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PROPERTY NEWS |
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NO PROGRESS ON ILLEGAL HOMES IN CATRAL
The
municipality of Catral, in the Vega Baja region of the
Valencian Community (South Costa Blanca) is infamous for its
problem with illegally built homes, 1,300 of which were
built and sold to Brits and other foreign buyers between
2000 and 2007. The problem was so bad that 2 years ago
Valencia’s regional government suspended Catral’s urban plan
as a first step towards sorting out the town’s urban
planning chaos. But now, almost 2 years later, the Spanish
press reports that no further progress has been made and
owners of illegally built homes remain trapped in legal
limbo. The town hall can at least point to some evidence of
an effort to address the problem. Over the past couple of
years it has drafted 4 urban plans, 3 of which were rejected,
and the latest of which will be considered by the Valencian
government. The Valencian government has done nothing other
than issue 217 charges for urban planning infractions.
Catral’s Mayor is confident that the latest plan will be
approved, but has no idea what it will cost.
CORRUPTION ON THE INCREASE IN SPAIN
Corruption in Spain is on the increase, and the real estate
sector is largely to blame, says the latest report from
Transparency International (TI), the Berlin-based NGO that
tracks corruption levels in 178 countries. TI’s 2008 report
excoriates Spain for numerous corruption scandals and
property abuses that have undermined the public’s faith in
state institutions and lead to the widespread belief that
all politicians and business people are crooks.
TROUBLE BREWING IN CANTORIA, ALMERIA
Dozens
of Brits are living under the threat of having their homes
demolished in the El Fas development of Cantoria, in
Andalucia’s Almeria province. Illegally built properties,
demolition threats, and dozens, perhaps hundreds of hapless
property owners - many of them British - are living under
the threat of losing everything they have. It’s a familiar
story, this time unfolding in the El Fas district. The
problem goes back to at least 2005, when the Guardia Civil
started an investigation into illegal building in the area.
Various builders, including two Dutch residents, are accused
of building and selling homes without licences, whilst
assuring buyers that everything was above board. Dozens of
Brits are now waking up to the fact that their properties
have been illegally built on non-urban land, without
building licences, and with no licence of first occupation.
For many, the wake up call was notification from a
magistrate that owners can now sue their builders for fraud,
having been sold illegal homes under false pretences.
Unless the properties are legalised in a planning amnesty
they are at risk of being demolished.
EUROPEAN CENTRAL BANK RAISED EUROZONE INTEREST RATES TO
4.25%
The
European Central Bank (ECB) raised Eurozone base rates at
the beginning of July from 4% to 4.25%, the first rise in a
year. With Eurozone inflation rising in recent months, the
president of the ECB had made it fairly clear that the bank
was going to raise interest rates in July. Some analysts
were expecting more that a 25 point rise and were surprised
when the president implied that no further rises are in the
pipeline.
WHAT LIES AHEAD FOR THE SPANISH ECONOMY?
In its
twice yearly economic report, published on 4 June, the
Organisation for Economic Cooperation and Development (OECD)
cut its forecast for Spanish economic growth from 2.5% to
1.6% for this year and from 2.4% to 1.1% for 2009, blaming
the domestic property crisis. |
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LEASEHOLD OR FREEHOLD BUSINESS IN SPAIN? |
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I was
recently surfing the web having a nosey at businesses for
sale in the north west Murcia region when I came across a
website -
www.rta-europe.com
that had a few businesses available in this area such as bar/restaurants,
card/gift shops and a bed and breakfast. Some were
freehold and others were leasehold. Although I am aware of
the meaning in the UK, I wondered if the same applied here
in Spain. Here is what I found....
LEASEHOLD
In
Spain, a leasehold is called a ‘Traspaso’. The leasehold
sum is the amount of money paid to the existing tenant (business
owner) to take over the business. The new owner will then
take on the right to re-sell the business whenever he or she
desires. In a leasehold operation, the owner of the
premises is entitled to a percentage of the traspaso-leasehold
paid, this can be from 10% to as high as 25% - different on
a case by case basis. For leasehold commercials, lease
terms are negotiable but usually in 5 year ‘blocks’ up to 20
years. They are renewable by law but the rent will almost
certainly rise. An ‘endless’ lease term is also possible.
You are almost always able to sell a lease at any time but
may have to pay a fee to the freeholder for this.
Advantages
Leasehold property is usually much cheaper to buy
2
months deposit and a traspaso payment can get you a business
(some owners require an
aval
- bank guarantee
For the
price of 1 freehold you could buy several leasehold
businesses
Including a purchasing option in the rent agreement could
allow you to secure owning the property in the future
Disadvantages
You can
only change the use of the building or make alterations,
perhaps even decorate, with the prior approval of the
leaseholder so operating in a leasehold property can be far
more restrictive
Leasehold property is actually written off in the balance
sheet over the life of the lease and so shows on the balance
sheet as a ‘depreciating asset’
You do
not own the ‘bricks and mortar’
FREEHOLD
Buying
freehold means you acquire ownership of the land and
building forever and are able to do with it as you wish (subject
to the law obviously). For example, if you buy a freehold
business and after some time decide you no longer wish to
work there, you can then rent the premises by selling the
business (and charging a leasehold-trespaso for the licence,
machinery (if there is any) and business). You can also
rent the premises to a manager (keeping ownership of the
licence and machinery). You can perform a sale and
leaseback, whereby you sell your premises but make an
arrangement to rent it back for a good return for a number
of years. Another option is to sell both the premises and
the business to a new business owner
Advantages
Property normally appreciates in value over time and so
would show on your balance sheet as an increasing fixed
asset
When
you sell, you may make a considerable capital gain
Disadvantages
Freehold property is usually more expensive than leasehold
to buy
If you
have ample funds to buy a freehold business, you would be
better off investing all those funds into a better leasehold
business than to tie a substantial part of your capital in
the freehold of the property |
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SPANISH PROPERTY NEWS
July 2008 |
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PLANNING APPROVALS FALL 60%
The
news from the Spanish housing sector gets worse. The
National Institute of Statistics revealed in May that the
property market shrank by nearly 40% in March and now the
Ministry of Development says that planning approvals fell by
60% in the first quarter of 2008. Due to the long lead
times in the construction industry, in which houses can take
2 years or more to go from planning approval to completion,
a dramatic fall on this scale does not bode well for the
construction sector’s prospects over the next couple of
years.
