of 1.75% based on the property´s value. Some banks insist on a life insurance policy to be taken out by the mortgage holder but most demand fire insurance. However. although fire insurance is usually obligatory, this has a limited coverage and it is advisable to take out a multihome coverage insurance which in the case of an 18 million peseta property will value the flat or house at eight million pesetas and its contents four million pesetas. The average cost of an insurance of this type is 22.000 pesetas. Finally all costs could increase if you have to pay what called plus-valia, which is based on the unearned increment and is a local concil tax not applied to new property, which should be paid by the person selling the property unless there is an agreement between the two parties and the buyer pays this. According to our calculation, total loan costs, including commission insurance etc. will be at least another 281.460 pesetas.


Cuadro de texto: Now the Good News On your tax declaration the year after you have bought the property you can deduct 15% of all expenses, although this must not be more than 30% of taxable income. The total amount that you will have spent on these five separate transactions to buy your 18 million peseta dream home will be at least 1.954.838 pesetas. This adds to the assumed cost of the 18 million peseta property is quite a substantial sum, and now that you are happily ensconced in your dream home, you still have to pay back the mortgage and interest payment.


Cuadro de texto: Take a look at the 5 very best investment-alternative you can do in the new Millennium: One well known International Investment-Trust Company. http://www.mirolcentre.com/mirol/mirolinvest// For more information send an e-mail to: info@savasen.com


Mallorca Invest - Hans Olof Savasen                             One of the company’s in the team “$avasen”

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