This page contains information to help you buy a new home in Spain. How to go about buying off-plan, under-construction or newly-built property in Spain. Also see the section on new homes for sale in Spain.
Guide to buying new build homes in spain
This section will help you understand the process, benefits, pitfalls, costs and risks of buying property off-plan or under-construction in Spain.
Do your own research, and don’t rely exclusively on estate agents for all your information, or at least don’t rely on one estate agent. Some estate agents will steer clients to developments that pay the highest commissions, regardless of the merits of the development. If you leave yourself entirely at the mercy of one estate agent you give them control over your access to information, and information is power.
Advantages of buying a new home in Spain off-plan or under construction
The key advantage is in the price, though a lack of transparency in market pricing can sometimes undermine this. Developers have to compensate off-plan property buyers for the risks they are taking (whenever you hand over money for goods you expect in the future you are taking some sort of risk), for the delay before completion, and for providing them with capital to help finance the development. Therefore buying off-plan should earn you a discount of anything between 10% and 30% off the current market price for a comparable property in Spain.
Then there is quality. Buying off-plan should mean you end up with a property that incorporates the latest building techniques and materials. Building regulations have been constantly improving in Spain over the years so brand new properties should be the best on the market, though it does of course depend upon the spec being offered the developer.
Another advantage comes with the guarantees you are entitled to when you buy newly-built property from a developer. Consumer protection laws in Spain cover different types of build defects for different periods, with the most serious structural defects guaranteed for 10 years. When you buy off-plan you are covered for the maximum period, though the same advantage would accrue to you were you to buy a property just finished from a developer or investor.
In some cases developers allow you some say over the style in which the property is finished when you buy off-plan (colours, floorings, certain fixtures). Finished properties have to be bought ‘as is’ with no scope for building-in your own tastes from the start. Off-plan property purchases can offer more flexibility in this area, though the policies of developers vary enormously on this matter.
Lastly there is an ‘option’ advantage given the delay between the signing of sale contracts and delivery of your property. Should you change your mind about the development or the area you may be able to sell on the purchase contract to someone else, potentially making a profit in the process, and all without the expense of completing on the property.
Disadvantages of buying Spanish property off-plan or under construction
To say that the long wait for delivery, up to 2 years (or more if there are serious problems), is a disadvantage is only true in some cases. In others it may suit the buyer and thus be seen as an advantage. Even so for many people a delay of 12 – 24 months before they can take possession is a disadvantage that has to be weighed up against the cheaper price and other advantages.
An increasing disadvantage to buying off-plan property in Spain is that fact that many of the best locations have already been developed, and all that remains is 2nd or 3rd tier locations with motorway views. I exaggerate but to a certain extent it is true in areas that have been heavily developed to date, for instance Marbella, but much less of an issue in places like Murcia and Almeria where they are still only revving up the engines on the development front.
Turning to the nitty-gritty problems of buying property off-plan in Spain there are several to choose from. The fact that off-plan property hasn’t yet been built creates all sorts of uncertainties that can turn into problems between the time of signing the contract and delivery of the property. Large construction projects, which many developments clearly are, can run into all sorts of problems leading to delays. For instance bad weather, bad project management and problems with planning permission. The point to take on board is that delays are more common that the sales organisations would have you believe. It is sensible to expect some margin of delay and build this into your planning and the contracts you sign.
But the greatest risk of all when buying off-plan, assuming that the developer is financially solvent and your payments have appropriate guarantees, is that you end up with something that doesn’t match the plans and specifications that you signed up for. This can happen for 2 reasons: firstly because understanding what plans and specifications mean in terms of finished product is more difficult than it might seem, and secondly because developers have been known (understatement) to promise one thing and deliver another.
According to Spanish consumer protection associations the biggest complaint of all concerns the delivery of built areas that do not match the plans (under build), meaning that you pay for more than you get. Figures from an organisation called Adeprovi show that 44% of all complaints they received in 2004 related to under build. A report from Adeprovi states that off plan Spanish property sales “continue to be inadequately documented” and points out that “the rise in property prices has not been accompanied by a corresponding rise in quality, given that the number of complaints rises year after year”.
The report reminds off-plan property investors that Spanish consumer protection laws give them “significant rights” regarding the information that developers are obliged to provide them with, and that they should insist on adequate documentation regarding build specifications from developers before proceeding to purchase. Buyers who experience problems as a consequence of poor build quality or failure to meet build specifications are urged to file complaints against the developer.