MEDITERRANEAN COASTLINE EXPOSED TO RISING SEA LEVELS
The
Spanish Mediterranean coastline is “highly exposed” to
climate change and rising sea levels, experts have warned in
a conference on climate change held in May in Gijon,
Cantabria. The La Manga strip of the Mar Menor, the Ebro
River Delta and the beaches of Murcia and Alicante were
identified as the most vulnerable areas at risk from sea
levels that are forecast to rise by 12cm over the next 40
years.
FRONTLINE PROPERTY IN MALLORCA FOR 125 MILLION EUROS
‘Sa
Fortalesa’ in Mallorca is being billed as the most expensive
property in Spain. The guide price is
€125
million. Set on its own private headland in the Bay of
Pollença, just off the Formentor peninsula in the North East
corner of Mallorca, Sa Fortalesa has 9 hectares (22 acres)
of land, a castle dating back to 1622, 6 guest houses, 17
bedrooms, 2 pools and, of course, a helipad. The timing for
the sale isn’t great just as Spain’s housing market goes
into a tailspin, but with a target market of international
billionaires it probably doesn’t matter much!! Sa Fortalesa,
which means ‘The Fortress’, was originally built to guard
the Bay of Pollença from pirates. In 1919 it was bought by
the Argentinean painter Roberto Ramauge for 45,000 pesetas
(270 euros) who did it up and turned it into a jet-set party
pad. During the Spanish Civil War it was requisitioned by
the Spanish government, but was returned to the family after
the war. In 1989 it was bought by the present English owner,
who reformed the castle and houses, installed the pools and
built the helipad.
EURIBOR HITS 5%
The
shock waves from the credit crunch have driven the Euribor
up to 5% for the first time since November 2000. If Euribor
closes the month of May on an average of 5%, this will drive
up monthly payments on a typical 170,000 mortgage by 60
euros or 720 euros a year. Euribor will not start to fall
until the European Central Bank lowers base rates and/or
confidence returns to the financial markets.
VALENECIAN ‘LAND GRAB’ LAWS TO BE REVIEWED
After a
lot of criticism and pressure from the European Parliament,
the government of the Valencian Region has announced its
intention to overhaul urban planning laws, including the
infamous ‘land grab’ laws that allow developers to
expropriate land from private owners.
JUDGE FEARS ‘MASSIVE LOSSES’ FOR BUYERS AT TRAMPOLIN HILLS
IN CAMPOS DEL RIO, MURCIA
Buyers
at the Trampolin Hills residential golf development in
Campos del Rio could suffer massive losses as a result of
planning irregularities at the resort, a judge has warned.
In a statement on 12 May, reported in La Verdad, Judge José
Miñarro Garcia said properties at Trampolin Hills ‘appear to
have been sold without appropriate administrative licences’.
The developer admits that most of the resorts’ 2,575
properties have already been sold. The judge condemned the
municipal government for turning a blind eye whilst hundreds
of properties were sold without all the appropriate planning
permissions. He also stressed, however, that the town hall
would have to compensate buyers for losses resulting from a
purchase of illegal property at the resort. Trampolin Hills
has been marketed heavily to British buyers, offering estate
agents commissions of nearly 20%. |
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SPANISH PROPERTY NEWS
June 2008 |
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SPANISH LAND PRICES START TO FALL
The
price of urban land in Spain fell by a national average of
2.7% to 277 euros/m2 in the last quarter of 2007 compared to
the previous year, according to figures from the ministry of
housing. Regional variations in falls were substantial,
from as little as 1% in some provinces, to 41% in Leon and
33% in Alicante
PROPERTY CRISIS LEADS TO SOCIAL HOUSING IN LUXURY NEW
DEVELOPMENTS
The
downturn in the Spanish property market is forcing
developers to adopt creative solutions to off load their
stock of unsold properties. In some cases, this means
offering subsidised social housing on luxury golf
developments.
PLANS FOR SPANISH LAS VEGAS STILL ON??
As was
reported recently, there were plans to build a Las Vegas
style pleasure city in the Los Monegros desert region of
Aragon, in the north east of Spain. With an expected
investment of about 17 billion euros in total, Gran Scala,
as it was called, should have had the first stone laid in
September of this year. The problem, however, appears to be
that ambitious plans go nowhere without serious money and
backers. It now looks as if the government of Aragon might
have fallen for a bluff. According to recent reports in the
Spanish press, the international consortium promoting the
project was only incorporated in Cardiff last July with
capital of just 50,000 pounds. The company due to create
and run two of the theme parks in the resort was only set up
in Reno in September with capital of just 950 euros. Locals
have been asking themselves how the British-based consortium,
called International Leisure Development (ILD), will ever
find the 17 billion euros needed to turn the Los Monegros
desert into the world’s second biggest casino and leisure
complex. It has also emerged that representatives of ILD in
Spain have been using the government of Aragon’s logo in
documentation seeking to raise 4.8 million euros to develop
a new fuel efficient motor with no connection to the Gran
Scala project.
EURIBOR ROSE TO 4.82% IN APRIL
Euribor
rose again in April to 4.82%, up from 4.59% in March, and is
now at its highest level since December 2000. Repayments on
a typical 150,000 euros mortgage with a 25 year term will
rise by about 50 euros a month, which adds up to 600 euros a
year.
SPANISH WEALTH TAX ELIMINATED
The
Spanish wealth tax, known in Spain as ‘patromonio’ (impuesto
sobre el Patromonio) has been abolished by Spain’s socialist
government, fulfilling an electoral promise made 4 years ago
before the Socialists (PSOE) took over. The wealth tax has
been abolished as of 01/01/2008, so the change does not
affect tax declarations for the tax year 2007 (for which tax
returns are currently being submitted - deadline end of June).
