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Property Investment for Expats in Spain

Submitted: July 2013

There are no restrictions on property investment for non Spanish nationals, and property rights are guaranteed by registration at your local land registry. Round-trip property transaction costs in Spain are broadly in line with international standards (around 12%), and property investment may be made through companies.

Spanish housing law may sound exotic in the eyes of many expats, as it is strongly pro-tenant in that it traditionally does not favour the development of a large and flexible rental market. Consequently, homeownership rates are traditionally very high in Spain (between 80 and 85%). However, the development of a modern, efficient and flexible rental market is part of today’s Spanish public policy. In June 2013, a housing law reform has provided for some liberalisation of the rental market.

Due to high homeownership rates, property valuations based solely on rental yields must be used with absolute care. It is also common practice to use the price per square metres in property valuations.


Spanish housing market generally

Since the advent of democracy in the early 1980s, Spain has experienced a 30-year housing bubble (la burbuja inmobiliaria). Between 1985 and 1992, property prices have nearly trebled. They have then stagnated throughout the 1990s before rising again at the end of the 1990s.

Spain’s housing bubble in the early 2000s was tremendous, and the construction industry has fuelled a large part of GDP growth at the time. Prices started to stall in 2007 and then reversed in 2008. Since then, they have fallen dramatically and many newly built homes have been left empty, especially in tourist areas.

Prices on existing homes (viviendas libres) have experienced a cumulative decline of around 30% since the 2008 peak (Q2 2013). As this data is based on nominal prices, inflation (typically around 3% YoY) has eroded real property prices further. For more information on Spanish inflation, see Foreign Exchange for Expats in Spain and Investment for Expats in Spain.

Austerity has particularly accelerated house price falls since 2012. In addition to macroeconomic factors, many tax incentives that were previously available for homeowners and property investors have been phased out. On average, house prices have fallen by 7.8% YoY in Q2 2013.

Despite persistent price falls, the Spanish housing market may still appear overvalued. On average, Spanish property prices in Q2 2013 were still 75% above their 2000 levels (in nominal terms). However, this is a national aggregate and some areas (e.g. Madrid, Barcelona) have already largely returned to 2000 real house prices, even if these are still well above their pre-bubble levels.

An assessment of the Spanish housing market must include many other macroeconomic factors, including:



Get your documentation right before applying for a mortgage (hipoteca), and do it early to avoid disappointment.

It might be tricky for expatriates to take out a Spanish mortgage, as the negotiation process is in Spanish language, and lenders require documentation which isn’t necessarily available for non permanent resident individuals. The task gets even harder if you are a non-Spanish resident and you wish to buy Spanish property, or if you wish to buy property in a depressed tourist area.

However, some lenders appreciate that there is high demand from individuals who have an overseas element in their application. Therefore, the first thing to do is to look for a lender who is willing to offer its services to you.

During the housing bubble, Spanish lenders have been willing to offer mortgages for a term of up to 50 years. Nonetheless, Spanish banks are currently undergoing a major restructuring of their balance sheet, and credit availability has tightened sharply. Typically, you can expect a mortgage term of 20 years and a Loan-To-Value ratio (LTV) of 50 to 60%. In addition, your lender will require that you have home insurance. See Insurance for Expats in Spain.

Spanish mortgages are essentially variable rate mortgages. Fixed rate mortgages are also available, but they are uncommon. As interest rates are indexed on the Euribor, they are already relatively low. Remortgages are also available in Spain. Forget about interest-only mortgages unless you are a valuable private banking client. See Wealth Management for Expats in Spain.

For an overview of the Spanish mortgage market, you may use a price comparison website. If you are a non-resident but are willing to purchase Spanish property, you can have an overview of the non-resident mortgage market by clicking here. Remember that your net borrowing costs include not only interest but also many additional fees and taxes.

If you are already considering applying for a Spanish mortgage, you might wish to use a specialist mortgage broker for expats. In any event, you should check how reliable your mortgage broker is.


Property taxes

There is a property tax in Spain (IBI), which is payable annually by the property owner. Prior to purchasing Spanish property, you should always check:

Higher land value taxes mechanically shrink property values. If you believe you will not be physically present to collect your tax bill in your mailbox, you can arrange to have the tax paid by direct debit.

The amount of tax is determined by the assessable value of your property (valor cadastral), which is typically below market value. A tax rate is then determined by the municipality in which the property is located. In 2013, higher temporary tax rates apply, ranging from 4% to 11.3%. From 2014, it is expected that they will return to between 0.5% and 1.3%.

An additional 3% tax is due each year if you hold Spanish property through a non-resident company.


Letting your property

If you decide to let your property, you must be aware of the applicable landlord and tenant law. Typically, you can expect that your lease is binding for at least three years.

You will remain liable for payment of property taxes and property maintenance (other than small repairs) unless you rental agreement specifies otherwise. If you decide to sell your property, your tenant has a preferential right to buy.

For an overview of landlord and tenant responsibilities in Spain, click here, here and here.


Real Estate Investment Trusts (SOCIMIs)

Property investment can also be made through common investment vehicles. This may help you secure a yield without having to manage your property investments for yourself.

A SOCIMI is a tax-exempt property investment vehicle, which is required to distribute at least 80% of its real estate profits. Distributions are taxable as investment income in the hands of the investors. See Investment for Expats in Spain.



In addition to land value taxes, you must pay tax on your capital gains and your rental income, if applicable. Rental income is subject to the standard progressive rates of income tax. See Investment for Expats in Spain.

Capital gains arising from the sale of your main residence are tax-exempt if:

Mortgage interest is tax-deductible if it is paid in connection with the acquisition of your principal residence. Likewise, rental expenses may attract partial tax relief if you rent your home, unless your income exceeds certain limits.



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