The report also gives the following statistics for new build problems in Spain during 2004:
- 21% of complaints concerned the inappropriate installation of fixed elements such as radiators, toilettes, etc.
- 10% of complaints concerned garages and parking spaces, which are difficult or impossible to use.
- 5% of complaints concerned build locations that were not indicated in the plans or that had other unforeseen and undesirable consequences.
- 1% of complaints concerned unexpected changes to interior distributions such as the elimination of a bedroom or the change in shape of a room.
- 57% of faults detected in new build properties in Spain were related to damp (damp rising from the ground, or through poorly insulated walls and ceilings).
- 18% of faults concerned defects in wooden flooring.
- 15% of faults concerned poor insulation.
- 7% of faults concerned poor tiling.
- 3% of faults concerned poor paintwork and other details such as scratched fixtures.
So bear these sorts of issues in mind when buying off-plan in Spain. Make sure that the plans and specs of the developer are sufficiently detailed to minimise such problems, and find out what procedures the developer has place to deal with problems such as these should they arise.
New Homes: Types of property you can buy off-plan, under-construction or newly built
Apartments and semi-detached properties
Most off-plan buyers opt for an apartment or semidetached property that forms part of a developer’s project, the plans for which have already been finalised and approved by the municipal authorities.
If this type of property suits you then the key advantage (in theory) to buying off-plan is that you get a brand new property at a discount to the finished article, though you do have to wait for it to be built.
Developers who sell off-plan benefit from lower risks and access to your capital during construction, in return for which you should get a discount of anything between 10% to 20% off the current market price for a comparable just-built property. And in some cases developers allow buyers a limited say over the style in which the property is finished (colours, floorings, certain fixtures), whilst finished properties have to be bought ‘as is’ with no scope for building-in your own tastes from the start.
However, committing yourself to buy something that hasn’t yet been built creates uncertainties that can turn into problems between the time of signing contracts and delivery of the property. These problems can be particularly acute for overseas buyers.
For a start you have to visualise the property based on plans and specifications, and the finished property might not be what you were expecting. Also detailed plans and specifications, leaving little room for confusion or doubt, need to form part of a watertight contract between you and the developer – another area where many buyers have come unstuck.
New developments are complex construction projects that can run into all sorts of problems before you property is finished, including adverse weather, adverse management, adverse local authorities, and the fact that the cost of building materials can rise unexpectedly, so the importance of finding a reputable developer cannot be exaggerated.
Lastly the audit of the property before completion and the subsequent snagging process have to be carried out with great care, and overseas buyers often fail on both counts to their cost.
None of which undermines the genuine advantages of buying off-plan when done successfully. If you can afford to wait for your property to be built, which in unproblematic cases normally takes between 14 to 18 months, then buying off-plan is the cheapest way to buy a brand-new property. If this suits you then all you need to do is approach the purchase in a way that minimises the risks and uncertainties peculiar to off-plan purchases. To help you do this you will find will find more information in the section on buying on new developments, and further resources at the website.
Having just said that buying off-plan is the cheapest way to purchase brand new property this does need to be qualified. For example, in the years 2006 to 2007 it was possible to buy newly built properties on good developments for below the developer’s off-plan price by buying from distressed investors. Too many amateur buyers speculated with off-plan investments, which led to an over supply of new properties. Many of these investors had to sell at any price, and there were bargains to be had.
Detached properties can also be purchased off-plan from developers, with many of the same advantages and risks as described above. Due to the developer’s lower economies of scale when building detached properties the price advantage may be smaller, but on the plus side you are likely to have more influence over the plans.
Buying a detached property off-plan from a Spanish developer involves choosing a plot and defining the plans and specifications of the property to be built on it. Bear in mind that land sales in Spain attract VAT at the standard effective rate, not the reduced rate for new homes. To avoid paying the higher rate for the plot you may have to wait until the property has been completed before signing the Notarised deeds of sale. This is entirely legal, and most developers allow you to structure the purchase this way. However it may not be the most sensible way to proceed, and you should consult your lawyer on this question.
Developers have different policies when it comes to defining the plans and specifications for off-plan detached properties. Most developers offer a choice of models (predefined plans and specifications), but limit the changes buyers can make to superficial issues such as colour schemes or pre-installed kitchen equipment. Developers are loath to allow more substantial changes as it increases complexity and costs. Some developers also offer the option of working with their architects to draw up plans from scratch. This will be more costly but may be the only way to realise a unique property vision.