SPANISH PROPERTY NEWS ROUNDUP
Spanish
property prices will fall by 20% over the next 4 years
argues a new study sponsored by the BBVA foundation
The
high price of Spanish property means there will be a million
unsold properties on the market in Spain by the end of 2008
says a new report from the property sector association
ASPRIMA
Spain’s
housing market downturn has led to a surge in companies
going into administration that has overwhelmed the courts.
In the Valencian Region, the number of companies seeking
protection from creditors rose by 40% last year. |
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SPANISH PROPERTY NEWS
May2008 |
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PROPERTY CRASH LANDING
There
has been fresh evidence that the Spanish property market has
lost all power in its engines. The national statistics
institute revealed that residential property sales collapsed
by an average of 27% in January compared to the previous
year, with sales plummeting by more than 40% in key regions.
EXCHANGE RATE SENDS BRITISH BUYERS PACKING
The
second largest group of property buyers after the Spanish
are the British and over the last couple of years, Brits
have been put off Spain by stories of corruption scandals,
demolition threats, land grabs and unease about the market
and prices. Now the exchange rate is doing its bit to turn
British buyers away. The pound has fallen 7% against the
Euro since the start of the year, adding about 11,000 pounds
to a typical 200,000 Euro purchase.
FALLING PROPERTY PRICES
Spanish
property prices are still rising at around 4.8% according to
Spanish government figures. However, they are notoriously
unreliable. Talk to anyone in the business and the word is
that prices are falling, by as much as 20% or more in some
areas. In a report just released by the IMF, Spanish
property prices are overvalued and will have to fall by
15-20% in real terms to return to fair value.
TOWN HALL CORRUPTION CASE IN TORRE PACHECO
The
biggest news is the arrest of Daniel Garcia Madrid, the
mayor of Torre Pacheco in Murcia, and former lawyer of
Fecundo Armero - one of the founders of Polaris World.
Fecundo Armero, who sold his stake in Polaris World to a
group of investors including Credit Suisse for 300 million
Euro is also being investigated, and, inevitably, so is
Polaris World.
SPANISH BANKING EXPOSURE TO PROPERTY IS “FRIGHTENING”
The
head of Caja Madrid - one of Spain’s biggest savings banks -
has said that the real estate exposure of some Spanish
financial institutions is “frightening”. The Daily
Telegraph reported that foreign banks have been dumping
Spanish mortgaged debt at a 40% discount. Even so, Spanish
banks are managing to issue bonds, but it is costing them
around 10 times more than a year ago and this is having a
negative impact on the property market, as a lack of
liquidity forces banks to cut back on mortgage lending.
Reduced mortgage lending puts downward pressure on property
prices, which puts bank balance sheets under strain, forcing
them to cut back on lending, and so on. It is a vicious
circle.
VALENCIA LAND GRAB
The
petitions committee of the European parliament has once
again censured The Valencia Region for its ‘land grab’ law.
British MEPs Michael Cashman and Neil Parish asked for the
Spanish government to impose a moratorium on new building
projects until the land grab problem has been resolved.
Swedish MEP Ulla-Britta Perret said “I am surprised that the
Spanish haven’t come up with a better way to get rich than
robbing land from owners”. Condemnation of the law was
almost universal with only some right-wing Spanish MEPs
supporting it. The government of Valencia’s response was as
follows - “What we need is more building projects and also
more golf courses to generate tourism”. Yeah, right.......It
might help if all the new builds that have gone up in the
past couple of years could sell first. |
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SPANISH PROPERTY NEWS
April 2008 |
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SPECULATIVE DEMAND FOR SPANISH PROPERTY EVAPORATES
El Pais,
the Spanish newspaper, reports that speculative demand for
Spanish property has evaporated, creating more woes for
Spanish developers hoping to sell off-plan. Sales have fallen
around 30-40% towards the end of 2007 for some of Spain’s
biggest developers. Aguirre Newman, a Spanish real estate
consultancy, says that speculative off-plan investors were
responsible for about 40% of demand for new property during
the boom. Now, these investors have largely disappeared from
the market and the ones that are left are demanding big
discounts from developers. Developers have also had to
contend with their former investor clients undercutting their
prices.
SPANISH PROPERTY MARKET DOWNTURN CONTINUES
According
to the ministry of development, planning approvals fell 25% in
2007 to 651,427. The fall accelerated towards the end of the
year, falling by 40.5% in December alone. Housing appraisals,
typically carried out for mortgage valuations, also fell in
2007, providing further evidence of falling activity in the
Spanish housing sector.
SAVINGS BANKS WARN PROPERTY DOWNTURN WILL BE “MORE TRAUMATIC”
The
Spanish savings banks’ association FUNCAS, warns that the
Spanish property market downturn might turn out to be “more
traumatic than envisaged at the start of 2007”. Any report on
the property market from Spain’s savings banks has a vested
interest in downplaying the severity of the housing market
situation. They are exposed to the property market and cannot
afford to tell it like it is.
HOLIDAY HOME MARKET IN COSTA BRAVA ALSO FALLING
El Pais
printed an article about the holiday home market in Catalonia
and said it is set to collapse this year, following in the
footsteps of the Costa del Sol and Costa Blanca.
UN REPORT ON SPANISH PROPERTY
A UN
report on the Spanish housing market was the subject of
several articles in the Spanish press in February. The report,
written by Miloon Kothari, the UN’s special rapporteur on
housing, identifies housing affordability and rising mortgage
delinquency rates. It also mentions a lack of social housing
and rental accommodation as a serious and growing problem for
Spain. Almost all housing in Spain is privately owned, just
2% of dwellings are classified as public social housing
compared to 10-30% in other countries of the EU.
SPANISH MORTGAGE NEWS
Euribor
fell for the second consecutive month in February to 4.349% (to
be confirmed by the Bank of Spain). However, borrowers on
annually-resetting variable rate mortgages will find their
monthly mortgage payments rise because Euribor is still 6.2%
higher than it was 12 months ago.
