Read on and know more about the process of buying property in Spain, a country where it is still possible to find good real estate opportunities, either as an investment or as a second home.
When talking about Spain, we talk about its countless beaches, beautiful scenery and unbeatable lifestyle.
Spain also offers a great deal of sunshine each year, and almost the entire country is surrounded by water. Its cultural, economical and academic diversity means that you can find a wide variety of destinations, offering a wide range of opportunities for tourists and residents.
Table of contents
- What are the requirements to buy a property in Spain?
- What taxes do you pay when buying property in Spain?
- How to find a property in Spain?
- Where to buy property in Spain?
- How to avoid pitfalls when buying property in Spain?
- Why buy property in Spain?
- Is buying property in Spain a good investment?
- Invest with GuestReady in Spain
1. What are the requirements to buy a property in Spain?
The requirements for buying a property in Spain will depend on your financial situation and your objectives when buying.
If you are an investor who can pay for the property without a mortgage, it will be essential to have an identity document that proves you are of legal age (DNI, NIE or passport), legal capacity to enter into contracts (in this case, the purchase contract) and sufficient funds.
In the event that you need or prefer to take out a mortgage, these requirements are, in addition to other necessary documents that the bank will probably ask you for, such as a risk report – the latest income tax return, an up-to-date employment record and recent bank statements. If you are an employee, the bank will also require your employment contract and the last three pay slips.
2. How much tax do I pay when buying a property in Spain?
When buying a property in Spain, the first thing to be clear about the taxes to be paid is whether the property is new or used.
In the case of a new property, VAT (or IGIC, the Canarian equivalent) will have to be paid by the buyer. This tax currently stands at 10% of the sale value of the property as stated in the title deeds.
You will also have to pay stamp duty (AJD), generated by signing at the notary’s office and registering the property in the land registry. Depending on the autonomous community in which the property is located, this tax will be between 0.5% and 1.5%.
When buying a used property, the only tax you will have to pay is the Transfer Tax (ITP), which is between 6% and 10% of the deeded value of the property.
Once the property is purchased, other taxes must be paid, such as the IBI (Impuesto sobre Bienes Inmuebles), which is determined on the basis of the cadastral value of the property; the rubbish tax; and the water tax. All these taxes are municipal in nature, which means that the amount payable varies significantly depending on where the property is located.
Special mention should be made of income tax (IRPF or IRNR, depending on whether or not you are resident in Spain). In the case of Spanish residents, homeowners who rent out their property will have to pay tax on the income derived from the rental income through the annual IRPF tax return (the amount will depend on your total income and the IRPF tables, as it is a progressive tax).
In the case of non-residents in Spain, but residents in another European Union (EU) or European Economic Area (EEA) country, they will have to pay 19% of the net income. In the case of non-residents of the European Union or EEA, 24% will be applied to the income obtained.
3. How to find a property in Spain?
Finding a property in Spain can be done in several ways.
One of them is to go to a real estate agency, which has been the traditional method. The real estate agency will review the properties in its portfolio for sale and select those that meet the criteria indicated by the person interested in buying.
However, for several years now, the most widely used method in Spain to find a property has been the use of web portals such as Idealista, Fotocasa and Habitaclia, among others. These portals offer a very broad portfolio of properties that can be filtered by different criteria, such as price, square metres, rooms or others.
4. Where to buy property in Spain?
While all areas of the country offer good opportunities, it is also true that some areas offer better options, and the individual preferences of the investor must be taken into account.
The main cities and their surrounding areas are usually the best options, as they have a lot of dynamism and economic activity, accompanied by high rates of tourism.
The main cities where to buy property in Spain are Madrid, Barcelona, Valencia, Seville, Malaga and Mallorca, many of which can guarantee a good return on investment.
Madrid is the capital of Spain and attracts millions of tourists and citizens from all corners of the world, who come to the city to study or to work. Its economic potential, together with its cultural and business activity makes it very attractive for this type of investment. Currently, the average price is 3,444 €/m2, and the annual yield is 4.7%.
Barcelona is Spain’s other major economic, tourist and cultural powerhouse. Millions of tourists visit the city every year, and it attracts a multitude of talent from other European countries and the rest of the world. The good climate, the beach, the modernist architecture and the city’s own atmosphere make Barcelona one of the most attractive cities in the world. The average price is 3,486 €/m2, and the annual yield is 4.7%.
Another major city in which to buy a property is Valencia. The city is one of the main attractions in terms of tourism, both national and international, due to its endless kilometres of beach. The average price is 1,694 €/m2 and its annual yield is 6.1%.