A variation of buying off-plan is to build your own property, where you play the role of both developer and client. Doing so means that you get to build your dream property to your exact tastes and specifications whilst avoiding having to pay a developer’s margin (though developers’ costs will also be lower, which mitigates your potential savings). However if you wouldn’t consider building your own property at home then all the more reason not to consider it in Spain. There are many complexities involved in a self-build project and only consider this option if you have the time, willpower, know-how, resources and character to make a success of it.
You will choose a property type and layout that best suits your requirements. Evidently you will have to do this ‘off plan’, that is based on nothing more than some documents provided by the developer and, with a bit of luck, a show home to help you visualise the property you are buying.
It always amazes me how blasé many people are about buying off plan, and how little attention they pay to the plans and specifications provided by the developer. In many cases people have bought of plan without even seeing an English translation of the specifications.
Don’t let yourself get carried away with wishful enthusiasm fuelled by the persuasive talk of developers and estate agents. Take your time, insist on detailed documentation that you can understand (and that forms part of the contractual obligations you sign with the developer), and scrutinise it until you know it back to front (remember how much money your are spending). You want to push the uncertainties to the minimum and the better the documentation the closer you will get to achieving this. Thorough documentation also reduces the incentive for a developer to cut corners. Time and effort spent at this stage could save you serious agro in the future.
You need plans and layouts that indicate scale, provide room dimensions (metric scale in Spain), and show the precise location of fixtures. Plans should also indicate what the total built and usable surface areas will be, including those of porches and terraces. When looking at plans think about functionality, practicality, utility (living spaces in which it will be a pleasure to be), privacy, natural light sources, and orientation towards wind and sun. When looking at plans people often fail to appreciate the reality of room sizes that correspond to measurements on the plans – usually on the side of disappointment at how small they turn out.
Detailed specifications that list exactly what is included with the property (fixtures & fittings in kitchens, bathrooms, alarm systems, etc., providing brand names where appropriate), the quality of materials to be used, surfaces, colour schemes, and so on.
When buying a detached property with pool and garden pay just as much attention to how exteriors are covered in the plans. On delivery will the drive, garden and other exteriors look like an abandoned building site or the Garden of Eden? The spec should detail to what extent landscaping will take place. When buying a property with communal gardens and pool ask for plans and a description for these areas as well.
A note on show homes
If a show home is used in the sales process then clarify the relationship between the quality of the show home and the property you are buying. I know of cases where clients have been shown an exquisite show home, finished to the highest quality, tastefully decorated and kitted out with the latest home technology. Buyers were lead to believe that their property would be delivered in the same condition (without the furniture but with the home technology). Having fallen for the show home they merrily signed contracts, only to be devastated when the property was delivered and bore no resemblance to the show home. Beautiful show homes can intoxicate buyers and lead them into a false sense of security. In many cases the developer is not trying to deceive clients, just impress, but in the process expectations are raised and disappointment is inevitable. So long as you and the developer know exactly what is expected of one another problems of this nature will be avoided.
Information you need to see before making any payments
Before making any non-refundable payments you will also need information on the following issues:
You need to be very clear about the payment terms. How much do have to pay, when, and corresponding to what on-site build progress? You will also need to know the complete details of the bank account to which payments should be made. The following table explains the different types of payments.
|Reserve||3,000 to 6,000 Euros|
|Private sale contract||20% to 30% of the price (plus VAT @ 7% and less the reserve payment already made).|
|Other stage payments||It all depends upon the promoter and the type of property you are buying. Many promoters do not ask for any other payments beyond the initial one of say 25% until completion, when the remaining 75% plus VAT becomes due. Other promoters may ask for up to 50% or 75% to be paid in stages during construction progress, with the remainder settled at the end.|
|Final payment at signing of public deeds.||Outstanding amounts are paid at the time of signing the public deeds of sale before Notary.|
Developers are obliged by Spanish law to insure your stage payments and keep them in a separate account from working capital. This is to ensure that, should the developer fail before completing your property, you will not lose the money you have already paid. Though it is mandatory I know of developers who do not comply with this law as it represents an extra financial burden for them. Do not buy off plan from a developer who cannot demonstrate that your stage payments are insured.
Many developers arrange a mortgage that you have the option of taking over. If this is the case you will need full details as to the terms and conditions of the mortgage. Note that you are not obliged to take over the mortgage, though doing so will probably save you some arrangement fees. However this potential saving needs to be evaluated in terms of the overall mortgage. Saving a few hundred Euros in arrangement fees but paying dearly over the rest of the mortgage’s lifetime isn’t an ideal solution. Compare the mortgage with other offers and then make a decision. If you don’t take the mortgage offered with the property the developer would probably have to pay some cancellation fees. You will probably not have to take this decision until much later in the process, when you come to take possession.
