8 tips on buying new built property in Spain.

Spain has lived over the last eight years a giant property boom which has seen off-plan properties appreciating like there is no tomorrow. This has attracted even more buyers into the market, which in turn has driven property prices even higher!

Here we offer some tips on the basic errors a buyer should avoid on buying new builds in Spain. Please note we only list below the most common blunders, but there are many more.

     1. Hire a qualified API registered Real Estate agent and a local lawyer.

While it is possible to buy a property in some overseas jurisdictions, including Spain, without having to appoint a real estate agent and a lawyer, it would be very unwise to do so. Buying a house is one of the biggest investments most people make in their lifetime. So why take the risk by not obtaining proper legal advice?

Only a qualified and registered (API) real estate agent and a lawyer can give you legal advice in Spain. Beware of intruders posing as lawyers who meddle in conveyance. The golden rule is to always ask a real estate agent or a lawyer in Spain for his registration number (número de colegiado). Only registered real estate agents and lawyers have professional indemnity insurance in case of negligence or malpractice. Lawyer’s and real estate agent fees are tax-deductible by the way - meaning you pay less tax on selling.

     2. Plot of land registered under a developer’s name.

In the last property bubble, it was often the case developers marketed and sold on entire developments without even owning the land. Needless to say, this led to huge legal problems.

One should never buy off-plan in a land that is not registered under a developer’s name. There are far too many associated risks to take a gamble with your hard-earned money.

This is one of the home-buyer’s checklist points your lawyer does as part of his conveyance due diligence.

     3. Building Licence

The basic recommendation is not to sign a reservation contract, or a Private Purchase Contract (PPC), unless the property has been issued with a Building Licence. You should categorically not buy a property that lacks planning permission, it is only common sense.

This is by far the biggest mistake that – unbeknownst to many – buyers make. Many problems could easily be staved off on following this tip. A Building Licence ensures a building is above board and the property is not being built in green belt land, for example.

      4. Bank Guarantees

Once your lawyer has checked the plot of land is under the developer’s name and there is a valid Building Licence issued, it’s time to sign the reservation contract.

The instalments paid while the property is being built can be guaranteed by means of what is known generically as a ‘bank guarantee’.

Bank Guarantees are a legal tool devised to secure the interim deposits of prospective off-plan purchasers should their properties not be delivered on time or their developers file for administration. Every payment made towards the property, including the initial holding deposit, is secured by a bank guarantee.

A bank guarantee is of critical importance, acting as a safety net, securing a buyer’s stage payments, should a developer fail to complete the property in time, or not at all.

     5. Licence of First Occupation

A Licence of First Occupancy (also known as Habitation Licence or Certificate of Habitation and in Spanish, Licencia de Primera Ocupación or Cédula de Habitabilidad) is a certificate issued by a town hall that confirms that a newly built property fully complies with all planning and building regulations and is ready to be used as a dwelling. A first occupation licence allows off-plan purchasers to dwell in a property legally.

You can read more on this subject in our in-depth article on the Licence of First Occupation.

LFO are important for four reasons:

• It provides a check on the planning legality. A LFO means the developer has built the dwelling in compliance with the original town hall’s Building Licence as well as with all Planning laws. The inspection to grant this licence is carried out by town hall’s-chartered technicians who certify that the dwelling complies fully with Health, Safety, Planning, and Construction Laws and is deemed apt for human habitation.
• It is required by all utility companies to have access to official supplies (water, electricity and gas). Spanish law requires the granting of the LFO to hook up the dwelling to the supply grid.
• Lenders will ask for it if you require finance. Banks will also be asking you for an LFO. Even on selling the property, your buyer will request a copy for his own lender. If you do not have an LFO, banks will not finance the purchase, meaning a seller will be restricted to sell only to cash-buyers. Cash-buyers are rare, most people use mortgages.
• Holiday rentals. If you are looking to buy as an investment (Buy-to-Let), a LFO is required by regional Tourist Authorities to rent out your place on a short-term. If your property hasn’t attained a first occupancy licence, you will not be able to legally rent out your house and may be landed with humongous fines if caught red-handed. The fines are eye-watering, even reaching six figures in some regions of Spain.

Be wary of anyone downplaying the importance of a LFO claiming it is unnecessary. Buying a property without a LFO offers no advantage and has associated multiple serious disadvantages which may even impact on the price of your property (your property will be worth much less!).

In general, we advise not to complete without a Licence of First Occupation.

      6. NIE number

A NIE number is a Fiscal Identification Number for foreigners and is required, among other things, to buy property in Spain.

     7. Snagging list    

Before you complete on a newly built property, you should always do a snagging list of the property. Snagging is an informal expression used within the construction industry which is used to describe the process of construction defect identification and resolution on buying new build properties.

You can either draw up a snagging list yourself, or else appoint one of the many reputable companies that may carry it out on your behalf.

     8. Post-completion: taxes, rates, utilities, community fees & other

For post-completion flaws and their repair, learn what your rights are and how to defend yourself once you have completed on a new build property. Post-completion, some building flaws may become apparent which were either not picked up during the snagging list, or else are new.

Once you have acquired your new Spanish property, you need to face all the associated running expenses. Make sure you have carefully budgeted for this to avoid unpleasant surprises!

The sweet property boom Spain is living translates into thousands of new construction property sales. This short article only highlights a few of the many potential problems a buyer can face. You are strongly advised to hire a real estate agent and a lawyer to represent you buying, or selling, property in Spain.

At homes-abroad.com real estate we are API certified and have over 20 years’ experience assisting foreign clients buying, selling, or renting properties in Spain.

You can contact us by e-mail at info@homes-abroad.com, by phone (+34) 609 977 262, or by completing our contact form to book an appointment.