INTRODUCTION
What better place to own a home than sunny Tenerife? It
is a wonderful island for both residents and visitors and
its popularity is growing as the ideal destination to which
to retire or for holidays.
Many people dream of owning a property overseas. However,
finding and buying a real estate property in Tenerife is
not as easy as it may appear, especially when you may be
several thousand miles away and the local laws and regulations
are probably quite different to those with which you are
familiar.
Customs and procedures in Tenerife are often different from
those of other countries and there are always a host of
'advisors' ever willing to give ill-informed advice to people
who are perhaps thinking of making one of the biggest decisions
of their lives. These ‘advisors’ can be found in bars or
around the swimming pool and it is amazing how the sun,
wine and holiday atmosphere help to give those people an
aura of credibility and respectability which is not merited
by their knowledge of the subject.
With this in mind we have created the Inmotenerife Guide
to purchasing property in Tenerife: to help you, the prospective
purchaser, make informed decisions, understand a little
more about the procedures and to guide you through the potential
pitfalls of purchasing property abroad.
The information and guidance that this booklet contains
is not intended as a substitute for skilled professional
personal assistance, which should always be sought before
any action is taken with regard to finding and purchasing
a property.
The friendly and professional management team at INMOTENERIFE
has extensive experience in property and business sales
in Tenerife and are always willing to advise and assist
any client, before, during and after a purchase is made.
Owning a property in Tenerife is many things to many people
and whether you would like to be active from breakfast through
to bedtime with a vast range of sights and activities, or
simply want rest and relaxation, Tenerife can surely make
your dreams come true.
If you could custom build paradise to your own specifications
then maybe it would be Tenerife, for it is heaven on earth
- and yours for the taking!
There is one thing you can be sure of - you will want to
come back again...and again.
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THE
ESTATE AGENT
There are only three categories of people who can lawfully
organise the sale of a property in Spain. They are the owners
of the property, someone who has the owner’s power of attorney
to do so, and a LICENSED REAL ESTATE AGENT. Licensed Real
Estate Agents are headed by an official agent who belongs
to the Confederation Europeenne De L'Immobilier (G.I.P.E.)
or the Colegio de Agentes de la Propiedad lnmobiliaria (A.P.l.)
or as well as the ASOCIACION CANARIA DE ASESORES INMOBILIARIOS
which sets certain standards. Any office that does not display
a G.I.P.E./ A.P.I / ADPI number showing registration, is not
official and should be avoided. INMOTENERIFE has 2 A.P.I.
numbers which allow our company to work in the whole territory
of Spain.
The work of a good Estate Agent in Tenerife is generally far
more comprehensive than that of agents in other countries.
Therefore, the importance of the professionalism, the range
of services and the security offered by an Estate Agent cannot
be over-emphasised.
The Estate Agent should be truly independent and be able to
give totally unbiased advice. The Agency should not be tied
to just one or two developments thus having a limited portfolio.
A well-established agent should know all the major developers
and be able to give advice on the standards of construction
of those developers in the past. The agent should also have
a substantial portfolio of all types of resale properties,
businesses, land and investment projects.
INMOTENERIFE is an independent Estate Agent in Tenerife and
offers a fully comprehensive service that cannot be equalled.
We know that somewhere on this idyllic island there is a property
to suit your needs and all that is necessary is the patience
and time to find it. We will not sell you a property, we will
simply help you to find the place you wish to buy. We believe
our main responsibility is to present all the facts honestly
and accurately whilst assisting in your search.
Our services include preparing purchase contracts, obtaining
identification numbers (N.I.E.) and certificates for non-residents,
arranging legal counsel, assisting with mortgage facilities,
arranging bank accounts, giving advice regarding electricity
transfer, insurance, acquisition of furnishings etc., - and
not least - arranging for the transfer and registration of
clear and unencumbered freehold title deeds.
After your purchase has been completed our client services
include property letting, management and maintenance, if required,
and a continuous advisory service.
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INVESTING
IN A PROPERTY
For a number of reasons, owning a property in Tenerife has
a sound commercial basis which augurs well for future stability
and despite the occasional pauses and even the odd setback,
the price of property and land has always proved to be the
ultimate winner as a long term investment.
Tenerife is a duty free island, which means that you can
buy many imported goods at lower prices than in mainland
Spain.
Since Spain became a member of the E.E.C., there have been
many changes and there is now a firm democracy, a stable
government and an expanding economy making it very attractive
to foreign investors.