HACIENDA DEL ALAMO IN MURCIA CLOSE TO OPENING
The
spectacular new “Spanish Village” development is now close to
opening. It has been hailed as “Spain’s New Number One” and
the sales team are taking deposits on both commercial and
residential properties. The “Spanish Village” is beautifully
designed in a traditional style with a nice mix of plazas,
lanes, walkways, shops, restaurants, bars and homes. The
apartments and townhouses are priced from 210,000 euros. The
resort’s magnificent Clubhouse has taken the golf world by
storm and already won a lot of praise for its beautiful looks
and remarkable setting. |
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SPANISH PROPERTY NEWS
March 2008 |
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PROPERTY DROP TO HIT COAST HARDEST
A report
called “The Pain in Spain” from Citigroup identifies the
Spanish Mediterranean coast as most at risk from a downturn in
the Spanish property market. A property and credit crisis is
already a reality for Spain, but Andalucia, Murcia and
Valencia are expected to bear the brunt of the pain. Many
savings banks are highly exposed to Spain’s real estate sector
through heavy lending to developers, constructors and mortgage
borrowers. Citigroup identifies 7 savings banks as
particularly vulnerable - 6 of them in Anadlucia and the Caja
Murcia in Murcia. The report says that none of Spain’s banks
are as exposed as the savings banks but risks are not entirely
absent. The Bank of Valencia is the most exposed to the real
estate downturn, with 73% of its lending concentrated in the
Valencian Region and Murcia. Of the big national banks, the
Banco Popular has the most exposure to the problem areas of
the Spanish Mediterranean coast, followed by Banesto, BBVA,
Santander and Bankinter.
PROPERTY CRISIS PUTS JOBS AT RISK
The
Spanish government has admitted that nearly 350,000 jobs could
be lost in a real estate downturn already under way.
According to the director of the Spanish president’s economic
unit, David Taguas, every house built in Spain supports 2.3
jobs. “At the top of the cycle there were 700,000 housing
starts and now demand has fallen to 500,000, so do the sums
yourself”.
ESTATE AGENTS CLOSING
Estate
agent numbers in Spain were decimated in 2007, according to an
article in the Spanish newspaper ‘El Pais’. Half of the
80,000 estate agents in business at the beginning of 2007 were
closed by the end of the year. Nine thousand out of 20,000
estate agents closed in Madrid alone and more than 100,000
people are thought to have lost their jobs as a consequence.
The majority of closures are thought to have been small
operations and opportunists that sprung up to take advantage
of the boom. However, the number of API registered agents has
risen slightly.
SPANISH MORTGAGE NEWS
Euribor
fell in January to 4.498% (to be confirmed by the Bank of
Spain). This is the largest monthly fall in 4 years. They
are falling on expectations that the European Central Bank
will lower base rates from the current level of 4%, with more
reductions expected. Euribor has started to fall but there is
no immediate relief for mortgage borrowers. Euribor is still
10.7% higher than it was a year ago. A falling Euribor will
not help people hoping to take out a mortgage now. Spanish
lenders have tightened up lending criteria dramatically and
increased their fees, making it a lot harder and more
expensive to get a mortgage that before.
EARN FROM OWNING PROPERTY
Alanda
Homes are offering buyers at the stunning Alanda Flamingos
development in the Costa del Sol a 2 year rental guarantee at
5%, which means they earn a sum of a minimum of 25,000 euros
over and 18 month period.
HACIENDA DEL ALAMO GOLF RESORT, MURCIA
The new
resort in Murcia beat off competition from around the world to
win the top award at a ceremony in Dublin last November -
International Golf Resort of the Year. |
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SPANISH PROPERTY NEWS
February 2008 |
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THE SPANISH HOUSING OVERHANG
A new
report from the Spanish savings bank Caixa Catalunya estimates
that there are between 350,000 and 500,000 surplus properties
on the market for which there is no demand at present prices.
One bit of good news is that planning approvals are starting
to fall in response to the market downturn. According to the
Ministry of Development, planning approvals in the first 9
months of 2007 fell to 526,977, down 22.3% compared to the
same 9 month period for 2006. However, fewer housing starts
means rising unemployment and lower demand for property, so
maybe this isn’t such good news after all.
SHARE PRICE OF SPANISH DEVELOPERS
The share
price of developers quoted on the Madrid stock exchange have
plunged between 15 and 50% since the end of November 2007.
Many of them fell an average of 15% in the first 4 days of
January 2008 alone. In 2006, developer stocks rose between
100 and 490% due to Spain’s real estate boom. One example is
the developer Astroc who rose 487% in 2006. The turning point
came in February 2007, when accounting irregularities came to
light at Astroc. Investors took fright and Astroc shares
nearly halved in value in the space of a few days. This, in
turn, dragged down other housing stocks. Unfortunately, it
has been downhill ever since for the shares of Spanish
developers. Evidence came to light in December 2007 that
Spanish developers like Colonial were drowning in debt. The
Bank of Spain recently estimated that the housing and
construction sector is indebted to the amount of 800% of its
gross value added, compared to 300% in the energy sector.
Banks were happy to lend huge amounts of money to Spanish
developers when money was plentiful but the credit crunch and
re-pricing of risk has shut this down. When the banks turned
off the taps, it turned out that operational cash flow
couldn’t cover debt repayments.
DUBAI-STYLE ARTIFICIAL ISLAND IN VALENCIA?
The
Spanish developer Redis 6 has uncovered plans to build an
artificial island, like in Dubai, off the coast of Valencia.
If plans go ahead (unlikely, apparently), then it will be
called ‘La Luna de Valencia’. The artificial island is
supposed to resemble the surface of the moon. It includes
residential property, luxury hotels, restaurants, schools,
museums, sports centres, hospitals, a golf course and more.
This would be set around canals and a marina. Residential
properties include apartments, semi-detached houses and luxury
detached villas with their own helipads along with some
council housing as is required by law. The ‘Moon of Valencia’
does not have much hope of getting past Spain’s coastal law.
Plus, if it was given the go ahead in defiance of the law,
there would be a huge outcry.
