Aspects you may not be aware of when buying a property

Many sales and purchases on the islands have become, over the years, a privilege for many. According to media reports, the cumulative price of housing in the Balearics has increased by 51% in 5 years and 20% in 10 years.

However, since the beginning of the pandemic, the value has fallen by 0.4% compared to January 2020, although since February, it has risen by 0.8% compared to January 2021, which shows that little by little, prices are stabilizing again.

Requirements to buy a property in Spain and, at the same time, be able to reduce the Wealth Tax.

Many clients ask us what requirements must be met in order to be able to reduce the value of the property for Wealth Tax purposes. And that is by means of a loan contract.

1. The existence of the loan contract must be reliably proven prior or instantaneously to the purchase, which means that it must be recorded in a public document or in a public register. The granting must be prior to or at the same time as the signing of the public deed.
2. The loan must be used directly for the purchase of the property, and this must be indicated in the loan contract. The property must also be clearly identified: address, registry data, cadastral reference and the amount to be deposited in the borrower’s bank account prior to the purchase of the property.
3. As it is a contract where there are third parties, the conditions that are granted in the loan must be agreed in a free competition market between the independent parties.
4. The flow of payments must be able to be documented, both the repayment of the principal amount and the interest.
5. The title deed of the property may contain a clause stating that “it is hereby stated that the amount of € 000.00 intended to acquire part of the purchase of the property is a loan granted by X (identification of the lending party) to Y (identification of the borrower/buyer)“.

These are the formal requirements that a loan contract must meet in order to be considered valid for Wealth Tax purposes by the Inland Revenue.

For any further information or extension of the above, please do not hesitate to contact us.

Real estate agency commissions

It is very common and advisable to contract an agency to sell a house. A real estate agency will try to get the best conditions and the best price, and for this, a percentage commission will have to be paid to the agency.

The real estate commission for the sale is generally paid by the seller. It is usually taken from the money given by the buyer when signing the deed before the notary. Thus, at that moment, the buyer is presented with two cheques: one for the seller and one for the real estate agency.

The amount of the fees usually varies between 3% and 7% of the value of the property. To this amount, VAT of 21% must be added, unless the tax is included in the percentage.

Rights of the co-owners & common property

There are many properties that have several owners, and at the same time, a co-ownership is constituted. There are several doubts about the administration and use of this type of property, which we will try to solve in the following.

1. The use of the common property

A co-owner may make full use of the common property provided that he respects certain limits, regardless of the undivided share that belongs to him. This use cannot be absolute, as it will depend on the nature of the thing and the material and personal circumstances of each case.

2. Conservation costs and profits

The expenses for the upkeep and benefits of the property in common shall be proportional to their respective shares.

3. Rights of administration

The validity of acts of administration (maintenance, use and enjoyment of the property) requires the agreement of the majority of the co-owners. However, for acts of disposal (alienation, rights in rem and encumbrances), the consent of all co-owners is required.

For alterations to the property, the unanimous agreement of all owners is also required.

4. Rights of the co-owners with respect to the portion or share.

Following the above, each co-owner will have full ownership of his share and of the fruits he obtains from it, being able to freely dispose of his share without the consent of the others.

On the other hand, if one of them wants to sell his share to a third party, he will be obliged to first notify his decision and conditions of sale to the other co-owners, who will have the option to buy that share within one month.

5. Division of the common thing.

Every co-owner has the right to request at any time the division of the common thing. In the case of indivisible property, it shall be awarded to one of the co-owners by paying the respective indemnities to the others.

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