Real Estate

This page is intended as a guide to buying real estate in Tenerife. It has been compiled from the knowledge and experience of a number of professionals involved in the selling, buying and conveyancing of property in Spain, but should not be taken as a substitute for proper legal advice. It is intended only as an explanation of the system, customs and practice which you will come across, should you be interested in buying a home or a business on the island.

• DECIDING THE LOCATION
  There is a vast difference between choosing the perfect spot in which to spend a holiday, and choosing the position of a new home. You can change many things about the house you live in, but rarely can you pick it up and put it down somewhere else. Many residents AI tell you that they initially made a mistake and bought, for example, an apartment in which they had spent several weeks, perhaps at various times of the year, only to find that once they lived here, they found that for some reason it was not their ideal location. You need to decide whether your property is intended for holiday use, for longer term visits such as spending the winter here, or whether you intend to live here year round. Your choice of location will probably be heavily influenced by these decisions and other needs such as schools and medical services.

• CHOOSING YOUR ESTATE AGENT
  There are people all over the island who would like to sell you a property after all, the commission is a useful chunk of money, but beware! This is a serious purchase, and you need all the help you can get. Look for an Agent who is registered, either by having the initials API and a registration number after their name, which shows they are a member of Spain's College of Estate Agents, or the letters GIPE, which shows they are a member of the Association of Property Promoters. In addition you will now find branches of Estate Agents from other European countries, but ALWAYS deal with someone who is well enough established to have their own office. You are buying in a foreign country, and you will need much more than just property details from your Agent. It could be essential to know that they will be around for some time.

• CHOOSING THE PROPERTY
  You need to know a great deal more about your property than you would if you were just spending a couple of weeks there. Try to visit it at all times of the day and night. Watch out for noise - there may be commercial premises nearby which happened to be closed on your first visit. Talk to other people who live nearby. If there is a community association, ask your neighbours if it is well run. Ask about the community fees - don't forget that if you are in a Community you are legally obliged to pay them or you could lose the property.

• BUYING THE PROPERTY
  The first essential before you part with a penny is to make sure that the person selling you the property is entitled to do so. Any agent worth his salt will have carried out a basic search and will be able to show you that this is the case, but if not, it is worth investing a few thousand pesetas just to make sure. Your agent will be able to supply you with a list of suitable Lawyers to act on your behalf - you can always cross cheek these with the British Consulate - or with the organisation specifically set up to help people like Yourselves.  Your lawyer will check out your intended property thoroughly. The process is not dissimilar from the UK and a cheek of legal title will be made through a search in the local Land Registry Office, which will also indicate if there are any mortgages or charges against the property. If you are buying a plot of land, the lawyer will also cheek if you can obtain permission to build on the land and what size and type of property you can build. Zoning controls change on this island, as well as anywhere else, and an old document presented to you pertaining to be 'planning permission', may well have changed in the interim period. Once you have been assured by your lawyer that all is in order, you will need to sign a Contract of Purchase and pay a deposit which is usually 10% of the intended-purchase price. This deposit is normally held by the lawyer, who has been appointed to arrange the signing of the Title Deed. The contract will state the terms and conditions of the sale and will state a specific time for completion of the transaction when you must produce the balance of the price. If for any reason you decide, up to this completion time, that you cannot proceed with the purchase, you will forfeit the deposit paid. If the seller changes his mind, he must return the deposit to you in full, plus a compensation payment for damages. Obviously if a lawyer is holding these funds then there is no problem in the purchasers deposit being refunded.

• Completion
  The next step is then to complete the transaction by making the outstanding balance of payment and signing the title deed, which is known in Spain as the 'Escritura'; this must be done in the Notary's Office. The Notary's task is to ensure that all of the legal documentation is correct. He will also carry out a search in the Land Registry Office on the day of signing, to cheek the current status of the property or land. He will also require the last annual rates receipt from the council in which the property is situated, to ensure that this is up to date as well. The Notary, however, will not be interested in any other debts on the property, and it is essential to ensure that your lawyer has current receipts for all other payments such as water, electricity, community charges, to ensure that these have also been paid. Debts, such as these in Spain, are levied against the property and not the owner. When in the Notary's Office, you will be asked to produce your passport as evidence of identification. You will also be advised to obtain a NIF number, (Numero Identificaci6n Fiscal) which your lawyer can arrange for you.

• PAYING THE PRICE
  If you are not a resident in Spain and are buying property or land, it is advisable to bring your money from abroad to complete the purchase. It is simple to open a non resident account in a local bank, and your estate agent will normally help you with this. You can then transfer your funds from your own bank in the UK to this new account. On the signing of the new Title Deed your cheques for payment will be shown to the Notary and included as part of the documentation of the deed. They must be inscripted with details of the property of land to be purchased, or have an investment certificate from the issuing bank attached. The Notary will also require you to sign a Spanish ministry form, declaring that the investment has been made. It is also possible when purchasing from a non Spanish resident, to pay the completion funds abroad in any currency. In this case, the deed will state an equivalent amount in pesetas as this gives the value in which the transmission tax (stamp duty) is calculated. You may have to produce more than one cheque, as in many cases non resident vendors may be liable for capital gains tax. In this situation a sum of 5% calculated against the value declared in the title deed, will need to be retained and paid to the Spanish Tax Authorities. This will be noted in the deed and the payment to the tax office will then be made by the lawyer acting for you. The cheque for this 5% retention, which is made out to the Tesoro Publico, should also be inseripted with the property details shown to the Notary, as it forms part of your overall investment in Spain. Non resident vendors who have owned a property for a period in excess of ten years before December 1997 will not be liable for capital gains tax, and the 5% retention will not be required at the point of sale. The Estate Agents fees are normally paid by the vendor, so beware of some unscrupulous illegal agents have been known to charge the purchaser as well as the vendor for their fees. You may well also find that the price of your title deed is not exactly the same as the cost of the purchase, as some sellers prefer to treat the furnishings and fittings, if they are included, as a separate item.