Spain's surplus of foreign currency continues to grow and
with the foreign income derived from the Tourism sector,
it stands to reason that the peseta will remain one of the
strongest European currencies.
Tenerife has the best all-year-round climate thus creating
a twelve month holiday season. Combine the stability of
the Spanish currency with the stability of the Tenerife
sun and a sub-tropical climate and you have the perfect
combination for investment in overseas property. For this
reason, Tenerife is more attractive to property purchasers
than ever before and that is why the demand of property
purchasers is ever increasing and will continue to do so.
Tourism in Tenerife is increasing year by year, creating
extra demand for rented accommodation. An investigation
made by a Spanish magazine found that costs for a tourist
were lower in the Canary Islands than in any other tourist
area of Spain, and much lower than other tourist destinations
in Europe. Combine this with the year-round climate and
it stands to reason that tourism will continue to grow in
the future.
The increasing demand for property by purchasers and the
increasing demand by tourists for accommodation means that
the potential capital growth and income for the investor
is nothing short of extraordinary, particularly in the sunny
south of the island where 75% of all tourists choose to
stay.
The economy, the climate and the ever increasing demand
of purchasers and tourists will ensure the rates of return
will continue to grow for those people who invest wisely
with the guidance of a reputable Estate Agent like INMOTENERIFE.
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LEGAL
ADVICE
So often when first time buyers discover their ideal holiday
home they are full of excitement and eager to become the
new owner. In their euphoria they throw all caution to the
wind instead of proceeding with care.
It is sometimes difficult to determine how far an estate
agent should go in protecting the buyer against every possible
pitfall that could be encountered in his purchase. A good
agent for example, ensures that a developer owns the land
upon which he is building and that he has permission. The
agents’ knowledge of the developer's reliability, past record
and financial stability can be invaluable if put to good
use. The agent can arrange a search at the land registry
on behalf of the purchaser, make sure that the purchase
agreement is fair and ensure that the purchaser fully understands
it.
All this gives the purchaser some security, but who takes
the ultimate responsibility? All prospective purchasers
should ask themselves if they would purchase a property
in their own country without the assistance of a solicitor.
If the answer is 'no', then why should they purchase in
a foreign country where the language and laws are different,
without taking professional legal advice. Even if the agent
has done a thorough job of checking everything and a solicitor
simply confirms that, what price can you put on peace of
mind?
When a prospective purchaser finds his ideal property, invariably
he needs to pay a holding deposit to secure the property
and the price. No reasonable vendor would disagree to this
deposit being fully refundable should a solicitor find any
legal reason for the sale not to proceed. On a resale property
this holding deposit can be held in the estate agent's client
account for additional security or could be held by the
vendor's or purchasers solicitor by mutual agreement.
When choosing a legal advisor you should use an Abogado
(Spanish Lawyer) who speaks fluent English. INMOTENERIFE
has links with lawyers in Tenerife who are experts in the
field of property purchase and are happy to recommend them
to clients (see last page for contacts).
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THE PURCHASE
CONTRACT
The purchase contract for a resale property contains details
of the vendor and purchaser, the purchase price and method
of payment. It will also confirm that the Escritura de Compraventa
(Title Deed) is in the name of the vendor and that this
will be passed to the purchaser on completion of the sale.
It will also guarantee that the property itself will be
transferred free from all encumbrances and rights of third
parties and will state who is liable for taxes and costs
involved in the transfer. There will also be stipulations
regarding penalties for non-fulfilment of the contract.
The purchase contract for a property still under construction
will contain similar details and normally further information
regarding ownership of land, building permission, completion
dates and the setting up of a community etc.
Often contracts are written in English and sometimes they
are in Spanish with an official English translation. Your
Estate Agent should go through the contract with you and
clearly explain any details of which you are unsure. If
you are not sure of any clauses in the contract or have
any doubts about the fairness of the stipulations then do
not sign it.
You can still pay a holding deposit to secure the property
and let your legal advisor vet the contract before you sign.
As stated previously, no reasonable vendor will refuse to
refund a holding deposit should a solicitor find any legal
reason why you should not proceed. Good estate agents will
only deal with reasonable and reliable vendors.
INMOTENERIFE would normally prepare the exchange contract
for the purchase, so you can be sure that it will be correct
and fair.
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LEGAL PROCEDURES
ON BUYING
All property sales and purchases in Spain must be registered
in a local deed registry and the Title Deed (Escritura de
Compraventa) must be prepared by a public official called
a Notario. This deed is then signed by both the seller and
the buyer in the presence of a Notario.
