Spain has experienced a building boom in the last decade or so, during which the amount of developed land has increased by over 30 per cent and, according to figures published by the consultancy group Euroconstruct, around one-third of all new homes in Europe have been built in Spain in recent years.
The statistics regarding new homes are mind-boggling (as are the number of cranes on skylines throughout Spain) and some 675,000 new properties were started in 2004 and over 800,000 in 2005. This figure is expected to increase still further over the next two years before stablising in 2008.
New properties include coastal and city apartments and townhouses, sports (e.g. skiing, golf and marina) developments, and a wide range of individually designed villas. Most new properties are part of purpose-built developments, particularly on the costas and in the Balearic and Canary islands. Note, however, that many properties are designed as holiday homes and may not be suitable as permanent homes.
Most new properties are sold off plan ( sobre plano) by property developers ( promotores) and builders ( constructores), although they’re also marketed by estate agents. New developments usually have a sales office ( oficina de ventas) and/or a show house or apartment ( chalet/piso piloto).
The average price of new properties (land and building costs) per square metre (m2) has increased dramatically in recent years (prices rose by 17 per cent in 2004 alone). In mid-2005, the average countrywide was €2,023 per m2, but €2,632 in Madrid, €2,238 in Barcelona and €2,210 in Malaga. These are average prices and in some popular areas you can pay much more. The costs of land, materials and labour have all increased sharply in the last few years and are still rising, and there has also recently been a shortage of labour and materials in many resort areas.
Many homes and developments are described as luxury ( lujo), although the word is used very loosely in Spain and should be taken with a large pinch of salt. New homes usually contain a high level of ‘luxury’ features which may include a full-size, fully fitted kitchen (possibly with a microwave, hob/oven with extractor hood, dishwasher, fridge/freezer and washing machine); a utility room; large bathrooms (often en suite to all bedrooms) with bidets and dressing areas; a separate shower room and guest toilet; air-conditioning and central heating (possibly under-floor) in the lounge and bedrooms; double glazing and shutters (possibly electric) on all windows; cavity walls (for sound insulation and cooling); a fireplace; a wall safe; ceramic-tiled floors in the kitchen and bathrooms and marble-tiled floors in other rooms; fitted carpets in all bedrooms and dressing rooms; built-in mirror-fronted wardrobes in bedrooms; communal satellite television (TV); telephone outlets; 24-hour security and resident concierge; ‘panic’ buttons and intercom to a concierge; automatic lifts; basement car parking and a lockable basement storage room.
Luxury properties that are part of a community also have a wide range of quality community facilities such as indoor (heated) and outdoor swimming pools, tennis courts and beautiful, landscaped gardens. Some properties have an associated golf or country club with golf, tennis and squash courts, health spa, gymnasium, sauna, Jacuzzi, snooker, indoor bowling and swimming pools, plus a restaurant and bar. Most new developments have their own sales offices ( oficinas de alquileres y ventas), usually offering a full management and rental service on behalf of non-resident owners. If you wish to furnish a property solely for letting, furniture packages are available and are usually good value.
Although you can buy a finished (i.e. completely built and fitted out) new home from a developer or builder, or even from an owner who purchased it off plan but never occupied it, most new homes are purchased off plan, which is described in detail below.
Buying a new home as opposed to a resale property has many benefits including the following:
On the other hand, disadvantages include:
One of the main attractions of buying off plan is the price and many people prefer to buy properties that form part of a large development as appreciation can be very high (up to 20 per cent annually), although once all the phases of a development are completed prices usually level off. Prices of new properties vary considerably according to their location and quality. The average price for new properties (land and building costs) per square metre (m2) has increased dramatically and in 2006 prices were over 80 per cent higher than five years previously. Prices rose by almost 17 per cent in 2005, when the average price countrywide was €2,516 per m2. Expect to pay the following:
These are average prices and in certain popular areas you can pay a lot more. The costs of land, materials and labour have all increased sharply in the last few years and are still rising. There has also recently been a shortage of labour and materials in many resort areas.
