Getting a mortgage can help you make more money over time and diversify your investments to lower risks
Getting a mortgage can help you make more money over time and diversify your investments to lower risks

Expert legal insights for German buyers in Spain. Here's what you need to know

Explore our interview with Carlos Vazquez and Diana Diaz, lawyers and legal experts from Hoteland, as they delve into the main challenges and solutions Germans face when buying property in Spain. From understanding the local legal frameworks to navigating financial requirements, gain valuable advice to ensure a smooth Spanish property purchasing experience.

Delia Mihuț
Written by: Delia Mihuț
Published at 2023-11-02
Last updated on 2024-06-11
Readtime 7 minutes

Many Germans dream of owning a sunny property in Spain. However, buying a property in a different country can be tricky, especially when understanding the legal and financial steps involved. In this interview, we talk to Carlos Vazquez and Diana Diaz, lawyers from Hoteland, about the main challenges Germans face when buying properties in Spain, and get advice on how to make the process smoother. 

Whether you're interested in the steady market of Mallorca or other parts of Spain, this discussion will provide helpful insights for Germans looking to invest in Spanish real estate.

What are German buyers' main pain points when investing in properties in Spain?

From a legal and practical standpoint, one of the problems encountered is the delay in acquiring essential documentation, whether it's the NIE, power of attorney, bank documents, or town planning documents.

Also, the different rules, culture, and language in Spain compared to Germany can make buying property challenging. It helps if these differences are explained well from the beginning.

What specific strategies would you recommend to German buyers for mitigating the common pain points in the property acquisition process in Spain?

It is advisable for buyers to prepare the necessary documentation well in advance and to seek prior advice from professionals such as real estate agents, lawyers, and bank financing managers to reduce the time required potentially.

Working with a partner who understands the differences between the two legal systems can be beneficial. 

What are the taxes Germans need to pay when buying property in Spain?

Germans, like all EU citizens, are required to pay either Transfer Tax (ITP) or Value Added Tax (VAT) when purchasing property.

Additionally, each year, property owners are responsible for:

  • paying local property tax to the Town Hall
  • potentially settling a Wealth Tax, depending on their financial situation
  • filing a non-resident income tax return using Form 210, as obligations arise from not being tax residents in Spain

There had been discussions by the previous government of the Balearic Islands about the possibility of restricting tax for non-residents, but this has been largely deemed unfeasible at the EU level, and the current government is not considering such restrictions.

How can the home-buying experience for a customer be improved if they choose to work closely with a Spanish lawyer?

The level of improvement largely depends on the expertise of the lawyer hired.

Speaking from my 15 years of experience as a lawyer assisting foreigners, proactively addressing and averting common issues that could lead to litigation significantly enhances the home-buying experience. Ensuring that the client successfully purchases the property as envisioned—free from urban planning, registry, and fiscal issues—is paramount. 

Additionally, securely managing all financial transactions associated with the real estate process, from the initial contract of sale with earnest money, to securing mortgage loans, notarial deposits, tax payments, non-resident withholdings (retenciones), and capital gains tax (plusvalía), is vital.

Which is more advantageous—buying with cash or obtaining a mortgage? Could you shed some light on the benefits and pitfalls of each option?

This question can have many answers depending on the situation. Let's look at the main differences. 

Usually, getting a mortgage is seen as a better choice. First, it allows you to maintain your liquidity, which makes it easier for you to invest the rest of the money in other projects. Also, having a mortgage can give you some tax benefits like interest deductions

Getting a mortgage can help you make more money over time and diversify your investments to lower risks.

But, when interest rates are high, getting a mortgage can be tough. The cost goes up, making it more expensive over time. Still, there are services that can help with this.

Mortgage brokers in many parts of Europe can help you find different banks and better prices, even when rates are high.

In conclusion, buying with cash is rarely better. In most cases, getting a mortgage is easier and a better choice if the terms are good.

Most Germans are very interested in buying properties in Mallorca. How is the market? Is securing a Spanish mortgage a straightforward process for German nationals?

Among all regions in Spain, Mallorca is the least affected by economic cycles. The demand here does not follow the usual economic trends, which means that, unlike other areas where prices may drop or remain the same, in Mallorca, they are always on the rise. 

This trend makes Mallorca a good refuge for investment. The prices, which have been rising for more than 20 years, are supported by historical data that suggest they will continue to rise as long as the current situation is maintained.

Mallorca can be considered a place where real estate assets serve as safe-haven assets, allowing for efficient diversification of our asset portfolio.

Additionally, according to ECB data, Spain, in a context of general overvaluation throughout Europe and excessive indebtedness, is among the EU countries that are better off in this regard. This situation ensures macroprudential financial policies, helping to avoid the emergence of any financial instability or vulnerability.

How can German owners of Spanish properties manage and earn rental income from their investments, especially when they are not living in Spain?

If you're considering renting out a property in Spain while living abroad, thorough planning is your best friend. Initially, it would be wise to seek legal advice for a detailed understanding of the local legal frameworks and taxation obligations. 

Engaging a property management firm to handle tenant acquisition and property maintenance could also be beneficial. Ensuring that the property meets local quality standards is not only advisable but essential, as is preparing all required documentation, such as a well-crafted lease agreement.

For financial logistics, opening a Spanish bank account can significantly streamline monetary transactions. Additionally, considering rental insurance could provide an extra layer of protection against unforeseen circumstances. Lastly, remain aware of the tax implications, both within the Spanish jurisdiction and in your country of residence, as they pertain to rental income.

Homevest and Hoteland: simplifying Spanish property purchase from Germany

With Homevest and Hoteland, you get an all-in-one solution covering the financing, legal, and fiscal aspects of the purchase.

Homevest handles financial intermediation, speeding up the process, simplifying the bureaucracy, and obtaining the best economic terms for the client. They coordinate closely with Hoteland, especially during essential moments of the purchase decision, typically around the times leading up to the signing of the private contract (option or purchase contract with deposit) or between this signing and the signing of the public deed before a notary.

Hoteland, before and during the purchase transaction, provides the peace of mind, communication, and legal security necessary to bring the transaction to a successful conclusion.

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