Is This Property A Sound Investment?

“It doesn’t matter where you are coming from. All that matters is where you are going.” -Brian Tracy.

Media

With so many horror stories in the British and Irish media highlighting home buyers who have lost thousands in Spanish property investments, it is not surprising that anyone considering an overseas purchase is slightly reluctant to choose the Spanish coast. The fact that you are in a position to relocate to a foreign country suggests that you will have already done a certain amount of homework into what it involves, and you do not have to look far to stumble across an assortment of depressing experiences. The ITV series “Holiday Homes From Hell”, numerous tabloids and even the King of documentaries, Trevor McDonald himself have all erred on the side of negative sensationalism, pinning the Costa Blanca on their property black list. Conversely, certain other property broadcasts paint an unrealistically rosy picture of buying overseas property, making the process sound seamless and entirely secure. The truth of the matter lies somewhere in the middle of these two conflicting media spectrums, with a need for caution and due diligence when buying as opposed to a complete boycott on Spain. APIS is very pleased to report that there are a plethora of extremely satisfied buyers, whose investment has proven to be more than fruitful, and quality of life one hundred percent improved. Furthermore, it is not so easy to fall into a housing death trap these days, as the recession, European Legislation and competition from other overseas housing markets has forced the dodgy Spanish construction companies out of business, and encouraged the remainder to pull their socks up! Furthermore, with all these factors having a significant impact on house prices, the wonderful White Coast has once again become a very attractive proposition indeed!

Land Grab

In order to ensure that you end up in the latter group of contented buyers, it is important to be aware of some of the traps that people have fallen into in the past, and steer well clear! One of the most publicized issues of the past decade has been the damning Valencian “Land Grab Law” or the Ley Reguladora de la Actividad Urbanistica (LRAU). The Valencian Government passed the controversial law in 1994, aimed at speeding up the process of urban development across the region, which seemed to make sense with so many investors waiting in the wings. Allegedly, the law was formulated with good intentions in mind, and meant to guarantee that developments were built with all of the necessary infrastructure in place, such as green areas, roads, lighting, and sanitation. However, for some homeowners, the wording of the law was fatally flawed, and some unscrupulous developers took advantage of the loopholes, forcing small land owners through the courts to either give up their land due to its reclassification from “Rural” to “Urban” land, or pay them ridiculous sums of money to “urbanize” the land in question. The developers were in a win/win situation with the ambiguous interpretation of Valencian law firmly on their side, and even with the very best legal representation, the rightful landowners did not stand a chance. It wasn’t until 2006, following a mountain of legal battles, that the wording of the LRAU was revised and replaced with a new law known as LUV or the “Ley Urbainstica Valenciana”. The amendment has certainly helped to strengthen the rights of small rural landowners, but for many the whole scenario has left more than a bitter taste in the mouth, and they live in constant fear of history repeating itself if the Valencian Government decides to reverse its intervention. Over ten years later, many are still battling to receive compensation for monies that were lost to the LRAU, with little hope of justice. The best way to avoid any such conflict, is to only consider purchasing property in an area that is already clearly classified as urban, with all of the infrastructure which you would expect to have access to already in place.

Unfinished Urbanizations

Aside from the issues surrounding rural properties, the Costa Blanca has been the subject of bad press due to the number of construction companies who have failed to fulfill their promises concerning new build properties. The majority of problems arose during the property “boom” of the late nineties and early noughties, when “off plan” properties were selling faster than the developers could build them; and before the local authorities had issued the necessary paperwork and building licenses for them to go ahead. Rather than risk losing a sale, the builders accepted deposits from buyers and went ahead on the premise that the licences would be issued before the contracts were exchanged. Sadly this was not the case, resulting in substantial delays in completion times, and in the worst cases, properties being sold without the necessary planning permission and occupation licence in place- something that homeowners were unaware of until they came to sell themselves and were met with a multitude of issues in doing so. Other major off plan setbacks included urbanizations being certified as complete, when communal areas, swimming pools, tennis courts, children’s play areas, security gates and other amenities that buyers had invested in never being installed due to the lack of planning permission or finances.

