Panacea Comment for advisers Hasta la vista, baby

Having until the end of 2012 owned a home in Spain for almost 10 years, I along with many others who have had the same experience will certainly know that the rain in Spain does not stay mainly on the plain.

Spain’s public debt is currently 92.1% of GDP and it topped €1 trillion for the first time despite years of government-imposed austerity. The economy in Spain is starting to show some signs of life and that is good news, but, with that sign of life comes the prospect of a new wave of UK second home-buying looking to take advantage of what appears to be very low prices linked to very favourable exchange rates.

We Brits do just love the idea of a holiday home bargain in sunny Spain and were the dominant international players in the Spanish market in 2012/13 accounting for 16.6 percent of the foreign total and 22.5 percent of the European total.

But making a rapid and sadly sinister move up the table were Russian buyers who accounted for 13 percent of the sales to European non-Spaniards, in 2003 Russians made up just 3 percent of this total.

This rapid rise is mainly because Spain offers residency, with very few strings attached, to non-European Union nationals who spend at least €500,000 on a property in the country. A great way to get those ‘Roubles’ out of Russia, but a bad way to provide ‘access all areas’ by way of the Schengen visa agreement.

But before you or any of your clients get swept away in a tide of euphoric bargain hunting, here are some things that you should know to avoid getting swept away in a tide of something quite toxically different. Would-be buyers can visit the very useful Spain-specific property advice pages on gov.uk and watch the FCO’s new video on YouTube.

Spain has a glut of unsold properties, those part built, those built but not yet sold and of course the ‘pre-owned’ variety. And within this glut of unsold housing stock lurks many dangers, and not always in the form UK focused homebuyers may anticipate.

Here are a few tips from someone who has been there, read the book and got the tee shirt.