If the reservation deposit is non-refundable then before signing anything you will need a commitment from the developer as to delivery dates and penalties, if any, should they not be met. I would also ask the developer what procedures will be used to keep you informed of construction progress. Once again this question will probably be met with a look of astonishment but that doesn’t mean to say you shouldn’t ask. After all how hard is it for a developer to email a monthly progress report (with milestones signed off by an architect) plus photos to buyers? The more demanding buyers become, the quicker developers will have to improve to meet these demands.
Be sure you understand exactly what communal facilities will be available to you as an owner of property on the development, and the terms and conditions of using those facilities.
Ask the developer to explain the status of planning permission for the property in question. My advice is avoid any non-refundable payments on any property that doesn’t yet have planning permission. A good lawyer can easily check on planning permission, even in a place like Marbella where heinously corrupt local politicians have granted illegal planning permission to many developments.
In all likelihood you will sign 2 private contracts (not including the public deed of sale) when you buy a property off plan from a developer in Spain. First of all a reserve contract to accompany the reserve payment, followed 30 days or so later by a private sale contract and a more substantial payment. Before signing either of these contracts you should ask for an example copy of each that you can study. Don’t sign any contracts or make any payments before you understand exactly what you are committing to and before carrying out due diligence using an independent lawyer.
Negotiating with the developer
Many estate agents will try and have you sign a reservation contract on the spot if you express any intention of buying an off-plan property you have seen with them. They often imply that the development is selling fast and that you will miss the property, or price will go up, or both, if you don’t commit straight away. This might be true but it is much more likely they are just trying to deprive you of a ‘cooling off’ period during which you might have second thoughts. You would be well advised to ignore this talk and go away and think about it before you take the next step. Whatever you do, never sign a reservation contract without discussing it first with your lawyer.
After a cooling off period, if you decide that you want to proceed then start by trying to negotiate better terms with the developer rather than signing any contracts or making any payments.
Developers are on the whole very reluctant to give discounts but you can be certain they won’t give you one if you don’t ask. Now that the market has cooled significantly (2005) developers are more disposed to negotiate than they were in the past. If you push you might be able to negotiate a 5% to 10% discount off the list price, or better payment terms, or better fixtures, or a furniture package. You should also try and negotiate an agreement, to be included as a clause in the contract you sign, whereby you can withhold 5% of the price at the signing of the deeds, to be paid after a specified snagging period in which the developer has to put right any faults you identify.
It helps if you make the estate agent and developer think that you have seen other alternatives and are basing your decision on the outcome of the negotiations. This is another good reason why you should always visit with several agents, as it can give you more leverage during the negotiations. Note that you don’t have to be in Spain to carry out the negotiations or proceed to purchase. So long as you have a good lawyer in Spain you can do it all by phone, fax and email.
Once you have reached an agreement with the developer you will be expected to sign a reservation contract (Documento de Reserva) and pay a deposit, usually of 6,000 Euros. Despite the ubiquitous use of reservation contracts when buying off plan they should be avoided wherever possible, as has already been stated several times. They are usually short and vague documents that give you little protection whilst requiring you to pay a substantial amount of money for nothing more than the privilege of taking the property off the market for 30 days or so. It is less of a problem if the contract explicitly states that your reservation deposit will be fully refunded should you not to proceed, however this clause is not common in these types of contract.
A reservation contract might be only way to reserve a property in a hot market. However in the present market conditions you are unlikely to lose out to another buyer as there is an oversupply of property and buyers can take their time. Some reputable developers will agree to putting in a clause that enables you to get your deposit back if you have a change of heart. In reality some reputable developers return the deposit even without this clause but there are also many developers that don’t.
Regardless of whether you sign a reservation contract the next step is to sign a down payment contract, accompanied by the first down payment, often of 25% of the price plus VAT. You may then have to make a series of further payments as the work progresses, with the final payment when the deeds are signed; on the other hand you might not have to make any more payments until you sign the deeds when the property is completed. It depends upon the payment terms you have agreed with the developer.
Before you commit to a down payment construction contract (which developers and agents often refer to as a private contract or contrato privado de compraventa, though the full name is contrato de compraventa de vivienda en construcción) you should always have your lawyer carry out a due diligence appropriate to buying off-plan. This will be somewhat different to the resale property due diligence described above.