Seville, as the third most populated city in Spain and capital of the largest autonomous community of the country (Andalusia), is one of the favourite destinations to buy a property in Spain. Its climate, economic dynamism and city life make it very attractive for the real estate sector. The average price is 1,940 €/m2 and its annual yield is 6.1%.
Malaga is one of the main cities in the south of Spain, with a good climate, stunning beaches and an enviable lifestyle. It also has a great artistic and cultural heritage. The average price is 1,951 €/m2 and its annual yield is 5.5%.
Palma de Mallorca, the capital of the Balearic Islands, has always been one of the main tourist destinations for both Spanish and other European citizens, mainly because of its beautiful beaches and nightlife. The average price is 2,558 €/m2 and its annual yield is 4.5%.
5. What are the pitfalls of buying property in Spain?
When buying a property, whether in Spain or elsewhere, a series of aspects should be reviewed to avoid potential future problems.
Firstly, it is necessary to find out if the property we are going to buy has any type of debt associated with it.
One of the biggest problems, although not very common in Spain, are properties that have been purchased but have not been finished or even built.
To avoid this type of inconvenience, at least the most obvious ones, it is necessary to check that the company from which we bought exists and that the building permit has been granted by the Town Hall. In addition, we can ask for documents certifying that, in the event that the property is not built, the money already paid will be returned.
Some tips to avoid further complications are: do not sign a contract that you do not understand and hire a translator if the agreements are reached in a language that is not your own.
6. Why buy property in Spain?
Buying a property in Spain is definitely a good idea.
Firstly, for economic reasons, as the return on investment in property in Spain can reach 10%.
Secondly, if our idea is not to invest but to take the property as a second home, there are many other reasons. The climate, the cultural diversity, the modern infrastructures, its privileged position with good land, sea and air communications, the healthy lifestyle and its geographical diversity, which includes both the beach and the mountains within a few kilometres of any part of the country in which the property is located, are some of the main reasons that invite you to buy a property in Spain.
Furthermore, Spain has some of the most cosmopolitan cities in the world, such as Madrid and Barcelona. Not forgetting such thriving cities as Valencia, Seville and Malaga.
In case you are new and still deciding where to buy property in Spain, and you are new to the short-term rental market, check our rental calculator to calculate the daily rental rate of your property.
7. Can foreigners buy property in Spain?
Yes, both foreigners from EU and non-EU countries can buy a house in Spain, as Spain is not a country that places restrictions on property rights.
In fact, for some years there have been incentives for foreigners to buy homes.
8. Is it worth buying a property in Spain?
Definitely, yes. The average profitability of housing rental in Spain, which includes both rental income and price variation, according to data from the Bank of Spain, stood at 10% in 2021.
Moreover, these returns are higher than those of other assets considered very profitable (and risky), such as shares, which obtained a 7.9% return in 2021. The return is even higher than other assets considered very safe, such as 10-year government bonds or deposits, which returned 0.5% and 0.3% respectively in 2021.
To this must be added the good outlook for the Spanish economy and the country’s tourism potential. With more than 80 million tourists in 2019, this figure is expected to recover soon once all the difficulties of the pandemic have been overcome.
Spain also offers a great deal of sunshine each year, so good weather is virtually guaranteed. Almost the entire country is surrounded by water, offering many kilometres of beaches.
Its cultural, scenic and economic diversity means that you can find a wide variety of destinations, offering a wide range of opportunities for tourists depending on the type of activities they want to do, whether it be the beach, mountain, cultural or risky activities.
9. Is now a good time to buy property in Spain?
Fully. The supply of housing in Spain is small compared to the demand. The real estate crisis that Spain suffered 14 years ago left a country with a certain fear of building more housing, so supply has been lagging behind demand, creating an imbalance that now offers good opportunities and attractive returns.
Also, low-interest rates, high expected inflation and high economic growth over the next few years make this a very good time to buy property in Spain.
It should be noted that most rented properties are updated in line with the CPI. Currently, high CPI’s are expected, so by buying property in Spain you are protecting your capital from the risk of losing purchasing power due to inflation: the moment there is high inflation, it will be passed on to the rents, which will be the income of the landlord who bought a property in Spain.
10. Invest with GuestReady in Spain
GuestReady has years of experience working with property investors. We know where the best real estate return on investments are and we help investors with insightful information. We also present them with short-term rental management plans for their hassle-free new business.