A Notario is a lawyer who has had special training and passed
further examinations to qualify him for his special duties,
which cover a large range of legal matters. Apart from dealing
with all property transactions, he sees that Spanish wills
are correctly signed, witnessed and registered, authenticates
important documents and certifies due service of legal notices.
He is a very important official.
The Notario is responsible for seeing that the conveyance
deed is drawn up correctly and fully describes the property,
and that the purchase price, or an agreed proportion, has
been paid to the vendor in the appropriate currency. He
witnesses the signing of the deed and collects the fees
and taxes. The deed is then sent to the Land Registry Office
where the name of the new legal owner is registered. It
can take some time before the Title Deed comes back from
the Land Registry Office, and in the meantime an authorised
copy is given to the purchasers.
If you have agreed to buy when on holiday and do not wish
to return for the signing of the deed, you can appoint someone
as your agent to appear before the Notario and sign on your
behalf. This person must be officially appointed by a deed
which in England is called a 'special power of attorney’
or in Spain, an ‘escritura de poder de compraventa'. This
deed can be prepared by the Notario as soon as you have
agreed to buy and normally would be in the name of your
lawyer who is doing the conveyancing for you.
INMOTENERIFE will make sure that all legal procedures are
adhered to and assist your lawyer and the Notario in ensuring
a smooth completion without you having to worry about anything.
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FEES AND TAXES
There are two fees and two or three taxes payable on all
transfers of Spanish properties. The Notario is entitled
to a fee for preparing the Escritura, and there is a further
fee for registering the property in the new owner's name.
They are both calculated on the official value of the property.
There is a transfer tax (Impuesto General Indirecto Canario
- I. G, I. C.), which at present is 5% of the official value
if you are purchasing a new property from a developer, or
6.5% (Impuesto de Transmision), if you are purchasing a resale
property from a private owner.
There is also a tax of 0.75% (Acto Juridico Documentado)
only when purchasing from a developer.
A further tax is that on the increased value of the land,
known as Plus Valia, which is levied at various rates on
the annual increase in value since the previous sale.
Strictly speaking, Plus Valia is a tax against the seller
but in practice the purchaser is asked to pay all fees and
taxes in the transfer of a property. The fees and transfer
tax are demanded soon after the Escritura is signed, but
the Plus Valia is often not payable until some time later
when the seller may not be found. Plus Valia is charged
against the property, which means that if the vendor fails
to pay, the purchaser wiII eventually be liable for this
tax anyway.
There are many factors that enter into the calculation of
these fees and taxes but, as a general rule, if you allow
8% of the purchase price you wilI not be far out.
Another fee to be taken into consideration is that of a
solicitor or lawyer. This will generally depend on how much
time and work is involved in any particular purchase. In
normal circumstances the fee for an average purchase will
probably be about 1.000 to 1.500 €.
After the purchase of your property you will have community
fees to pay to an owners' association, which is explained
further under the heading of Community of Owners.
Other yearly outgoings would be Contribution Urbanas (local
rates) which are fairly insignificant, and Wealth Tax which
is also low, being at present only 0.2% of the value of
assets in Spain.
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IDENTIFICATION NUMBER
(N.I.E)
All people wishing to purchase a property or having any
fiscal representation in Spain must obtain a certified identification
number (N.I.E.) and appoint a qualified fiscal representative
who is resident in Spain to deal with their tax affairs.
Furthermore, a property purchaser who is non-resident in
Spain is required to obtain a Certificate of Non-Residency.
Both the N.I.E. and the Certificate of Non-Residency must
be produced for the Notario when signing the new Deed (Escritura).
Obtaining these two items need not be complicated or time
consuming and cost is negligible. Part of the INMOTENERIFE
service to clients is sorting out all these arrangements
for you.
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TAX RETENTION
Under legislation introduced in 1997 it is necessary for
5% of the declared purchase price of a property to be retained
by the purchaser, or his representative, and for the money
to be paid to the Spanish Inland Revenue within 30 days
of signing for title deeds.
This is payable when the vendor is a non-resident of Spain
in order to ensure that any taxes he may owe to the Spanish
Inland Revenue are paid before he disappears into the sunset.
The responsibility for ensuring that the money is retained
and paid to the Spanish Inland Revenue is placed on the
purchaser and it is then up to the vendor to instruct his
fiscal representative to claim the money back if tax is
not due.