Plans and specifications
It cannot be stressed enough how important it is to have detailed plans (planos) and specifications (memoria de calidades) included in the contract you sign. Many off-plan buyers come unstuck on this issue. The more detail there is in the plans and specifications, the more likely you are to get what you are expecting. Vague plans and specifications give developers a lot of wiggle room that they might be tempted to use to deliver a smaller property or lower quality than you were expecting. If you only have vague plans and specifications you cannot prove that this has happened, even if you know it has. After you have signed the contract and paid your money, the plans and specifications are all you have to prove what the developer’s side of the bargain is, so you have to make sure that they are adequately detailed. Make sure that plans specify the built area (superficie construida), useable area (superficie útil), and total area including common areas (superficie total). Note that in Spain terraces are included in the figures at 50% of their surface area. Also ask to see technical plans that show the functional installations.
As mentioned in the section on visiting new developments you should also make sure, when buying an apartment, that you are given a plan of the building that clearly indicates the apartment you are buying. Otherwise you may find that the apartment you are buying is now in the middle of the 2nd floor, rather the corner of the 3rd floor, as you had been led to believe. Unscrupulous agents and developers use this trick to make all the apartments appear to have the best position, in the hope that clients will then just put up with it when this turns out not to be the case. If this happens to you should always kick up a storm.
People often focus on the property they are buying and forget to pay attention to the developer’s commitment to finish the surroundings. The landscaping of the surroundings will have an significant impact on the quality of life on the development and some developers make grand claims when selling but then cut corners on the landscaping when it comes to delivery. Some buyers, even on the most luxurious developments, have then had to finish the job that the developer failed to do, footing the bill running into thousands of Euros per owner out of their own pockets. So make sure that plans for the surroundings are well documented and, wherever possible, have them attached as an addendum to the contract. You may also wish to confirm that communal facilities you have been promised, such as a swimming pool, are included in the plan authorised by the town hall (cédula urbanística), and are clearly stated in the overall deeds of the project(escritura de la división horizontal).
When buying off-plan you will often be promised certain views. If it is clear that there is land around the development that has not been built on then you should consider checking what can and can’t be built on that land. This can easily be done by checking the plan urbanístico at the town hall. If an apartment block can be built in front of your property, then you have to assume that it will be. Many buyers, both off-plan and otherwise, have been mislead into thinking that the land around them can’t be built on.
If there are any communal facilities, such as a golf course, for which you have been promised special conditions of use, then make sure that these conditions are attached as an addendum to the contract.
Be sure that you understand what infrastructure the developer will put in place, and have your lawyer check the plans approved by the town hall and the plan parcial to confirm this. Developers have been known to cut corners on many aspects of the infrastructure, which can cause ongoing problems with the town hall. If the developer fails to provide an infrastructure that satisfies the town hall then the development may have problems receiving municipal services, which can make life on the development very inconvenient and expensive. Owners of some developments have had to sort out such problems themselves at considerable expense.
Pay special attention to the infrastructure for delivery of utilities such as water, electricity, telephone and gas. Few developments outside of consolidated, built up areas will have a mains gas connection, though this is the least of your worries as most of Spain runs on bottled gas deliveries, which work perfectly well, and are likely to be cheaper if you are not buying a permanent home (you won’t have to pay a monthly fixed charge when not using the property). The big problems are usually with water and electricity, which you simply cannot live without. You have to be sure that the developer will have a mains water and electricity connection before you buy, and don’t take the developer’s word for it either. Have your lawyer check that the development has been fully approved by the town hall in this respect, and that the developer has an approved construction licence (licencia de construcción). In this age of mobile phones and satellite broadband connections one can live without a phone line, though it is of course much better to have one, so confirm that a telephone connection will be available.
Community of owners when buying off-plan
The community of owners is usually formed once the development has been sold and most of the buyers have completed. Always check what role, if any, the developer will play in setting up the community of owners and establishing its bylaws. Find out when it will be set up and how you can participate in the process.
Buying off-plan with a mortgage
Most developers have a prearranged mortgage that you can take over when you complete. Developers save money if you take over this mortgage and are likely to encourage you to do so. You should never accept the developer’s mortgage without checking the conditions against other mortgages.
