Financing a Real Estate Transaction in Spain

The Real Estate Market in Spain

Spain is the world’s second-largest tourist destination. There is significant demand for housing in the country, particularly in coastal regions. These areas are highly sought after by foreign buyers, primarily from the United Kingdom, France, Germany, and Scandinavia. Foreign investment is encouraged by the government, which enacts legislation to support it. The cost of living, local culture, and climate are other major advantages of the Spanish market. As a result, in the first six months of 2022, one in five homes sold in Spain was purchased by a foreigner.

In 2022, 760,000 properties were sold in Spain, about 10% of which were new homes. For 2023, forecasts point to a decline. This is due to rising interest rates, which are making it harder to obtain credit, and a decline in the supply of new homes caused by rising material costs. As for sales prices, they have been rising steadily for more than 10 years and increased by an average of 5% in 2022. For 2023, forecasts estimate a rise of about 2% in housing prices.

During this period, developers are focusing on high-value-added real estate projects in major cities or vacation destinations aimed at first-time homebuyers with high purchasing power.

Residential Real Estate Development in Spain

The off-plan sales system in Spain is similar to the French system. Units can be sold before construction begins, and buyers will pay for the property through predetermined payment installments as construction progresses. As in France, the percentage and number of payment installments may vary depending on the nature of the project and the type of buyers.

As part of a real estate development project in Spain, the project architect must be registered with the region’s Official College of Architects.

With regard to the insurance required for an off-plan sale, there is no Financial Completion Guarantee as there is in France. This guarantee protects buyers against the developer’s bankruptcy, for example. In Spain, however, the developer must take out the following insurance policies:

• Ten-Year Warranty which covers part of the building (foundations, structure) for 10 years. Without this insurance, the building cannot be registered in the land registry.
• Seguro Three-Year Insurance which provides 3 years of coverage for damage caused by defects in the building’s structural components or systems, such as the waterproofing of roofs and facades.
• Builder's Warranty which lasts for one year and covers damage caused by defects in the building’s finishing and completion elements.

In addition, although it is not mandatory, it is strongly recommended that all parties involved in a real estate development project obtain professional liability insurance, which provides protection and compensation in the event of damage caused to third parties.

Role of the Notary and the Attorney

Unlike in France, it is common to be represented by an attorney during a real estate purchase. In Spain, the notary is a representative of the state whose role is to ensure that the deed complies with local law; therefore, the notary will never take a position on the matter. Consequently, it is recommended that you be represented by an attorney for the following matters:

• Verification of the Property's Compliance with the Cadastral Records
• Review of the Draft Notarized Deed
• Verification of Mortgages on the Property
• Obtaining the property registration certificate from city hall

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