Spain

CRADLED by windswept coastlines, Spain has long drawn attention for its cultural heritage and art. Home to legendary artists Salvador Dali and Pablo Picasso, its music, fiestas and flamenco dancers are known the world over.

It is no surprise that these attractions have made Spain one of the most visited countries in Western Europe. Recent statistics show that more foreign investors, especially Asians, have chosen to invest in the country as well.

“There has been a sharp rise in Asian buyers,” reveals Antonio Viñal Menéndez-ponte, a partner at Antonio Viñal & Co Abagados, in an email interview. “Foreign investors represented 13.2% of the market as at 2015.”

According to CBRE Spain, corporate and individual Chinese investors have pumped in a total of €6.1 billion, followed by Singapore (€4.4 billion) and Hong Kong (€2.2 billion).

Founded in 1986, Antonio Viñal & Co Abagados has offices in Spain, Portugal and Malaysia, specialising in corporate, litigation and law in areas such as property.

Local catalysts

Viñal believes Spain’s real estate market will continue to attract Asian investors due to several factors.

“Spain’s GDP growth in 2015 is expected to be 3.2 %, which is double the eurozone’s 1.5%, and is expected to be a strong 2.7% in 2016. There is also the positive impact of real estate investment trusts (REIT) in the Spanish stock market. The number of tourists has also risen to 68 million visitors in 2015,” he says.

“In addition, banks are back to lending at attractive rates. The number of loans during the third trimester of 2015 grew by 28.5% year on year, according to the Spanish General Council of Notaries. The loan-to-value ratio has now reached 70% to 80% (of appraised value). The surge of foreign investors is a clear sign of renewed confidence.”

Apart from attractive lending rates and healthier economic conditions, another catalyst includes the “golden visa”. This acts as a fast track for foreign investors to obtain full residency permits in Spain, and consequently free access to most European countries within the Schengen area.

Real estate assets acquired via the golden visa can be leased for commercial, agricultural or tourism purposes, and co-ownership is permitted, provided that the share of the golden visa applicant is equal to or higher than €500,000.

“There are [almost] no restrictions for foreign investors in Spain as all types of properties are eligible to be used or leased. Properties bought by investors in perpetuity do not have leasehold or freehold [classification]. Investors should note that the first €500,000 must be free of liens and charges. Any amount above the threshold can be financed by the local banks,” says Viñal.

Apart from that, foreign investors who come to Spain for working purposes can also benefit from the non-habitual residence (NHR) tax regime.

“Individuals who have not been tax residents in Spain for the past 10 years can apply and obtain a flat tax rate of just 24% for their labour income. The special tax rate is in effect for a total of five years. This compares very favourably with the top tax rates in other European destinations such as the UK (45%), Italy (49.1%) or France (54.5%).

“In the past, residential property in Spain saw severe discounts of up to 40% following the peak of the [property] bubble in 2007. The situation is slowly changing, and 2015 marked a year of recovery with prices growing an average of 4.5% during the third quarter, above the EU average of 3.1%. This means investors will be coming in at the right time,” he adds.

Real estate regulations

Nonetheless, there are certain regulations that foreign investors need to know before investing in Spain.

“To buy property, foreign investors need to obtain an ID number known as NIE. This, however, does not turn you into a Spanish tax resident. A promissory agreement is usually signed, allowing both parties enough time to deal with any necessary paperwork before the deed is finalised,” says Viñal.

“With the promissory agreement, the buyer pays a deposit of about 10 to 15% of the total price. The rest is paid when the deed is signed.

“With regard to transfer tax, foreign investors need to be aware that the rates vary depending on the region. Hence, in the region of Madrid, the rate stands at 6% of the purchase price, whereas in Catalonia, it is 10%. The stamp duty also varies, for example, it is 0.75% in Madrid and 1.5% in Catalonia. Finally, property tax depends on the council [in whose jurisdiction] the property is located.”

Non-residents are also subject to non-resident income tax (IRNR in Spanish), while residents are subject to personal income tax (IRPF in Spanish).

“For IRNR, if the buyer is a tax resident in an EU member state, there are two possible scenarios. For leased properties, the tax is levied at a rate of 19% on net income. For non-leased properties, the tax is levied at a rate of 19% calculated on 2% of the rateable value of the property (1.1% if the rateable value was revised after Jan 1, 1994).

