Buying Property in the Canary Islands
Practical Information for Buying Property in the Canaries
The Canary Islands are part of Spain and generally, all laws applying in Spain also apply in the territory and thus Canaries. Although part of the European Union, the islands are outside the EU customs you can still buy duty free going to and from the islands.
Top 10 Tips
1. The Canaries is one of Europe’s top tourist destinations so property prices can be higher than many parts of mainland Spain.
2. If you are only seeking a holiday home, ensure maintenance levels are low.
3. Taxes and charges stay with the property so make sure these are all paid when you are buying.
4. You can lose your deposit if after signing the initial contract; you do not complete the purchase in time.
5. Ensure that the entire property has valid planning permission.
6. Use an independent Spanish lawyer.
7. Don’t buy straight away if brought on an organised trip, take time to consider your purchase.
8. Capital gains taxes are payable on profits made on investment properties and are pursued.
9. Total costs (fees and taxes) amount to about 10% of the property purchase price.
10. The Spanish property market generally has been booming for the last decade and questions have been raised if it is about to cool.
Key Phrases
ENGLISH - Spanish
Spanish Lawyer - Abogado
Property Agent - Agente de la Propiedad Inmobiliaria (API)
Deposit - Arras / Senal
Deeds - Escritura
Mortgage - Hepaticas
Annual property tax - Impuesto sobre Biened Inmeubles
Completion documents - Libro del edificio
Building permission - Licencia de obra
For Sale - Se vende
Independent valuation - Tasacion
The Canarian Property Market
Canarian and Spanish property prices have been growing almost as fast as those in Ireland in the past decade and there is now evidence of a serious slowdown. However, low interest rates along with deregulation and greater competition in the Spanish mortgage market means that more money is available to buyers and property remains in demand.
Before buying in the Canaries determine your budget and if you are obtaining a mortgage from an Irish financial institution, make yourself aware of the sum available to you and any terms and conditions applying. Getting a mortgage with a Spanish bank also has certain advantages - favourable write off conditions, easier for taxpayers to sort taxes out, no expensive bank commissions caused by international bank transactions.
How to Find a Property Agent
There are agents in Ireland who assist in buying Canarian property and of course, some Spanish agents advertise on the web and in magazines and supplements in Ireland. It makes sense to contact such agents before you travel to an area to look at property. There are also occasional Spanish / Canarian property exhibitions in Ireland.
You will need to decide on the type of property for which you are looking. Is it a holiday home to be used a few weeks in the year or is it a more permanent residence? A holiday home ideally will require little maintenance.
Make sure that you make appointments with agents in the Canaries in advance. Ensure the agent is licensed by the relevant authority.
Give the estate agent a clear understanding of what you seek in a property. Be prepared for the types of property you are viewing i.e. wear appropriate clothing. Take a good local map and have a list of questions prepared.
Note on Taxation in the Canaries
The Canary Islands are categorised as the Z.E.C (Zona Especial Canarias) by the European Union, which makes them a low taxation zone with only 5% IVA (equivalent to VAT) and 18% on capital gains. Buying in the name of a company will exempt you from the latter. The R.LC (Reservas de Inversiones Canarias) stipulates that companies will only be taxed on 10% of their profits if they reinvest 90% in Canarian territory within a period of three years.
Property owners on the islands are subject to a number of local taxes depending on location but taxes apply when you buy and sell property as well. Check the latest payment receipts for local taxes (IBI) to ensure that they are up to date and in some cases check with the town hall (ayuntamiento) that there are no problems with unpaid rates from previous years. The town hall can issue a certificate to this end. Any unpaid rates become the new owner’s liability.
The Legal Issues
You should try to find a lawyer (abagado) early on who is independent and unless you have excellent Spanish, English speaking. The best way is by recommendation from a friend, someone who has bought before or a trusted independent source.
You should use a lawyer who is completely independent of your estate agent or developer. The reason being that you need a lawyer who is going to look after your interests alone, and who will not hesitate to delay the purchase, or advise you to walk away if necessary. If you use a solicitor recommended by an agent, there is a grater chance of conflicts of interest, which can undermine the legal service you receive. Although the vast majority of agents will recommend a perfectly dependable lawyer, you are better off finding your own and not taking any chances.