If the vendor is a resident of Spain, then there is no need
to retain the 5% as the vendor would be expected to be making
his own tax returns on a regular basis.
Part of the INMOTENERIFE service to clients includes the
retention and payment of this money to the Spanish Inland
Revenue, together with completion of the relevant forms.
So, although you need to know about it, you need not be
concerned about hassle or expense.
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BANK ENTRY CERTIFICATES
If you are a non-resident of Spain buying from a Spanish
individual or company then you are required to obtain a
Bank Certificate for the importation of foreign currency
equal to the purchase price stated in the ‘escritura de
compraventa’. The stated purchase price must be in pesetas
and the Notario will need to be satisfied by a certificate
issued by a Spanish bank that those pesetas have been purchased
by a foreign currency. Without this the Notario is not allowed
to write a new escritura.
However, if you are a resident in Spain or if you are buying
from a foreigner who already has a Bank Certificate noted
in his escritura of the property you are buying, then it
is not necessary for you to obtain certificates. If you
are purchasing from the owner of the property who is non-resident
in Spain and has a Bank Certificate already written into
the escritura, then you are allowed to pay him outside Spain
in any currency and you will acquire his foreign currency
rights.
INMOTENERIFE will advise and make all arrangements where
necessary, so there is no inconvenience or cost to the purchaser.
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LETTING YOUR
PROPERTY
Some people buy their ideal retirement home and live in
their property whilst others purchase their second home
in the sun and wish to keep it solely for periodic use by
themselves or their friends. However, the majority of buyers
wish to visit their property when it is convenient to them
and for the rest of the time wish to obtain an income through
letting it to tourists. Indeed, this could be essential
if they have taken a mortgage and require help to finance
loan repayments.
Letting your property is not as straightforward as it may
first appear and there are many things to consider. From
a legal point of view the property must first be registered
with the Ministry of Tourism and tax declarations have to
be made to the Hacienda (Inland Revenue). But how do you
find people wishing to rent your property? Who will clean
the property after they leave? Who will do the laundry?
Who will replace a broken plate or fix a leaking tap or
blocked toilet?
To help you with the letting of your apartment you should
first solicit the help of a professionally run letting agency
who will take care of the legal side of things and promote
your property for letting with tour operators and travel
agents.
Secondly, you should solicit the help of a reliable property
management company who will take care of the practical side
of things and ensure that everything runs smoothly.
Rental returns from your property can be very substantial
and it is essential that it is done legally and is professionally
managed. That way you can enjoy the benefits and sleep at
night.
INMOTENERIFE will be pleased to advise you further in this
respect and have details of services that can be provided
with regard to both letting and management of the highest
quality.
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MORTGAGES
Buying a property is, without doubt, one of the most secure
forms of capital investment that you can make as it invariably
increases at a higher rate than inflation. Probably your
greatest asset is the house you live in, and this can provide
the simple means of raising capital to purchase your dream
home abroad.
The effective use of the equity that you have accumulated
in your primary residence by re-investing it in a second
home abroad, makes sound financial sense. Lending periods
are generally longer and rates of interest are normally
cheaper than those offered by Spanish banks.
For those people who do not have enough equity in their
primary residence or do not wish to take out a mortgage
by this method for whatever reason, a mortgage can be obtained
using the property in Tenerife as collateral. As a non-resident
you can normally take a mortgage of up to 50% of the value
of the property with repayments over ten years. Although
in general, interest rates are higher, one beneficial aspect
is that, should you wish to resell your property at a later
date, the new owner can take over the mortgage, which could
be attractive to a prospective buyer. If you become a resident
of Tenerife then it is possible to borrow up to 80% of the
value of the property with a repayment period of 15 years.
Apart from borrowing at home and in Spain, it is also possible
to raise the mortgage monies offshore from Abbey National
or the Royal Bank of Scotland in Gibraltar for example,
secured on the Tenerife property that you are buying, and
in this case, the interest rate is very competitive.
A good Estate Agent should be able to recommend a suitable
bank or building society for mortgage purposes and INMOTENERIFE
has links with major financial institutions in Tenerife
who are willing to help.
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THE COMMUNITY
OF OWNERS
Most people who buy a house or apartment in Tenerife will
become a member of a Community of Owners. The law regarding
the legal rights and obligations of owners is contained
in part of the Spanish Civil Code called the Ley de Propiedad
Horizontal (Law of Horizontal Ownership). This law applies
to separate houses or terraced properties and to developments
of high-rise apartments where the ownership could be said
to be vertical as well as horizontal.