Make sure that the land on which the development is being built is classified for residential use. Some people have bought on developments and later been informed by the developer that the land was classified for ‘tourist apartments’, which can cause problems for buyers looking for holiday homes or permanent homes. The land classification can be checked with the town hall. It goes without saying that you should never buy on developments where the land is zoned for commercial or other types of use. Developers will not get building permission on this type of land, but that’s never stopped the most unscrupulous developers in gung-ho areas like Marbella.
Check that the plans you are being shown have been approved(proyecto técnico aprobado) and that planning permission (Licencia de construcción / edificación) has been granted by the town hall. This is a very important point so it needs to be repeated and emphasised. NEVER BUY OFF-PLAN OR ON A NEW DEVELOPMENT UNLESS PLANNING PERMISSION HAS ALREADY BEEN GRANTED. Over the last few years hundreds if not thousands of British buyers have made down payments of 30% or more for property on developments that do not have and never will have planning permission. These buyers have been told that planning permission is just a formality that will be obtained shortly without any problems. Years later they are still waiting with their money tied up in a development that will never be built. If they are lucky they will get their money back. This situation is more common on the Costa del Sol than on other coasts. To avoid this problem always have your lawyer confirm that planning permission has been granted for your specific building.
If buying in the Marbella area you may also need check that the development complies with the regional urban plan. Written confirmation of this can be requested from the town hall. Unfortunately, Marbella’s local administration has in the past granted illegal planning permission to a number of promoters, and some of these developments are likely to be demolished now that the regional government in Seville is cracking down on local corruption and illegal developments. Buyers, who are innocent 3rd parties, will receive little by way of compensation.
Developer’s title to the land
Check the land registry to confirm 1) that the land belongs to the developer, 2) that the building project has been inscribed and 3) what debts or charges are secured against this property. Most developer’s use mortgage financing so a debt against the land is not necessarily a problem. Your lawyer will know what problems to look out for.
Off-plan deposit & stage payment guarantees
Developers are obliged by law to guarantee any payments you make to them before delivery of your new home. They must secure your payments with either an insurance policy (póliza de seguro) or a bank guarantee (aval bancario) to protect your money until your new home is delivered.
Bank guarantees for off-plan deposits and stage payments under construction were a big drama in the boom and bust years but these days the risk of losing your deposit and stage payments when buying Spanish property off-plan or under construction is much smaller, almost negligible. Even so, you must always make sure that any payments you make on account to a developer or builder for a new home to be delivered in the future must be guaranteed, with interest. Also, you might want to check that your developer is not using your deposit and stage payments as financing for anything other than building your development. In theory, your deposit and stage payments are mean to be isolated in a special account used only for the building work related to your new home, not for financing the company’s expansion on Latin America!
Review down payment contract
Before you sign the contract (or make any payments) you must have your lawyer check the contract to ensure that it is balances your interests and the developers. Many of the standard contracts drawn up by developers are weighted heavily in favour of the developer, and leave the client in a weak position if things go wrong. Some developers offer a vague standard contract, and lack of detail always favours the developer.
Any contract you sign should include the following:
- Detailed description identifying the developer
- Detailed description identifying the buyer
- Description of the project and the land, stating the developer’s title to the land and any debts inscribed with it. The constructor and technical architect should be identified.
- Detailed description of the property you are buying, including plans and specifications.
- The price agreed, specifying the VAT.
- A detailed stage payment calendar giving specific dates or milestones, and the bank account details of the account to which payments should be made. In the case of building progress milestones there should also be detail on how these milestones will be certified (i.e. with an architect’s signature).
- A specific date by which the property will be finished, an extension period (if any), and the financial penalty the developer has to pay for every day of delay beyond this period. The contract should also clearly state that the buyer can withdraw from the contract, receiving a full refund plus interests, if the developer fails to meet the deadlines specified in the contract.
- A clause stating the percentage of the payments you will lose if you fail to complete. You should try and limit this to 40% or less.
- Details of the insurance or bank guarantee arranged to protect stage payments, naming the financial institution providing the guarantee and the policy number.
- A clause stating what information will be provided in the specifications manual (libro del edificio) that must be given to the buyer when the property is completed.
- A clause listing the addendum to the contract.
- A clause stating that the developer will meet all the transaction costs that typically correspond to the developer (for instance, the notary costs of declaring a newly built property known as the escritura de obra nueva y división horizontal, and theplusvalía).
- A clause stating exactly how the costs related to setting up the utilities will be apportioned.
- A clause stating the correspondence address and contact details of both parties, to which all communication must be directed during the life of the contract.