Get your lawyer to ensure that the seller is the only owner of the property or the land. It is not uncommon for a number of people to have inherited interests in Canarian properties.
There are a variety of contracts that operate in the purchase of a property on the islands.
Reservation Contract – Documento de reserva
With this contract you pay a deposit to reserve a property for a specified period of time – usually 30 days. If you back out at the end of this period you may lose your deposit. If you proceed with the purchase, the vendor is contractually obliged to sell you the property at the agreed price. The deposit is usually between 1% and 2% and counts towards the final price of the property. Developers often use this type of contract when selling off-plan. Even though the deposit is relatively small (compared to the overall property price), you should not sign this contract without checking with your lawyer.
Deposit Agreement - Contrato de Arras
This contract requires that you pay a deposit – normally 10% of the agreed price - when the contract is signed. If you fail to go through with the purchase you will lose all of your deposit to the vendor. But if the vendor backs out before signing the deeds, you receive back double the deposit. This contract makes it expensive for either side to back out, but at the same time it does leave the door ajar should either side wish to do so. This is the contract you are most likely to be asked to sign if you buy a resale property from a private individual.
Option to Buy Agreement - Contrato de Opción de Compra
This type of agreement gives the buyer the exclusive right to buy a property within an agreed time frame. The option does not have to be exercised, but it is usually agreed that if the option is not exercised, the buyer loses the money paid for the option.
Private Sales Contract - Contrato Privado de Compraventa
A contract that specifies in detail (price, dates, contents, etc.), the terms under which the transaction will take place. Unlike a deposit contract, there is no backing out of private contract unless both sides agree to it.
Completion
Completion of the sale only takes place when you sign the public deeds in front of a notary public (notario in Spanish), and pay the vendor in full. This is when the property becomes officially yours, though you still have to register your title in the property register (registro de la propiedad).
Signing the deeds before the notary, know in Spanish as the Escritura Publica, has to be done by everyone involved in the sale – buyers and vendors (or their legal representatives). This is normally when final payments are made to the vendor. Occasionally, vendors ask for a certain amount in cash, if cash payments are agreed, they usually take place at the notary’s office, once the notary has left the room.
As a buyer at the Escritura you need to take along a valid ID document, such as your passport, and payment - such as a banker’s draft - if there are any payments still outstanding. Depending upon the notary and the region, you may also need a foreigner’s identity number (NIE number), which is obtained from the local police. An NIE number can take several weeks to obtain, so be sure to look into this issue in good time.
The notary will verify the identity of everyone involved in the transaction, and read the deeds out loud in Spanish, so that everyone present understands the terms of the sale. Your lawyer should accompany you to the signing to make sure that there are no last minute changes without your agreement.
Within 30 days of the Escritura, you have to pay the taxes related to the purchase, after which you are strongly advised to inscribe your title deeds in the land registry. Your lawyer should help you carry out these formalities.
Comunidad de Propietarios
When buying property that is part of a community of owners (Comunidad de Propietarios) it is important to know the bylaws and financial obligations governing the workings of the community. A copy of the community bylaws can be obtained from the secretary of the community, or the land registry. You may also need to check with the president, or secretary of the community, that the previous owner is up to date with community bills.
Planning Permission
When buying off-plan from a developer, or even from an investor selling on an off-plan property, it is sensible to check that the property has the necessary planning permission, given recent problems with illegal building in Spain. If a newly built property has a licence of first occupancy, then it is fair to assume that it was legally built with a valid construction licence.
When buying a resale property, planning permission is normally not an issue, though you should always check with your lawyer, as resale properties in some parts of the Canaries may have been illegally built in their day. However, it is quite common for resale properties in Spain to have extensions or additions that were carried out without planning permission, and which are not registered in the deeds. These need to be identified, and legalised before you proceed to buy.
Before completing a deal with a developer, check that a licence of first occupancy (licencia de primera occupación) has been granted by the town hall. Utility companies will not supply properties without this licence. Though some may try, developers cannot force you to complete the purchase without this licence.
Insurance
From the signing of the final contract the buyer is responsible for the insurance of all the buildings on the property. It is a criminal offence in all of Spain not to have your property insured
Fees and Charges
The buyer pays all legal fees, costs and registration taxes which average 10% of the purchase price.
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