SPANISH MORTGAGE NEWS
Euribor
rose in November 2007 to 4.79% the highest level since
December 2000. Euribor is determined by the Euro-zone base
rate, set by the European Central Bank. According to the
National Institute of Statistics, mortgage approvals fell by
10.39% September 2007 and, according to the Bank of Spain,
mortgage delinquencies are on the rise, both of which are
signals that the Spanish housing market is cooling. There has
been recent speculation that the ECB will lower rates in March,
but with the latest inflation figures showing Euro-zone
inflation running at 3.1% (well above the ECB’s medium-term
goal of just below 2%), the chances of a rate cut in March are
receding. |
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SPANISH PROPERTY NEWS |
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RURAL LAND PRICES BUCK THE MARKET DOWNTURN
Rural
land prices in some parts of Spain continue to appreciate at
the same rate as last year, according to the Spanish newspaper
“ABC”. The article says that experts agree that rural land
near to big cities or in areas with good tourism potential is
still an excellent investment. The price per hectare for
rural land has increased by 30% per year for the last 2 years
but only in areas with the right climate and other conditions
suitable for recreation. Though recreational buyers have been
driving the market for attractive rural land, two other
factors are now adding to the demand for rural property in
Spain - solar energy farms and cereal farms for biodiesel fuel
DEMAND ON HOLD - ANTICIPATED PRICE FALLS
Demand
for property in Spain may be on hold in anticipation of price
falls, according to the head of one of Spain’s largest savings
banks. According to an article in the newspaper “El Mundo”,
Juan Maria Nin, head of La Caixa bank, believes that the
property market is cooling down in an orderly fashion, but
worries that if expectations of price falls take root, this
could prove very damaging to the market.
SPAIN BUILDS 25% OF ALL NEW HOMES IN THE EU
A new
study by the consultancy DBK reveals that Spain is the biggest
home builder in the European Union by a wide margin. Of the
2.7 million new homes completed in the EU last year, 675,000
of them were located in Spain. This means that Spain built
about a quarter of all the new homes in the EU last year.
PROPERTY TRANSACTIONS FALL BY 27% IN SOME REGIONS
Property
transactions in some of Spain’s autonomous regions have fallen
by up to 27% on an inter-annual basis, according to the latest
figures from the Spanish property register. Sales over 12
months to the end of June 2007 were down by 27% in Cantabria,
21% in The Canaries, 20% in Catalonia, 18% in the Valencian
Community and 18% in Galicia. On the other hand sales rose
slightly in Asturias, Murcia, and Navarra and rose by 19% in
La Rioja. On a national basis sales were down by 8.8%.
SPANISH MORTGAGE NEWS
Euribor -
the interest rate most commonly used to calculate mortgage
payments in Spain - dropped last month to 4.607% (to be
confirmed by the Bank of Spain), the second consecutive
monthly fall, though Euribor is still 19% higher than it was a
year ago.
BANK OF SPAIN CONCERNED WITH DEBT LEVELS OF SPANISH DEVELOPERS
The Bank
of Spain has voiced concerns over the high levels of debt in
the housing and construction sector. According to the bank’s
director of research, José Luis Malo de Molina, the housing
and construction sector has the highest level of debt in the
economy. Borrowing in the construction sector has reached
800% of the sector’s gross value added, compared to 300% in
the energy sector, and way above debt levels in other sectors
such as transport and telecommunications. The bank’s concerns
have heightened with the recent financial turbulence, which
the bank expects to raise borrowing costs even if interest
rates fall. |
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WHY
THOSE IN THE KNOW ARE LOOKING INLAND TO FIND SPAIN’S REAL HOT
PROPERTIES |
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In
spite of the many newly emerging markets, Spain still
remains the top choice for overseas property buyers. However,
the bustling towns and resorts of the Costas have, over the
past few years, seen sky-high prices and a serious level of
over-building. The result has been a general and overall
decline in popularity for Brits buying abroad. For many,
these once much-loved areas have become both expensive and far
too overcrowded.
Now, more
than ever before, the smart investor and property hunter is
turning away from the dense coastal resorts and looking
instead to inland regions for a different and more traditional
Spain.
One
particularly attractive area is the region of Murcia, which is
one of the least developed in Spain with a stunning coastline
and a beautiful inland landscape. The historic town of
Moratalla
is now home to an impressive new development
‘El Balcon de Moratalla’,
which offers a range of quality properties in a traditional
Spanish setting, yet is offered at prices which are
competitive even when compared with emerging markets such as
Bulgaria. The development is being marketed by
El Balcon Homes (www.elbalconhomes.com)
who are currently offering a limited number of properties at
special pre-release prices with a saving of 30%.
There are
a number of different sized properties on offer and prices
start at just 80,000 euros (£53,000) for a 2 bedroom bungalow
with solarium. All properties offer exceptional value for
money so that the current special deal of just 130,000 euros
(£87,000) for a spacious 3 bedroom detached villa with 2
bathrooms and available with a choice of kitchen and a
generous sized plot of land. Owners will also be able to take
advantage of communal pools and the facilities of the hotel,
spa and sports complex.
With the
price of a luxury villa at
El Balcon de Moratalla
being as low as the cost of a small apartment elsewhere in
Spain, this development is ideal for investors, holiday homes
and for those seeking a permanent home in one of the most
enviable beauty spots of the region. Known as Spain’s Lake
District and just 10kms from Caravaca, one of the seven holy
cities of the world, the area offers a real flavour of
traditional Spain. The region is steeped in history and is
famous for Paella rice known as ‘Calasparra rice’ which
originated here back in 1634.
Although
in the heart of the stunning Spanish countryside, the
El Balcon de Moratalla
development is ideally situated for shopping with Europe’s
largest shopping centre and over 350 major stores just 30
minutes away. The development is also perfectly positioned
for easy access to and from Murcia City, again just 30 minutes
away.
The
El Balcon de Moratalla
development offers outstanding value and yet is not designed
to appeal to the mass crowds of the Costa resorts. It is
perfectly pitched towards the new more discerning clientele
looking to enjoy the very best of Spain. With over 300 days
sunshine a year and some wonderful local fiestas and
celebrations,
Moratalla
will prove hard to beat for its unrivalled location, value and
quality.