Sign a private sale contract with developer
Once your lawyer has carried out an appropriate due diligence and helped you negotiate a strong contract you can proceed to sign and make the first payment, often between 10% and 25% (plus VAT) of the price. This is the point of no return beyond which you cannot back out without heavy financial penalties, probably involving the loss of some or all of your payments (depending upon what has been agreed in the contract).
You do not need to be physically present in Spain to sign this contract. A contract signed by the developer can be faxed to your for counter signing and returning by fax. However signed originals also need to be exchanged by post. Both you and the developer should end up with original copies signed by both parties.
Stage payments and construction
Once you have signed the private sale contract with the developer and made the first payment there is not much for you to do until completion approaches. During this period, which could be anything up to 2 years, construction of your property will (hopefully) be underway and you may be required to make a series of stage payments as agreed in the contract. If you are required to make any further payments ensure that you receive an official receipt from the developer detailing these payments.
Developers are on the whole very bad at keeping buyers informed of construction progress. You should push the developer to send you regular progress reports and give you plenty of warning if there are any changes to the expected date of delivery.
Final legal checks and signing deeds
Once the property has been completed you can take possession by signing the public deeds before a Notary. Before doing this your lawyer will need to carry out a series of final checks:
- Confirm that the property has been certified as finished by a registered architect (Certificado de final de obras). Never make final payments or sign deeds without this.
- Confirm that the property has been, or will be given, a First Occupation Licence by the local government (Licencia de primera ocupación). Once the property has been built an official from the planning department of the municipal authority will inspect the property to ensure that it complies with regulations for newly built residential properties. If it conforms to regulations it will be granted the appropriate licence. Without this, you cannot get a mortgage or have the utilities connected. Promoters have been known to sell properties without having made arrangements for this licence, which only stores up problems for buyers. Never make final payments or sign deeds without proof that the licence has been applied for or granted.
- Request a land registry filing for your specific property to check that there are no unexpected debts or embargoes on it. At some point during construction the promoter should have signed deeds before a Notary (escritura de obra nueva y división horizontal) that register the division of the original land into all the individual properties resulting from the construction, and the common areas. This means that the property you are buying is now inscribed in the land registry and you can check its status. You should not sign any deeds before your lawyer has checked the land registry filing (nota simple).
- Confirm with the town hall that the property has no outstanding debts (such as unpaid taxes), or other outstanding issues that might cause you problems.
- Check that the necessary insurance has been arranged by the developer or constructor to cover build defects, as required by the building regulations law (ley de ordenación de la edificación). Developers are obliged to insure minor defects for 1 year, more substantial defects related to fixtures and fittings for 3 years, and structural defects for 10 years. This insurance should form part of the property manual (libro del edificio) that the developer gives you.
- If possible, have a professional such as a chartered surveyor check the property before you complete. This helps to identify any problems that would be sufficient cause to delay completion.
Once all the appropriate checks have been carried out with positive results, and your lawyer has reviewed the draft deeds, you can go to completion and sign the deeds before Notary. The process of signing the deeds will be the same as described above for buying resale property from a private individual. However when buying from a developer there should be no need to have to pay any part in cash under the table (never deal with a developer who asks for this).
After signing the deeds
After signing the deeds for a newly built property from a developer you need to pay the appropriate taxes, inscribe your title in the property register, update the cadastre, set up utility contracts, and help set up the community of owners. You also need to carry out a snagging check on your new property, something that is normally not the case when buying a resale property.
Paying the taxes
When you buy a newly built property from a developer you pay VAT (IVA) instead of transfer tax (ITP), and you also pay stamp duty (IAJD) that varies by autonomous region. When buying in the Canaries you pay a special tax called the General Indirect Tax (Impuesto General Indirecto Canario – IGIC) instead of VAT. After the sale you only have to make arrangements to pay the stamp duty as VAT (or IGIC in the Canaries) is included in the price that you pay when signing the deeds. The developer then has to pass the VAT to the tax authorities.
Inscribing your title in the land register
Once you have paid the stamp duty you can inscribe your title in the property register. This should be done as quickly as possible.
Informing the cadastre
Though the developer is obliged to inform the cadastre of the existence of a new property, you will need to inform the cadastre of your purchase and payment details for IBI. The procedure for doing this is the same as was described above for resale properties.
Setting up utility contracts
As the property is new and has never been occupied before you have to set up utility contracts, rather than take over the existing contracts of the previous owner. The procedure for setting up new utility contracts was described above in the section on buying resales.