The quality of new property is extremely variable and may be poorer than in northern European countries. Sometimes, but not always, the best (and most expensive) properties are built by northern European builders using high-quality imported materials and fittings such as doors, windows, and bathroom and kitchen suites. The quality of a building and the materials used will be reflected in the price, so when comparing prices always ensure that you’re comparing similar quality. Cheaper properties aren’t usually the best built, although there are exceptions. If you want a permanent rather than a holiday home, you’re better off choosing high quality construction and materials.
Most new properties are purchased off plan ( sobre plano) in Spain, which means literally buying a property from the developer’s or builder’s plans before it’s built and the infrastructure is in place, although you may be able to view a show home. Off-plan homes currently constitute nearly 40 per cent of property purchases in Spain.
Buying a new home off plan can be a stressful experience and a potential minefield, and most problems foreigners have experienced regarding property purchases in Spain have involved off-plan homes. In the last few years numerous scandals involving new developments have come to light. At the forefront is Marbella, where it’s estimated there are some 30,000 illegal new homes (which, according to planning law, should be demolished), although scandals involving off-plan homes are being uncovered in many other resort areas, including Almuñécar, Benalmádena (Costa del Sol), Chiclana (Costa de la Luz), and the Orihuela and Terra Mítica developments (Costa Blanca).
Along with many other dishonest practices, developers have been accused of bribing planning officers to obtain planning permission; building on land that wasn’t allocated for residential use (e.g. ‘green belt’ or land reserved for hospitals); taking payments from buyers for developments and not building them; and not providing insurance or bank guarantees for buyers’ money. Even when the developer isn’t involved in under-the-table practices, buying off-plan property isn’t always plain sailing.
According to an investigation by the National Organisation of Consumers (Organización Nacional de Consumo), almost half of all new properties have construction defects or deficiencies and in one-third of cases the contract conditions aren’t fulfilled, particularly regarding the completion date and the quality of materials used. Expatriate property forums are full of complaints from off-plan buyers whose dreams of a new home have been frustrated by problems with developments. However, if you obtain legal advice and only commit yourself to an off-plan purchase once all the paperwork is in order, there’s no reason why the purchase of an off plan home shouldn’t go smoothly.
Before committing yourself to buying off plan, seek advice from an independent lawyer – don’t use the services of anyone recommended by the developer or estate agent – who will represent only your interests in the purchase. If possible, choose a lawyer with expertise in off-plan conveyancing.
Buying off plan is a popular form of investment and many investors buy (without even seeing the site in many cases) and sell before completion – termed back-to-back sales. In this way, you can make a profit without ever even paying for a property. You make the first payment and sign a contract, committing yourself to the purchase, and then sell the property before completion. The main advantage of this method of investment are low investment costs and (potentially) rapid returns, but you can only enjoy these if you manage to sell the property before completion. If you don’t, you must pay in full and incur all the purchase costs or lose your initial payments.
Many buyers have been caught out with back-to-back purchases in the last few years in Spain, particularly on the Costa del Sol, and found themselves having to make full payment on properties they had planned to sell before completion.
Experts advise that you invest in off-plan properties only if you can afford to complete the purchase and maintain the property afterwards.
Before committing yourself to an off-plan property purchase or paying any money, it’s vital to do your homework on the property, the development ( promoción) and the developer ( promotor). There’s currently a huge variety of off-plan property available (often confusingly similar) and it’s easy to be carried away by the property developer’s and/or estate agent’s sales pitch.
You may be put under pressure to pay a reservation fee immediately and told that there are queues of other clients waiting to buy a property. While this may be true, the chances are that you will be able to find another property elsewhere and it may be better and/or cheaper. In the current property market, where new developments are taking considerably longer to sell, it’s a buyer’s market and you should take advantage of this.
Once you’ve chosen a property, you should do the following before signing a contract or paying any money:
Don’t sign or pay anything when looking round a development for the first time. Allow yourself a cooling-off period and look at alternatives.
When a property is purchased off plan, payment is made in stages as building work progresses and is typically one of the following:
Developers are legally obliged to insure stage payments with an insurance policy ( seguro) or provide a bank guarantee ( aval bancario) and keep payments in a separate account so that if there are any problems (e.g. the developer goes bankrupt) your money is safe and can be returned. Not all developers do this and some have even produced false insurance policies issued by companies that don’t exist! If a developer cannot produce proof of insurance or a bank guarantee, look elsewhere.
