Spain Real Estate

Spain real estate

As Western Europe’s second-largest country by area after France and with 7,000 km of coastline, Spain offers a vast and attractive real estate market. The country features 17 autonomous regions and many different locations with their own alluring features.

Property investors may choose from a sunny villa by the Mediterranean Sea to a cosy apartment in the lively central Madrid, to a traditional country house in the green north region, to a hideaway in a Pyrenees ski resort. Despite recent price hikes (with over 1.6% rise in 2020), the average real estate price in Spain is 36% below the peak of the ‘property bubble’ seen in April 2007, with some regions reaching 50%.

Acquisition of property in Spain

After a decade of price declines, property prices have started to recover in Spain since 2017, making now a perfect moment to step into this asset class. Price increases are expected in the coming years, in line with low interest rates in Europe and economic recovery in Spain. The possibility of high rental incomes is also an advantage in Spain, thanks to short-term tourist leases and the increasing tendency of locals towards rental housing. Historically, only 22% of permanent housing has been rental in Spain, compared with 49% in Germany and 36% in France. Governments have introduced incentives to encourage rental housing, and the population increasingly favors this more flexible option.

Are there any restrictions on the acquisition of real estate in Spain by foreign buyers?

No, foreign nationals can acquire property in Spain without any restrictions. Once they are provided with a local tax identification number and have a bank account in Spain, they may also apply for a mortgage-backed loan.

How can immovable property in Spain be acquired?

Properties must always be acquired before a Spanish public notary. The buyer may act in person or through a representative via a power of attorney. An acquisition is also possible through a holding company, but there are extra costs for companies domiciled in tax havens.

Does the applicant need to open a bank account in order to purchase property, and if so, what is the procedure?

An account in a local bank is necessary to settle the agreed price for the property because the seller would require bank cheques as the means of payment to transfer the property ownership. Besides, an account in Spain is useful to facilitate the payment of all property-related expenses and taxes. Opening a bank account in Spain usually takes a few weeks and requires some documentation about the holder for the bank (for example, an income certificate and a certificate of the source of funds). Having an account in a Spanish bank will also help the buyer apply for a mortgage-backed loan. Mortgage-backed loans to foreign borrowers are frequent in Spain and may reach 50% of the property value.

What additional expenses will the real estate transaction incur?

The real estate purchase in Spain implies the following expenses and taxes:

• Regional property transfer tax: The amount depends on the region where the property is located but ranges from 6% to 10% of the property value.
• Legal fee for drafting the purchase deed: Approximately EUR 2,000.
• Notary public fee: Approximately EUR 2,000.
• Property registry fee for registering the buyer as the new owner: Approximately EUR 1,000.

What kind of returns can be expected from property investment in Spain?

Returns vary depending on location, type of property, market conditions, and contractual terms. For housing properties, the average monthly rent in early 2021 was EUR 10.65 m2, with significant differences between regions (for example, EUR 14 per m2 per month in Catalonia versus EUR 6 per m2 in Murcia). The actual annual gross yield lies between 3% and 5%. If the property can be rented to tourists on short-term contracts, the annual yield may easily rise to 7–9%. However, this result is subject to holding a tourist license, which some regions and municipalities have made more difficult to obtain in recent years. Commercial properties have returns around 5–7% per year, reaching 10% in new businesses with high demand, such as self-storage centers, warehouses, and logistics facilities.

How is rental income taxed?

Assuming that the property owner is not a tax resident in Spain, the rental income is taxed with the annual non-resident tax, which has the following rates:

• 19% for residents of the EU, Iceland, and Norway
• 24% for all other residents

Only in the first case (EU residents), the owner will be entitled to deduct property-related expenses. However, if the owner’s country of residence has a double taxation agreement with Spain, the tax paid in Spain may be deducted in the home country. The same rules apply to properties owned through corporate vehicles abroad.

What other immovable property-related taxes and charges are imposed in Spain?

As a result of the 2008 financial crisis, Spain imposed an additional tax on properties of non-resident citizens for their own use (not rented). The measure has remained in place as it is also considered an incentive for bringing properties on the rental market. In this case, the annual non-resident tax with the rates mentioned above will be applied to a fictitious rent equal to 1.1–2% of the property’s cadastre value, depending on the location. If the property is owned through a company in a tax haven, the fictitious rent will amount to 3% of the cadastre value.