For more
details on the
El Balcon de Moratalla
developments and the current special pre-release offers,
contact
El Balcon Homes
or visit
their website at
www.elbalconhomes.com. |
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SPANISH PROPERTY NEWS
November 2007 |
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SPANISH PROPERTY PRICES MAY START TO FALL
According
to Sociedad de Tasación, one of Spain’s largest property
appraisal companies, the prices of properties on the edge of
Spanish cities may start to fall. They say, however, that
they do not expect the prices in the city centres to fall and
could even rise.
OVER
HALF OF ALL NEW PROPERTIES IN THE VALENCIA REGION UNSOLD
According
to figures from the regional government’s Housing Observatory,
more than half of all new properties built in the Valencia
region remain unsold. Developers have only been able to sell
44% of newly built homes, clearly reflecting a slowdown in the
market.
PROPERTY SALES FALL BY 10.1%
Latest
figures from the Spanish property register show that the
number of property sales FELL by 10.1% in the first 6 months
of 2007, compared to the same period in 2006. The Property
Register blames the fall in sales on deteriorating housing
affordability but they expect cooling property prices, an
expected halt in interest rate rises and higher salaries to
improve the affordability of housing.
SPANISH PROPERTY DEVELOPER LLANERA FILES FOR PROTECTION FROM
ITS CREDITORS
Due to
liquidity problems, the Spanish property developer Llanera,
filed for protection from its creditors at the beginning of
October. They are the first major Spanish developer to do
this. Llanera specialised in developing second homes in the
Valencian Region and Murcia and they spent a lot of money on
marketing in the UK, where it sponsors Charlton Athletic FC.
It is not clear what will become of Llanera’s ongoing
developments or how buyers on these developments will be
affected. What is clear is that Llanera are unlikely to be
the last Spanish developer to run into financial difficulties.
So, if you are thinking of buying on a new development in
Spain, check the balance sheets of developers before you buy!
ANDALUCIA ESTATE AGENCIES CONTINUE TO FOLD
Estate
agents continue to fold in a difficult market. According to
the Business Association of Property Management (AEGI), around
30-40% of agencies have closed in recent months. The average
time for a property to be on the market has increased from 4
to 9 months. Figures from the College of Architects show a
dramatic fall in construction activity in many areas of the
Costa del Sol.
SPAIN MORE LIKELY TO BE IN FOR A HOUSING CRASH THAN AMERICA?
Property
prices in Spain have risen by 189% in the past decade compared
to 103% in America. The Economist Magazine say that Spain is
a more likely candidate than America to suffer a housing bust.
However, property prices in the US fell by 3.2% in the last
quarter, but rose by 5.8% overall in Spain.
EURIBOR ROSE AGAIN
The
interest rate most commonly used to calculate mortgage
payments in Spain, the Euribor, rose yet again last month to
4.725%, pushing up the cost of financing a Spanish property
purchase with a mortgage in euros. There have been 24
consecutive monthly increases in the Euribor, and it is at its
highest level in 7 years since December 2000. It is now 27%
higher than a year ago and 125% higher than in June 2004. |
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SPANISH PROPERTY NEWS
October 2007 |
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ESTATE AGENTS FOLD IN TOUGH MARKET
Alicante’s local daily “Informacion”, quoting the regional
real estate agents’ association, reports that a severe market
shakeout will drive many opportunistic and unprofessional
estate agents “established in the shade of the boom” out of
business. The blame is put on the existence of a large number
of agents that operate without any kind of control or
appropriate guarantees in place. The association says that
these estate agents will be the first to fold in Spain’s
property downturn. According to the article, there are
170,000 companies in Spain’s property sector. Around 75% of
these may have to close over the coming years. According to
Eduardo Molet - the president of Spain’s network of real
estate agents (REI) - 30% of agents will close this year and
the rest will have to adapt their marketing to the new
situation. He says “Sales are falling, time-on-the-market is
increasing, and estate agents need to develop a new approach
to keep selling”.
SPANISH MORTAGE NEWS
Euribor -
the interest rate most commonly used to calculate mortgage
payments in Spain - rose again last month to 4.666% (to be
confirmed by the bank of Spain). There have been 23
consecutive monthly increases in Euribor and it is now at its
highest level in 7 years since December 2000. Euribor is 29%
higher than it was a year ago and 122% higher than in June
2004.
ILLEGAL RENTALS TAKE PLACE MAINLY ON THE COAST
According
to officials from the Spanish Ministry of Finance, 66% of
Spanish properties rented out illegally without paying tax are
located in Spain’s coastal provinces. They “do” the Spanish
government out of 1.2 billion euros per year in lost tax
revenues. There is an estimated 977,306 properties that are
rented out illegally in Spain every year by owners who do not
declare rental income to the Spanish tax authorities, 650,000
of these properties are located in coastal provinces. The
areas with the highest number of illegal rentals are Catalonia
(24.5% of the total), followed by Andalucia, the Canaries and
the Valencia region.
DEVELOPERS NEED TO “ADJUST THEIR PRICES”
An
article at the Eroski consumer website reports that the
holiday home market on the Spanish coast is the most
vulnerable to a downturn and that developers may have to
adjust their prices if they want to sell their properties. In
the coming months, “prices for holiday homes on the coast will
stabilise or even fall” says Luis Eugenia Martin from the
property consultancy Roan. Martin has advised investors to
wait 6 to 8 months as the “increase in supply might mean that
developers and owners make a bigger effort to reduce prices,
which investors can take advantage of”. However, first-time
buyers are advised to buy now because “first home prices are
not going to fall substantially under any circumstances”.
FOREIGN INVESTMENT IN SPANISH PROPERTY UP BY 19%
Bank of
Spain figures show that foreign investment in Spanish property
increased by 19.2% in the first 5 months of 2007, compared to
the same period in 2006. How can this be at a time when the
market is clearly turning down? One explanation might be that
many of the off-plan sales made back in 2004 and 2005 are only
now being regarded as an investment as buyers take possession
and complete the purchase before the notary. This is when the
investment is recorded in the national accounts. |
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SPANISH PROPERTY NEWS
September 2007 |
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PLANNING APPROVALS IN MURCIA FELL 84% IN JUNE
According
to an article from elconfidencial.com, planning approvals in
Murcia fell 84% in June. There were apparently 30,000
planning approvals in Murcia in the first half of 2007. This
is 10,000 less than for the same period last year. However,
planning approvals in June fell from 8,334 to 1,415 - a drop
of 84%. Depending on who you speak to, the question is not if
prices will fall, but when. Some people are saying they are
already falling and others say that they expect them to fall
soon.