• REGISTERING THE PURCHASE
  Signing the escritura in the Notary office does not yet mean that you officially own the property. For the transaction to be complete you must register the deeds in the Registro de la Propiedad (Property Registry). Your Lawyer will probably do this for you. When the deeds are taken to the Registro, the purchase tax of 6% of the value of the property must be paid. Later the Registro will write to whoever presented the documents and ask for a second payment to cover their charges, and in rare cases an additional amount of tax if they consider the property to be undervalued. In addition, you will be responsible for the payment of a tax to the Local Authority, based on the increase of values of land in their area since the property last changed hands, and known as 'Plus Valia'. The calculation of this tax varies from area to area, so it is not possible to tell you what percentage you will pay, but your Lawyer can get an estimate in advance of the purchase, so that you have the funds ready. At the same time, a form should be entered to the local authority, advising them of the change of ownership. If this is not presented they will continue to send the bills for the annual local authority taxes to the previous owner, which can lead to great complications. You should remind whoever is doing your paperwork about this, as it is often forgotten.

• COSTS TO LOOK OUT FOR
  The costs for which you must budget in buying a property are of course more than just the price of the real estate. As always there are other bills which will have to be paid. The Transmission Tax, the Plus Valia, the Notary's bill, the fees from the Registro and the bill from your Lawyer, will probably come to about 10% of the purchase price, and you should bear this in mind when planning your purchase. It is sad but true that your Lawyer will ask for these funds to be placed with him before the work is done, as too many times clients have disappeared leaving these bills unpaid. However, do ask for a detailed estimate of the costs, and you will then be able to compare this with the actual costs as they arise. It cannot be stressed enough, though, that should deal in these matters with a professional person who is well established. Saying money by allowing a 'friend' to carry out this work for you will almost inevitably be an expensive mistake.

• OUTSTANDING BILLS
  When you buy a property you become liable for any outstanding bills for water, electricity, local rates and community fees. Both the Electricity Board (UN-ELCO) and the Water Company (INAL-SA) have forms which you and the seller must sign, to transfer the bills into your name. When you go to do this you should cheek that all payments are up to date. Local rates are payable at the Town Hall each October. You or your representative needs to visit the 'Oficina de Recaudacion' at the Town Hall to give them the form changing the rates into your name, and again, checking that all payments are up to date. As bills are not sent out for the rates, property owners often forget to pay them, and they can soon mount up. Should you be buying a property on an 'Urbanisation' you will find that there is a Community Association, of which you must become a member. Each property owner on the site owns a percentage of the communal areas, and is responsible for making a payment to the Association for their upkeep. You should check before you buy that your Community Association is functioning well, how much the monthly payment is, and whether the payments for your intended property are up to date. If these payments are not made the Association can eventually seize your property, so be careful.

• THE COMMUNITY ASSOCIATION
  Spain has firm laws on how a Community Association shall be run, and the Instituto de Propietarios Extranjeros publishes a very good booklet explaining this law. The Association is democratic, and must have a President, Secretary, Administrator and Treasurer. Information about your Association has to be freely available to you, as do the accounts which have to be published to the members every year. Make sure you get this information, and do exercise your democratic rights. It is well worth while getting hold of a copy of your Association's rules before you commit yourself to the purchase, as they might, for example specify that you cannot keep a dog on the site, when you were planning to bring Bonzo over to keep you company in your retirement. Belonging to a Community Association brings many advantages to the owner who does not intend to live in the property year round, as you can be sure that someone will be keeping an eye on things when you are away.

• THE CANARY ISLANDS A SPECIAL ZONE
  Hopefully in the future the Canary Islands will fall into a low tax zone which will be very advantageous for both developing businesses and investors. A new tax regime (Regimen Economica y Fiscal under Law 19) will create a special economic status allowing the islands to integrate into modern Europe and offer important business opportunities on an international level. However these developments are awaiting further regulatory modifications, and such legislation requires the approval of Brussels. The advantages of these new fiscal rules are already benefiting a number of investors who have initiated Spanish registered companies to control and own their own assets. However, a number of purchasers have established companies, so that they can avoid the payment of the 6% transmission tax (stamp duty) on an individual investment. However, the cost of setting up and administering the company over a period of time may outweigh the advantage of this initial saving. Cheek the situation with your lawyer. The climate and unique beauty of the Canaries attracts over seven million visitors from mainland Europe every year. But while the physical distance between the islands and the European mainland will never be bridged, the Canaries have invested billions of pesetas in improving every aspect of its communications and trade network. There are now eight airports, ten commercial sea ports and seven recreational sea ports, plus a highly developed road system on each of the principal islands. Likewise, these islands are also equipped with the most advanced telecommunication services, excellent residential and recreational zones, as well as first class hotels. The Canaries can also boast some of the latest scientific installations, two universities with important technological potential and diverse facilities that offer theatrical, cultural and musical activities. If you combine these factors with the quality medical care which is available, it is easy to see that the Canaries can offer a very high standard of living. As mentioned before the Archipelago will hopefully enjoy a specific tax regime that favours economic and social development: up to 90% reduction in corporate taxes, a wide range of incentives, subsidies and benefits and special low interest credit. If the legislation is passed, this special Economic Zone will guarantee absolute freedom of capital movement, but what is perhaps of greatest interest to investors and businessmen, is that Company Taxes will be subject to a rate of only 1%.

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