Whenever parts of the buildings are jointly owned, or where
there are gardens or swimming pools common to all, and when
owners share the cost of maintenance and services, then
there is 'horizontal ownership' and this law applies. It
enables a Community to run democratically in accordance
with the wishes of the majority of owners and is government
of the people, by the people, for the people.
The law requires that every Community has its own rules
and defines what parts of the Community property belong
solely to individuals and what parts are jointly owned.
Each owner’s share in the common property is clearly stated,
dependent on the size of the owner’s dwelling in comparison
to others. Each owner’s share is called his 'cuota de participación’
and is important in determining how much he will have to
pay towards the cost of maintaining the common property
such as roads, gardens, walkways and pool, and providing
the necessary services such as wages for gardeners, cleaners,
reception staff, refuse removal etc.
An Owners Association is created to co-ordinate the smooth
running and upkeep of the development and to represent the
needs and rights of owners. A President and Administrator
are elected, along with a committee of owners, and a General
Meeting is held yearly to clarify or establish new rules
and regulations, to appoint or re-appoint an Administrator,
to approve a budget for the coming year, to elect a President
for the coming year, and to deal with any other matters
raised by the committee or owners.
Due to the fact that it takes time to organise a meeting
of owners and services are required immediately for the
benefit of all, the developer normally appoints the Administrator
for the first year, who then runs the complex until the
first Annual General Meeting. If, during this time, his
performance is satisfactory then he will normally be re-appointed
until the next A.G.M.
It must not be forgotten that Spanish Law considers the
obligation of each owner to pay his share of Community expenses
as an obligation superior to all others. Community Fees
vary depending on the type of development and standard of
upkeep.
Spanish law provides the answer to practically every problem
that is likely to arise in a Community, but owners must
look after their own interests, attend meetings and vote.
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WILLS
Statistics show that people do not like making Wills. It
is understandable that people do not like to consider death,
but it is irrational not to consider what would happen to
your assets should you die, and make sure that your accumulated
wealth is distributed in accordance with your wishes.
You can incorporate your Spanish assets into your English
Will but having the Will proved can take a very long time
and cause untold problems and heartaches to your heirs.
Writing a Spanish Will is just as straightforward as making
an English Will and it is not all that time consuming or
expensive.
The most suitable Spanish Will for the majority of people
is known as the 'Testamiento Abierto' or 'Open Will'. You
should first see a Spanish lawyer who will advise you how
the Will should be expressed and to best carry out your
true intentions with regard to all your property and possessions
in Spain. The Notario will then prepare the Will on the
instructions of the lawyer, and it is then signed by yourself
in the presence of the Notario and three witnesses who will
also sign. The Notario will then register the Will in the
Central Register" of Wills and give you an authorised
copy showing the official number under which the original
Will is filed. This is a good system and eliminates the
dangers of a Will being lost or overlooked.
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INSURANCE
Property
In the same way that you would have your house and contents
insured in the U.K. you must insure your second home abroad
as well.
The insurance of all the common parts in your Community
of Owners or urbanisation is the responsibility of the Owners'
Association and very often they will also cover the buildings
as well. If the Owners Association does have arrangements
to insure the property for you, then often it can be obtained
at a reduced premium because of the number of people covered.
However, it is not compulsory for you to insure your property
through them and you can insure the premises yourself if
you prefer to use a different company. Insuring your contents
is also important and premiums for both property and contents
are similar to those charged in the U.K.
If you are unfortunate enough to have to make a claim due
to criminal activity then it is important that you go to
the local police station immediately and tell them the value
of everything you have lost so that they can record it and
issue a certificate. Your insurance company will require
the certificate from the police before settling a claim.
Life
Very often people enter into a contract to purchase a property
in construction with stage payments, intending to take out
a mortgage to assist them. It is worth considering what
the circumstances would be if the breadwinner were to die
beforehand. Would the surviving spouse still be able to
obtain the mortgage and proceed with the purchase if he
or she wanted to? Also, if a purchase is completed with
a mortgage on the property and the breadwinner was then
to die, would the surviving spouse be able to maintain the
mortgage repayments?
If it is perceived that financial problems could arise on
the death of a purchaser then it would be sensible to consider
taking out some simple life assurance to cover this eventuality.
It need not be expensive and can save a lot of problems
and distress.
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