SELLING PROPERTY IN SPAIN IS A STRUGGLE
Previously, selling property in Spain (for most people) did
not take very long and properties were in demand. Now,
however, selling property is not like it used to be in the
boom, according to a recent article in El Pais. The average
time it takes to sell a property is 6-8 months. This is
causing problems for people who have committed to buying a new
home but need to sell the existing one to finance it. People
are now having to resort to bridging loans which puts their
finances under a greater strain. Estate agents are reminding
vendors to ask a more realistic price for their property to
reflect the current market.
SPANISH TAX MAN IN PROPERTY SALES PRICE CHECK
Spanish
tax authorities are planning a “Price Check” campaign on all
property purchases when their computers are linked to those of
notaries and property registries across the country. Expected
to come into operation later this year, the new live system
will help stamp out Spain’s infamous “Black Money” cash
payments that reduce the recorded selling price and cut the
tax bill for the vendor. The new software will discover if
the declared price of a property is its real value based on
average property prices in different areas. It will also help
in the fight against tax fraud in relation to the purchase and
sale of property. Black money is estimated to amount to 20%
of Spain’s black market economy so 500 extra tax inspectors
are going to check thousands of transactions. Almost a
million properties for rent are not declared to the tax
authorities, which mean that six of every ten such
transactions are kept secret. The Tax Agency puts the figure
of 1,818 million euros on the amount lost to the state by this
form of fraud each year.
UK TO SCRAP “PETTY TAX” ON SPANISH HOMES
The UK’s
“Petty Tax” on overseas property owners is likely to be
scrapped and the changes made retrospective for the last four
years with repayments for tax collected. The tax was claimed
where owners used their holiday homes in Spain and other
sunbelt countries because the UK taxman saw this as “benefit
in kind” and linked it to annual taxable “income”. Now draft
legislation arising from the March Budget statement, says
where the property is owned by a UK tax payer through a local
company, the owner will be exempt from the benefit in kind
taxation. The move has been welcomed by The Chartered
Institute of Taxation (CIOT), whose spokesman, John Whiting,
said: “It is good to see HMRC carrying through their
commitment to remove this unfair tax charge on people buying
properties abroad. There are some aspects to discuss during
consultation but the draft is a good starting point”. |
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FEES & TAXES |
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In Spain when a
property transaction takes place, as in any other country
taxes and fees have to be paid at completion. Failure to do so
means that registration of the Escritura at the Property
Registration cannot take place.
1. Notary's fees
The Notary's fees for
the execution of the Escritura are fixed by a sliding scale
established by law.
In accordance with the article 1.455 of the Spanish Civil Code,
the expenses of writing granting will be of account of the
salesman, and those of the first copy and the other later ones
on sale will be of account of the buyer, except for pact in
opposite.
2. Land Registry's fees
For the registration
of the Escritura at the Land Registry, again a sliding scale
is applicable dependant on the purchase price.
In accordance with Spanish law the Land Registry’s fees must
be paid by the seller.
3. Commissions
The seller will have
an agreement with an agent or agents to pay them a commission
upon completion of a sale to a client that agent has
introduced, the commission the vendor has to pay will always
be reflected in the final negotiated purchase price.
The Commissions on resale properties are generally 5% but can
be up to 10% or even more with some agencies.
The commission for New Developments under construction is
built into the price, which will always be the same whether
you purchase on your own or with the help and assistance of a
good agent.
4. Transfer Tax or VAT
(Impuesto de Transmisiones Patrimoniales o IVA)
If the seller is a
private individual and not a property developer, the sale is
subject to a transfer tax (“Impuesto sobre Transmisiones
Patrimoniales” – ITP) at the rate of 7% (“Comunidad Autonoma
de Murcia” and “Comunidad Valenciana”) levied on the purchase
price as declared in the Escritura (Article 11.1.a) LITP-AJD)
If the seller is a company or developer, the sale is subject
to a VAT (“Impuesto sobre Valor Añadido” - IVA) at the rate of
7% (Article 91.1.7º LIVA) will be levied on the purchase price
plus a stamp tax at the rate of 0,5 or 1% (Article 31.2
LITP-AJD)
5. Plusvalia Tax (Impuesto
sobre el Incremento del Valor de los Terrenos de Naturaleza
Urbana)
This is a municipal
tax on the increase in urban land value; The Plusvalia is
based on the assessed increase in the official value of the
property from the date of the previous sale to the date of the
current sale. The amount payable varies widely since it is
based upon the assessed increase in the land's value and the
lapse of time since the prior transaction. The amount payable
also depends on the location of the property and the
applicable scale.
In accordance with Spanish law the Plusvalia Tax must be paid
by the seller.
6. Capital Gains Tax
Capital Gains Tax
must not be confused with the above-mentioned Plusvalia Tax.
Capital Gains Tax is not based on the official value of the
property like the Plusvalia Tax, but on the real value.
The Capital Gains Tax is based on the increase in the purchase
price and the sales price.
In order to guarantee that non-resident sellers pay this tax,
Spanish law (Article 24.2 LIRNR) now provides that in the case
of a non-resident seller transferring a property located in
Spain, the purchaser is obliged to withhold 5% of the purchase
price on account of the sellers potential tax liability and
deposit this retention in the tax office. Restitution by the
tax authorities of the whole or part of the 5% will take place
after the seller has declared and paid the tax.
Clearly, the Capital Gains Tax falls on the seller. However,
if the buyer fails to retain and deposit the 5% of the
purchase price and the seller does not pay the amount due, the
tax authorities can levy this sum on the property. It is
essential that any buyer always deduct 5% of the purchase
price when buying.
Once all the above obligations have been complied with, you
will be the true owner of your Spanish property |
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DEED OF SALE
(Escritura de compra-venta) |
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1. What is the escritura?