All new homes are subject to 7 per cent VAT ( IVA) plus other fees and taxes. Developers often finance construction work with mortgages, which you can choose to take over when buying the property. Mortgages are typically for 50 or 60 per cent of the property’s price and may be advantageous because you don’t incur valuation and set-up fees. However, the terms and interest rate offered may not be the best available and it’s worth shopping around and comparing deals before committing yourself to taking on the developer’s mortgage.
Once you’ve committed yourself to the purchase of an off-plan property, your lawyer will do the legal checks on the developer and development before you sign the contract and make the first stage payment. These should include:
Once your lawyer is satisfied that the development’s paperwork is in order, the next stage is the signing of a contract and making the first stage payment. Lawyers are rarely permitted to draw up off-plan purchase contracts (unlike contracts for resale property purchases) and the buyer is often presented with a ready-made contract, which usually represents the developer’s interests.
Your lawyer should check the contract thoroughly and discuss its implications with you before you sign. He should also try to remove as many unfavourable clauses as possible, although in practice many developers refuse to modify a contract and you’re obliged to accept the contract on the developer’s terms or look elsewhere.
Contracts should include:
If the developer fails to build the property as specified in the contract, he’s usually obliged to return all monies to the buyer. If the buyer fails to make the stage payments at the specified times, he usually loses all or a large percentage of any payments already made.
Beware of clauses known as abusive clauses ( cláusulas abusivas) because they are clearly in the developer’s favour.
These can include making the buyer pay the plus valía land tax (this can be very high if the developer has owned the land for a long 350) if the developer has taken a mortgage out on a property and the buyer doesn’t want to assume it; and obliging the buyer to complete the purchase without the First Occupation Licence ( Licencia de Primera Ocupación – see below).
New properties are rarely completed on schedule (up to 80 per cent are delivered late) and in some cases a property may be finished up to a year after the original estimate. Once the property is finally finished, you should inspect it thoroughly to make sure that it meets the original specifications and your expectations. This process, known as ‘snagging’, should be done before you make the final payment. If you have time, you can do the snagging yourself, or you can hire a surveyor to do it for you – several companies provide this service in resort areas. Don’t rely on the developer or estate agent to do it on your behalf.
Once you’re satisfied that the property and the surrounding development are in perfect condition (don’t accept anything less – after all, you’re making a huge financial investment), the next stage is the signing of the title deeds and payment of outstanding monies at the notary’s office ( notario). In order to sell, the developer must produce the following documents:
Some developers sell completed off-plan properties without the First Occupation Licence and offer the use of their electricity and water supplies (used for work on the site) free of charge. However, once the developer has finished at the site these supplies are cut off and without a First Occupation Licence you cannot obtain your own utility supplies.
Once the title deeds have been signed by both parties, you’re given a copy of the keys. Note that you will need to connect to electricity and water supplies, and that this may take up to two weeks, so don’t make plans to occupy the property immediately.
Furniture packages are available and are usually good value for money. The complete furnishing of a holiday home costs from around €4,500 for one bedroom, €5,000 for two bedrooms and €6,000 for three bedrooms. Some companies offer complete bespoke furnishing packages including every last detail such as soap in the bathroom and tea bags in the kitchen cupboard; you should expect to pay at least €12,000 for this service for a two-bedroom apartment.
If you plan to let your property, many new developments have their own sales offices ( oficinas de alquileres y ventas) which usually offer a management and letting service on behalf of non-resident owners.
New properties often have defects that aren’t visible immediately after purchase or defects that appear with time, e.g. cracks in walls, dislodged tiles and leaking pipes. Under Spanish law, the developer, builder and architect are legally responsible for the following defects and are obliged to correct them at no cost to the owner:
If you discover a defect in your property, it’s important to notify the developer immediately, as he is legally obliged to rectify it as soon as possible. However, in practice many developers don’t and some even turn a blind eye (surprise, surprise!). In this case, your only alternative is to take legal action against the developer and prepare yourself for a long battle, as proceedings can take months if not years!
This article is an extract from Buying a home in Spain. Click here to get a copy now.