Community of owners
If the community of owners has not yet been established you should participate in setting it up. This means defining the community rules, the budget, and selecting a president, secretary and administrator. If you do not participate then you will have little say in decisions that affect you. You should find out from the developer what the status of the community of owners is. If a community of owners has already been set up then you should get the contract details of the secretary, administrator or president from the developer so that you can make arrangements to pay your share of the community fees and participate in the community management in future.
Snagging is the process of ironing out the little faults that inevitably arise in a newly built property as it settles down onto its foundations. Cupboards, doors and windows that don’t shut perfectly, switches that don’t work, taps that don’t close fully, cracks in plastering – the list is endless and will vary from case to case. Snagging also needs to identify any faults such as failure to comply with plans and specifications. You need to identify these problems within days of taking possession, document them carefully and then have the developer put them right.
Snagging is normal and expected, though the better the build quality (materials plus workmanship) the less snagging that needs to be done.
It is very important to pay great attention to snagging when you take possession of a property that you originally bought off plan. The more thorough your snagging, the greater your ability to ensure that faults are put right by the developer, quickly and at no cost to you.
Don’t leave snagging to the estate agent you bought from, don’t leave it to the developer, and most of all don’t leave it out altogether. Snagging can be a problem for overseas buyers who don’t have the time and wherewithal to do it themselves. The best solution by far is to hire a professional, such as a chartered surveyor, to manage the snagging process for you. The benefits far outweigh the costs.
Taxes and other administrative costs when buying a new home from a developer
When you buy a residential property off plan from a developer you pay exactly the same taxes as you would were you to buy a finished property from a developer.
You will pay VAT of 10% on top of the purchase price (it was 4% if you completed before 01/01/2013). Any stage payments you make will include VAT.
When you sign the public deeds before a Notary you will also have to pay 1% of the property price (excluding VAT) in stamp duty.
Finally, as is the case when you buy any property in Spain, you will have to pay the notary fee and the land registry fee. These vary according to the price of the property and the number of clauses in the deeds. Combined they shouldn’t amount to more than 1% of the price of the property.
Building guarantees & warranties for new homes in Spain
When you buy a newly built property in Spain, you have certain consumer rights to building and construction guarantees, similar to the NHBC Buildmark warranty in the UK.
These rights come from protection laws (Responsibility for construction faults: Article 1.591 of the Civil Code and statute 38/1.999 of November 5.) that apply when buying newly built property from a developer.
The law specifies different timeframes in which a developer is obliged to intervene at no cost to the buyer to correct faults or indemnify the buyer for any damages caused. The type of construction fault determines the timeframe.
10-Year construction warranty
Known is Spanish as the Seguro Decenal, this building guarantee covers serious structural faults that affect construction elements such as the foundations or retaining walls for the first 10 years after building completion. Consumer protection laws entitle you to this guarantee at no extra cost to you (the developer pays for it).
This guarantee is basically an insurance policy with an insurance company, not your developer or builder. If you have serious structural problems within 10 years of construction you will have to contact the insurance company, who will send an inspector. If they agree that you have structural problems covered by your guarantee they will cover the costs of correcting the problem. If they don’t agree, you will have to take them to court or pay for the work yourself.
When you buy a new home from a developer, this is one of the key documents you want to receive when you complete, and obviously don’t complete without it. When you buy a resale property built within the last 10 years you will need to get this document from the vendor.
3-Year defects warranty
Less serious structural faults that nevertheless render the property or parts of the property uninhabitable, for instance leaking roofs.
By law, the companies and professionals involved in building the property are obliged to correct these kind of faults. ‘Honourable’ and highly professional companies will meet their obligations, but such companies are in short supply. In reality, many owners find it difficult to get promoters and builders to take responsibility. You may have to use a lawyer to force compliance, which involves paying for a survey, getting the results notarised, then having a writ issued against anyone you can claim against, such as the promoter, builder, or architect. This will cost several thousand Euros, perhaps much more, and could take more than a year. It may be cheaper, and will certainly be quicker, if you take it on the chin and pay for the work yourself.
1-Year snagging warranty
Minor problems with the fixtures and finishings such as cracks in plaster or badly fitted windows.
By law, your developer is obliged to correct these kind of faults. ‘Honourable’ and highly professional developers will meet their obligations, but as I have already said, such companies are in short supply. The best thing to do is never complete until you are satisfied that snagging has been done, but that is easier said than done. It all depends upon the quality and professionalism of your developer.
Buyers of resale properties from private individuals are almost entirely responsible for checking the physical status of the property before they buy.