This is the title
document proving who is the owner of the property and
containing a detailed description of the property itself. It
is, under Spanish law, necessary for the Escritura to be
signed before a Spanish Notary Public.
2. Who is the Notary?
The Notary is a
public official who put on the public record the fact that the
title deed recording the sale/purchase has been signed in his
presence and understood by the parties concerned.
3. What does the Notary do?
The function of the
Notary is not to advise or to protect either your interests or
the interests of the person selling the house.
When the Escritura is signed in front of the Notary the
purchase price must be, in his presence, handed over to the
person selling the property or the seller must confirms that
the money has already been handed over. Proof of such payment
must be then incorporated into the title deeds of the property.
4. Do I have to be in Spain to
complete the transaction?
The buyer and the
seller of the property may attend in person in front of the
Notary, but, if this is inconvenient,
CREGO ABOGADOS
can attend on their behalf if one of both provide us with a
Power of Attorney. A Power can be drafted for signature near
your home.
5. What about paying the taxes
due?
Once the purchase
formalities with the Notary have been completed your CREGO
ABOGADOS can arrange, on your behalf, to pay any taxes due in
relation to the transaction.
6. Where must the money be paid?
The price, together
with the taxes and fees payable, is usually paid by the buyer
to the seller in front of the notary. This is the best and
safest way. You can, in fact, agree to pay in whatever way and
wherever you please.
In the case of a
seller who is not tax resident in Spain the buyer is obliged
to retain 5% of the price and pay it to the Spanish Tax
Administration (Agencia Tributaria) on account of the seller's
potential tax liabilities. |
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PRE CONTRACT |
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Investigations before signing a full contract
Buying a property in Spain free of
debts, mortgages and other encumbrances requires thorough
investigation before signing any document. The most important
of these are:
- The community of owners
- Water supply
- Electricity supply
- Rubbish collect charges
- Real Estate Tax
- Land Registry
- Planning situation of the property
- Planning Permission/Construction Licence
- Bank Guarantees
1.
The Community of Owners
The Community of Owners (Comunidad
de Propietarios) is the legal body which administers the
apartment building or urbanisation in which the property is
located. Any owner is obliged to contribute to the communities
expenses for the maintenance of common facilities and services
such as lifts, gardens, swimming pools, security etc. Normally,
the community charges (Cuotas de comunidad) are paid monthly
or quarterly. It is essential before, buying to ensure that
the seller is up-to-date with community payments. If you fail
to do this you will find that the outstanding charges for the
previous year and the current year will according to Spanish
law have to be paid by the new owner. Ask the seller to
provide receipts for this period and check with the community
whether the charges are paid up-to-date. If there are
outstanding charges, ensure the amount is retained on
completion of the purchase.
2.
Water Supply
It is also important that the
seller is up-to-date with water payments. If not you may find
your water supply cut off and you will be obliged to pay the
outstanding debts to be re-connected again. Sometimes the
water is included in the community charges.
3.
Electricity, Telephone and Gas Supply
Basically, the same applies to
electricity, telephone and gas supply as to water. Before you
buy, you should therefore verify whether the seller has
outstanding debts.
4.
Rubbish collect charges
Rubbish collect charges could be a
nasty surprise as bills can have built up and are subject to
additional fines and surcharges.
5.
Real Estate Tax
Real estate tax (Impuesto
Municipal Sobre Bienes Inmuebles I.B.I.) is an annual
municipal tax which is levied on the officially assessed value
of the land and the construction. Although you start paying
from the date of the purchase, it is essential to check
whether the receipts for the proceeding four years have been
paid by the seller up-to-date. If not, you will be responsible
for any outstanding sums.
6.
Property Register
The purpose of the Property
Register (Registro de la Propiedad) is to create an instrument
which protects the interests of the owner and third parties.
The complete history of any property can be found in the
Property Register and any title or right or charge which may
exist against a certain property can be inspected.
We do not recommend to buy from someone who is not registered
as the owner at the Property Register because only the owner
registered at the Property Register can prove that he is the
legal owner of the property and only he can guarantee to
transfer the property to you as the legal owner.
Our suggestion is to ask to the Property Register a
certificate “Certificación Registral” or an extract “Nota
Simple”, that shows all previous transactions and indicates
who is the legal registered owner of a property and whether
the property has any charges as hipotecas (mortgages), censos
(ground rent or leasehold payments), usufructos (interests in
the property), limitaciones (restrictions on use), multas
(fines), cláusulas resolutorias (determinations, i.e.
decisions about the future of the property), or embargos (court
orders for distraint or seizure).
7.
Catastral Certification (Certificación catastral) / Partial
Plan (Plan parcial)
The Catastral Certification is
very useful to know if the description of the property which
is recorded in the Land Registry is exactly the same that the
description recorded in the Town Hall.
Checking the Partial Plan we can
ensure that the urbanizacion where the property is located is
registered
8.
Town Planning (Plan General de Ordenación Urbana)
Check with the Town planning
departament (Departamento de Urbanismo) of the Town Hall about
if any major developments are planned in the property area and
if them could affect the property.
9.
Planning Permission (Permiso de obra) / Building Permit
(Licencia de Obra)
If you are buying a new or recent
property you must make sure that the construction that has
taken place has been authorised and that it was undertaken in
accordance with the plans approved.
If you are buying a property in
the course of construction the Seller must be made to produce
proof of these permits.
10. Certificates of the termination of the building
(Certificado de fin de obra) / Licence of first occupation
(Licencia de primera ocupación)
It is very important to check
these because if the building does not have it, you may run
into problems to registering the property and also the council
could sanction you with a fine or could order the demolition
of the building.
11. Bank Guarantees
By Spanish law (Article 1, Ley
57/1968, de 27 de julio, Reguladora de las percepciones de
cantidades anticipadas en la construcción y venta de
viviendas) any property sold to you in the course of
construction must be accompanied by a bank or insurance
guarantee to protect you against the risk of the seller going
bust or, for some other reason, not being able to complete the
construction and delivery of the property.
We recommend to refuse to buy from
people who do not give the guarantees required by law. |
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