  • It is a sad fact, in my experience, that the Spanish, particulary on the Costas, have a habit of telling you what you want to hear rather than what you need to hear.
  • Despite a lot of corruption being stopped with many ’bad boy officials’ being locked up for it, some buyers have been caught up in serious property problems leading to emotional distress and loss of home, personal effects and financial fortunes.
  • Poorly policed urban planning laws have resulted in some 300,000 illegal homes being built in Spain. In the UK a new build very rarely gets to a completion and sale without many checks and balances. This was not the case in Spain.
  • A question asked of me on numerous occasions was, ‘can you trust your lawyer’? A question not often a consideration in the UK, but many property frauds and miss-buying has come about as a result of poor legal representation, conflicts of interest linked to less than reputable estate agent practices, especially by expat Brit agents who see ‘Wild West’ business opportunities. Agents fees are huge, 3% upwards for a sole agency, sometimes as much as 10% can be charged on a multi agency basis. The total legal costs associated to a property purchase transaction are normally between 10% and 14% of the purchase price, with a mortgage involved it will be more.
  • The banking processes do not help prevent fraud opportunity as monies from a sale of your Spanish property can take 2-3 business days to travel between your lawyer and your bank account. By this time a crooked lawyer could have closed shop and disappeared with your cash.
  • New properties that were subject to bank repossession from busted developers flooded the market from the beginning of 2013. They were cheap, very cheap. Why, because Spain decided to put these ‘repo’s’ into a ‘rotten bank’ with the aim to sell off cheaply to recover the losses quickly by way of the mixture of low purchase prices and newly increased taxes on that purchase. Tax is set at 10% of the purchase price, 21% for land.
  • The unintended consequence for many who had been trying to sell ‘pre-owned’ homes was that their prices were hit or their general salability voided.
  • Spain now sees second homes as a good source of taxation revenue. Some of these are quite cunning. For example, no property can be rented out without a licence to say it can be. This costs. Second homes are now assessed with a rental value to allow taxes to be raised whether or not you rent it out or not. Many may ignore this but eventually the system catches up with them, mainly when they try to sell.
  • There are many hidden costs involved in owning a home in Spain. You have wealth tax, property tax, local council taxes, rubbish collection tax, utilities (of course) and something called ‘community fees’ if you live in an apartment complex.
  • Community fees vary, but for an apartment complex of say 50 properties this could be anything from around 3,000 Euros upwards to 10,000 Euros per property a year. This money is to allow gardens to be maintained, pools maintained, security (yes it is often needed) utility costs, cleaning, communal furniture, staff, administration, legal costs etc.
  • Second homeowners, especially non-Brits in my experience, have a cavalier attitude toward paying these. Without these fees being paid by all, in full and on time, the services cannot be provided. It is not unusual in apartment communities for over 50% of owners to be in arrears with these fees. The legal system makes it very easy to not pay and it can take years to get the fees paid via the courts. Non-payment is made worse as often these errant owners rent the properties out and keep that revenue. Property content and building insurance is vital.
  • The most sought after properties in Spain are ‘frontline beach’- full ocean view. These require extra maintenance, and of course extra cost is attached to do it.
  • New build properties in Spain look fantastic in every way. But often danger lurks beneath the gloss. They are many and varied. Electrics are often not too good, poorly finished construction can cause subsidence and when it rains, water can come in from some very strange places- above, below and from the sides.
  • In my experience property developers in Spain flew very close to the sun, warranties and guarantees may exist but trying to get them enforced takes years and often a court intervention is needed.
  • Crime is a problem, especially in Southern Spain. It is in part a result of huge local unemployment problems, illegal immigration, drug running as well as other organised crime. Historically this was seen as a ‘British’ exclusive, but today the sophistication of eastern block criminal activity, linked to a Spanish passport for that 500k Euro property spend, has exposed some extraordinary cunning, violence and in extreme cases death. Last year a Costa del Sol turf war broke out and police fear more bloodshed
  • Legal system, language and notaries. The legal system in Spain is dreadful, it is slow and laborious. In Spain, if you are unlucky enough to find yourself in the legal system, criminal or civil, allow for huge tactical delays, high costs and the need for professional representation. You absolutely will need to pay for interpreter services because the legal system and process is Spanish with the language written and spoken being Spanish. Buyers and sellers will need a lawyer and a notary, and ideally a ‘Power of Attorney’.
  • A local representative you can trust. Vital if you only intend to visit a few times a year. They can deal with all those niggling little problems of life in Spain that occur at a cost that is far cheaper than last minute air fares. Think: problems with water, electricity, repairs, deliveries, burglary, taxes etc.
  • Police, now that is interesting. In Spain there are three kinds of police: local, national and ‘green’. Local are just that and their activities are confined to policing the town they are employed by. National is ‘Guardia Civil’ who have access all areas. The ‘Green’ police take care of beaches and boundary enforcement matters between private and civil property. The police can be very heavy handed; fines can be imposed on the spot and if you are unlucky enough to be arrested, do not expect the police to deal with you in English. Again, you will need an interpreter and at your cost.
  • Driving. The roads are generally fantastic unless they are not. Speeding fines are imposed on the spot, if you have no money to pay you will be driven to a cash point or your car impounded until you can pay.
  • Property rentals. If you rent out your property on a short term, an agent is needed, you will be taxed on the rental. Agent services are generally very poor and cost far more than they are worth. The reason you need an agent is that many owners who rent see their rental properties in a very different way to the owner occupier. Trashing of property by holiday renters is not unusual in my experience and so you need somebody close to the action to deal with it. Long-term renters are a bigger problem as they often tend not to pay the rent after a short while and the legal system makes it very difficult to get rid of them quickly. And when you do, again, expect a trashed property.
  • Neighbours. As above really, as you cannot choose your neighbours and you certainly cannot choose who they rent to. Make sure of the rules that apply in your ‘Urbanisation’, who enforces them (if they actually do) and how they deal with the idiot element.
  • Councils are a nightmare. Taxes must be paid to them and if you buy a ‘pre-owned’ property you will need to make sure any unpaid taxes are paid before you buy or you will be liable. Tax demands come to your property in Spain, not to you in the UK.

I hope this has given an insight into the realities of owning that dream home in the sun. Spain is a beautiful country, the people generally very welcoming and tolerant. But before you buy, do consider the above points.

And if you want a good and reputable lawyer, I can recommend this firm, Manzanares, who represented our community for over 10 years and acted for many buyers and sellers there too.

They have produced this useful guide to home buying in Spain that you can download, they speak excellent English, although there is a legal protocol in Spain that legal documents and formal legal discussions are conducted in Spanish.

There is a Spanish proverb; De ilusión también se vive”. In English it means roughly that ‘we live in hope of our dreams becoming a reality’. But dreams can become nightmares too.

Remember that before you buy.

No problemo!

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