“But if the buyer is not a tax resident in a EU member state, the tax is levied at a rate of 24%. The capital gains would be around 19%,” explains Viñal.

“For IRPF, in terms of non-leased properties, 2% of the rateable value of the property (1.1% if the rateable value was revised) is added to your income tax return. For rent, rates and tax brackets may vary depending on your region of residence and total income.”Spain

Popular provinces

Spain is the fourth largest country in Europe and has over 50 provinces. Areas that are especially popular with foreign investors are Madrid, Barcelona and Costa Brava.

Madrid, the capital of Spain, has a great mix of medieval mansions, royal palaces and modern developments. “It is notable that Madrid is currently the European city with the second highest annual growth in price rate at 5.2%,” says Viñal.

“In Madrid, the best selling properties [in the luxury segment] are homes priced between €1 million and €2 million,” he notes.

Barcelona, a fast-paced global city, is known for its Gothic architecture and Modernist sculptures, besides its booming economy, trade fairs, motorway network and high speed rail linking it to the rest of Europe.

“The best-selling properties in Barcelona are between €450,000 and €900,000, comprising primary as well as second homes. Most are pure investments [for tourism],” says Viñal.

At the other end of the spectrum is Costa Brava. Regarded as the holiday coast of Spain, the area boasts endless golden beaches, spectacular sceneries and charming seaside towns.

“In Costa Brava, secondary homes [in the luxury segment] between €500,000 and €2 million are the bestsellers. Over 90% of the buyers in Costa Brava are foreigners, mainly from the UK, France and Scandinavia,” says Viñal.

The average price in Madrid is €2,820 per sq m, compared with Barcelona’s €3,392 per sq m and Costa Brava’s €1,860 per sq m in Costa Brava.

“The average rental in Madrid is €12.4 per sq m, while Barcelona is €15.3 per sq m, and Costa Brava, €13 per sq m,” says Viñal. “The average yield for residential property in Spain rose from 5.3% in 2014 to 5.5% in 2015, while the average yield for commercial properties rose 6.9% to 7.6%.”

Spain’s real estate market attracts a good demographic of investors, including “first-time buyers, mature investors and prime investors who are looking to invest about €300,000 and above [with financing around 50%],” says Viñal. “As for foreign investors, the ones who look at the Spanish market are mostly men with families, with an annual income above of €66,000.”

According to CBRE Spain, Spain’s property market attracts foreign investors from the UK (23.12%), France (8.71%), Germany (6.4%), Sweden (6.38%), Belgium (5.54%), Italy (4.41%), Romania (4.04%), China (3.98%), Russia (3.36%) and Norway (3.12%).

“As far as foreign investors [especially individual investors] go, holiday homes and residential apartments are still the preferred products in areas in Madrid, Barcelona and Costa Brava. National demand for holiday homes and apartments grew by 39% in 2015,” says Viñal.

Advantages

“Spain is definitely one of the most sought-after destinations to live and work in,” says Viñal.

“The country was ranked first for health and social life, second for quality of life and third place for property, according to the HSBC Expat Explorer Survey.

“Its advantages include its excellent location in South West Europe and the fact that the country has dynamic investment hubs across Europe, America and Africa. It is also well connected, with 52 airports and the largest high-speed rail network in Europe.”

Its allure also lies in it warm climate, world-renowned restaurants, impressive shopping destinations, exciting night life and cultural activities.

“Spain is the second biggest golf destination in the world after the US, and home to top football clubs such as Real Madrid and FC Barcelona,” says Viñal.

“Perhaps the biggest disadvantage is that proficiency in English among the locals is not as good as in other countries such as the Netherlands or Germany. However, due to the importance of the tourism industry, attention is being given to English. It is worth noting that public schools in Madrid are bilingual [Spanish and English],” says Viñal.

Despite the financial crisis and economic woes, Spain’s property market continues to draw foreign interest.

“According to BNP Paribas Real Estate data, transactions in 2015 amounted to a total of €11.7 billion, which represents an increase of 67% over that for 2014,” says Viñal.

Spain’s property market appears to be on a positive track and recent trends and forecasts suggest that prices would not go down this year.

“We are confident that primary homes will be a good investment. As for the rental market, we believe that this segment will become more attractive [to foreign investors], and that the Spanish REIT might enter the rental market,” Viñal sums up.

This article first appeared in City & Country, a pullout of The Edge Malaysia Weekly, on April 11, 2016. Subscribe here for your personal copy.

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