Legal Matters

This has all provided a learning curve for the Spanish construction industry, and helped to filter out the greedy developers who were happy to take buyers money but not deliver the goods. Today, the Builders who are undertaking projects along the Spanish coast are well established, reputable names, who insist on following legal procedures rigidly, work to achievable completion dates and respect the importance of good customer service! Once a property has been completed an application is made to the town hall who will issue a “License of First Occupation” (LFO), confirming that the property has been constructed in accordance with building license and regulations, that there is no outstanding work to be done and it is fit for habitation. Properties which do not possess a valid LFO may still be bought and sold legally, however, banks will not grant a mortgage without one so you would require a cash buyer to seal the deal. This means that purchasing without an LFO could have serious implications on the resale value and your chances of securing a future buyer. If a property is on the market at what seems an incredibly low price compared with similar properties in the area, this should trigger alarm bells and could mean that either one or all of these important legal documents is missing. On a legal front, the homeowner is well within their rights to sell to you, even if this is morally unacceptable. Therefore it is always wise to invest in a good property Lawyer who will be able to verify all of these details for you before you agree a sale. It may seem more expensive, but well worth it in the long term if they do uncover irregularities which could cost you dearly further down the line. If you are planning to purchase through an agent you could also stipulate that you only wish to view properties which have all of the relevant paperwork in place- a reliable agent will be willing and able to arrange this.

Resale Tips

You may be getting the impression at this stage that it is safer to purchase a resale property, but there is actually some supplementary due diligence which should be verified before you are satisfied that the investment is a sound one. Again, you are best advised to appoint a Lawyer to act on your behalf throughout the purchase process. They will be qualified to conduct all relative land registry checks, and confirm that the building licences and the Licence of First Occupation/Habitation Certificate have been issued to the present owner. There are a few additional factors which you might consider yourself before arranging any viewings of resale properties, to reduce your travelling time and expenses:

Extensions and Alternations- It is best to err on the side of caution if a property has had any major modifications, such as the addition of an extra room, extra floor added to a bungalow, covered balcony or roof terrace. Unfortunately, in many cases these alterations were never granted approval by the town hall, meaning that there will be a penalty to pay in accordance with the extent and nature of the building work. For example, any extension or refurbishments to the property, which do not appear on the town’s official development plan held by the town hall, will not be given any value by the bank. This could have a dramatic effect on the resale value should you or future buyers require a mortgage. Alternatively, a neighbour may have raised an objection to the alteration, known as a “Denuncia”, which is not uncommon in Spain, and when it is finally heard in court could cost the present homeowner a hefty fine or a court order instructing them to restore the building to its former state.

Debts and Impediments- The law relating to property debts is very different in Spain compared with the UK and Ireland, in that the problem lies with the property, not the owner. This means that any new owner automatically inherits any outstanding bills such as water, electricity, community fees, taxes or even mortgage payments. All too often potential buyers are attracted by what seems to be a bargain purchase price, only to be saddled with a multitude of debts and utility supply problems later on. Carrying out the relevant checks prior to purchasing can help you to avoid a similar state of affairs.

Fiscal Obligations- Finally, it is fundamental that as a potential homeowner you are aware of the taxes which you will be eligible to pay for your Spanish property. Regardless of whether this is a holiday home, investment property or your primary residence, you will be required to pay an annual sum of fiscal tax. If you thought that the tax system in your home country was impossible to comprehend, prepare to be totally baffled by the Spanish equivalent, which makes little sense to anyone who is not in the field themselves! The amount that you pay will vary in accordance with the size, estimated value and location of the property. Whilst the charges may be relatively inexpensive  compared with things like council tax in the UK, it can be quite confusing to understand what you should be paying and why. APIS recommends that you speak to an authorized Tax Specialist, who for a small fee will help you to complete all of the puzzling paperwork and offer informed advice concerning your payments.