Making Iberian


dreams come true

Spain and Portugal have proved popular with overseas property investors, and with good reason, says Terry Corbitt.

In Spain and Portugal there is a good choice of properties suitable for letting with new builds being the preferred choice for many investors. The companies building these properties usually also retain legal, financial and real estate experts so that the purchase can be more easily made. And since both countries are heavily reliant on the holiday market, Spain and Portugal welcome landlords and do not place restrictions on the letting of holiday homes.

Guaranteed sunshine for much of the year, cheap air fares and the welcoming attitude of the Spanish have made Spain the most popular choice for holiday letting property.

British people are often amazed at how quickly a Spanish property can be bought. Many Spanish people do not use a solicitor (as an overseas purchaser you should certainly employ a solicitor) but rely on the notary public, who is there to ensure that Spanish property laws have been complied with.

Spanish property transactions are more expensive than UK ones. Around 12 per cent of the purchase price should be set aside for legal and other costs and expenses. In addition to the costs incurred when buying a property in the UK (surveyor, solicitor, searches, stamp duty), in Spain you have to add the notary's fees, transfer tax charges at 6 per cent to 7 per cent and on development land, 15 per cent VAT. There is also a tax on the increase since it was last sold in the official value of the land on which the property stands. Estate agents may want as much as 10 per cent to 15 per cent of the purchase price.

Once a property has been bought, landlords become liable for Spanish income tax on rental income and will have to meet local taxes for sewage, roads, and other amenities.

Under Spanish law a purchaser may be asked to pay a preliminary deposit of between 2,000 and 4,000 euro to secure a property. Once the conveyancing process starts, the buyer should receive a copy of the vendor's title deed. The seller must be registered as the owner in the Spanish land registry and it is advisable to have your solicitor visit the local town hall to check out planning permission, unpaid local taxes and any other potential problems.

EU citizens can stay in Spain for up to six months, after this they have to apply for a residency permit which can be obtained from Foreigners' Registration Offices in the larger cities or a local police station. The process is fairly straightforward but if you do not speak Spanish you should make sure a Spanish speaking person accompanies you.

In 1994 the Spanish Government passed a law which gave developers the right to seize land owned by expats if the developers plans to build social housing in deprived areas were approved by the local council. A number of expats have lost their property through compulsory purchases. This emphasises the need to take legal advice before buying property in Spain.

Portugal is the third most popular European country (after Spain and France) for holiday letting property. The southern coastline (Algarve) attracts a variety of European citizens, particularly from the UK, Germany and Scandinavia. And a growing number of British citizens are choosing the Estoril/Cascais area, the coast near Oporto and the west coast close to Obidos lagoon.

Portugal has prepared new planning regulations for development to solve some of the problems created by uncontrolled development over the past 20 years - in recent years many villa and apartment estates have been built in the Algarve, in the Oporto area and in resorts close to Lisbon. Building zones, agricultural and green zones have been specified and some new building is restricted.

The Association of Foreign Property Owners in Portugal was formed on the Algarve in 1987 to help expatriate property owners and residents to understand and comply with Portugese legislation. Services available to members include help and advice on purchasing residential property, guidance on the completion of official Portugese forms, recommendations on trustworthy legal and financial consultants, access to household, motor and health insurance and general advice on dealing with any problems which may arise.

EU nationals may enter Portugal for up to three months, those intending to live in the country for longer or to work there require a residency permit, application being made to the nearest Foreigners' Department of the Portugese Ministry of Internal Affairs. Permits are valid for five years but may need renewing after two. An identity card must always be carried and application forms for this document can be obtained from any British Consulate Office in Portugal. The forms are then submitted to the local parish office. Registration with the nearest British Consulate Office is advised.

When considering buying a property it is advisable to first:

• decide on the area in which you wish to purchase;
• contact a reputable estate agent (one licensed by the Mediador Autorizado), preferably one that has been personally recommended;
• plan a property inspection visit via the agent;
• engage a reputable lawyer and arrange for him or her to have your power of attorney so as to be able to act for you in your absence; and
• leave a 10 per cent deposit with your lawyer so that he or she can exchange contracts once the searches have been completed.

When you have found a property that you wish to purchase your lawyer should check with the local tax department that the existing owner has paid the rates up to date. Sometimes these can be several years in arrears, and as rates are attributed to the property and not to an individual, a new owner could be liable for outstanding debts. The lawyer will make a search at the Land Registry to ensure that the property is correctly described in the records and that it is free of charges and does not have any encumbrances, such as rights of way. The lawyer will then obtain from the Town Hall a Habitation Licence.

Once all of the vital preliminaries have been completed a promissory contract (contrato promessa de e venda) of purchase and sale is prepared. This gives information on the property, the price to be paid, inventory of contents (if any), date of completion, date of possession and any other details to be agreed between both parties. A deposit of 10 per cent or more is paid to the purchaser, which is forfeited if the buyer defaults. Should the seller renege, he or she forfeits twice the amount of the deposit to the buyer.

The document is signed by both parties before a Portugese notary and a transfer tax known as SISA may be payable by the purchaser. The terms of this tax change frequently, currently it is around 10 per cent depending on the value of the property. On new property VAT is payable on the purchase price instead of SISA.

Once recorded at the local land registry, the final deed of conveyance (escritura) that has been signed before the notary gives the purchaser a proper title to the residence. Notary and registration fees generally amount to about 2.5 per cent of the purchase price, while charges made by your solicitor are likely to be between 1 per cent and 2 per cent.

It is essential to obtain permission from the Bank of Portugal to import funds into Portugal to pay the purchase price of the property, known as Boletim de Autorizacao de Capitals Privados (Licence to import personal funds). The application must be accompanied by substantial details about the transaction and the amount to be imported, the purchase price, estate agents' commission, legal fees, surveyor's and architect's charges as well as land registry fees. The permit may take up to one month to be issued, but it is vital, as without this it may not be possible to resell the property at a later date.

As a final reminder use the following checklist:

• do not be rushed into buying a property;
• before signing any documents or paying over substantial sums of money, seek advice on the contract, the specification and the terms of business from qualified legal experts and an accountant (ask for English translations of documents committing you to a purchase);
• if purchasing an apartment obtain written confirmation of maintenance charges and management arrangements;
• ensure that you obtain a proper title to the property;
• make sure you comply with the fiscal rules of the country and that you can repatriate your capital if you sell the property.