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Spain remains hotspot for bargain properties

Global property prices shot up 8.4 percent in 2014 but Spain is still down at the foot of the country table with recovery still a long way off, new figures show.

Published: 17 March 2014 11:37 CET

Spain remains hotspot for bargain properties

Spain is way down at 50th place among the 56 countries surveyed by real estate agent Knight Frank for its Global House Price Index. File photo: echiner1/Flickr

Last year's 8.4 percent price hike is the largest annual figure since real estate giant Knight Frank started publishing its Global House Price Index in 1995.

It's a number the firm sees as a mirror of an upturn in the global economy.

But Spain's struggling property market is still in the doldrums. Prices fell four percent from the final quarter of 2012 to the same period a year later.

That puts Spain way down at 50th place among the 56 countries surveyed by Knight Frank.

On the plus side, Spanish property prices are now falling more slowly: the drop was 2.2 percent in the six month from the second quarter of 2013 to the fourth quarter of 2013.

The decline then slowed even further to 1.8 percent from quarter three to quarter four.

Fellow southern European struggler Italy saw a similar pattern, although annual figures there were even worse at – 5.3 percent.

"Europe continues to dominate the lower half of the table but the rate of decline is slowing in countries such as France, Spain and the Netherlands," said Kate Everett-Allen with Knight Frank's International Residential Research team.

At the other end of the table, Dubai notched up a staggering 34.8 percent annual rise in property prices, while Europe's best performer was Estonia where prices soared 14.5 percent.

Spanish property prices will continue falling in 2014 due to over-supply, mortgage restrictions, and the weak economy, Spanish property expert Mark Stucklin told The Local recently.

But Stucklin said he believed prices would stabilize in prime areas of Barcelona, Madrid, and popular coastal regions.

"Prime areas will lead the way towards a gradual recovery," he said.

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Q&A: What to do if you buy a property built illegally in Spain

Unfortunately, over the years, many properties have been built illegally in Spain, not adhering to local rules and regulations. Foreigners who don’t know the legislation can easily fall into the trap of buying one of these properties, only to find out later down the line.

Maybe it’s when they come to sell or perhaps it’s when they want to do works or improvements on the property.

There are several reasons a home could have been built illegally in Spain. Firstly, it could have been built on the wrong type of land. This is it could have been built on suelo rústico, rural land where residential properties are prohibited, also called no urbanizable.

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It could have also been built too near the coast. This is down to the Ley de Costas or Coastal Law, which was brought into force in December 1989 in order to protect the costas from overdevelopment and high rises spoiling the landscape.

The law defines different areas of the beach and dictates which is public land, owned by the state and which parts can be owned privately and built on.

If you buy or own a house in one of these non-buildable zones, there are many problems you could face down the line, often sooner rather than later. This is because there are several rules you have to abide by concerning works, reforms and extensions. In some cases, they may not be allowed at all and everything must be approved first by the local government by providing a detailed project.

Because of coastal erosion, this issue is getting worse as some shoreside homes that were once built outside of these areas are finding that they’re now illegal.

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The house may have also had extensions made to it that were built without a license, meaning that the extra parts are illegal.

Q: How do I know if my home is legal or not?

A: Unfortunately it can be difficult to know if your property is legal or not. You could have bought and signed for it with a notary and it could be inscribed on the Property Registry, but this still doesn’t mean it was built to the correct specification and on the right land.

The only way to truly tell is to find out if your home ever had a Licencia de Primera Ocupación or First Occupation license, also referred to as a Cédula de Habitabilidad or Certificate of Habitability. This means that according to the authorities, it is suitable to live in and has the correct licenses.

READ ALSO: How to get Spain’s certificate of liveability for properties

Q: What happens if my property doesn’t have a habitability certificate?

A: If your property has never had a Certificate of Habitability, you must regularise the legal situation. First you’ll need to start a legalisation file (expediente de legalización) and contact the town hall. Depending on the seriousness of the case (ie. where exactly it was built, if there’s any structural danger, whether the entire property is illegal or just an extension) the cost of making an illegal property legal can be considerable. As such, each case must be studied individually with the help of an expert to determine whether it is even feasible or worth the investment.

The next step is to bring in an architect and check whether the property complies with all the building regulations. If it does, you simply need present the expediente de legalización to your local town hall, who will confirm whether or not the property adheres to building regulations and can be made legal.

If it doesn’t, you’ll need to consider whether it will comply with the regulations after some renovations. If that’s the case, you’ll need to draw up a renovations project document (proyecto de reforma) outlining the proposed changes and how they will adhere to building regulations. It must be presented to the town hall along with your expediente de legalización.

According to law firm Acal, the legalisation process can be broken down into steps as follows:

Contact the town hall.
Begin with the expediente de legalización when the town hall confirm whether or not the property can be made legal.
Pay the corresponding fees and taxes (in this case it will be IBI) depending on your municipality and region.
If you need to make renovations, obtain the proyecto de reforma and hire an architect.
Obtain a building permit from the town hall.
Once completed, register the property in the Land Registry.

READ ALSO: What is Spain’s IBI tax and how do I pay it?

Q: Do I really need to make my property legal?

A: Yes, because it will benefit you in the long run. It doesn’t matter what the previous owner told you when you were originally buying the property, owning a property that isn’t fully legal (or legal at all) can create problems and even lead to fines worth up to 20 percent of the property’s value in extreme cases.

By going through the legalisation process and making the relevant renovations, if necessary, you gain a legal property for all purposes and with all the benefits that entails.

You will not have problems setting up, paying, or cancelling electricity, water or gas utility services. You won’t have to undertake reforms and renovation work unofficially, avoiding the eyes of the authorities. Instead you’ll be able to register your property in the Land Registry, which will make things much easier when you decide to sell it or pass it on.

In terms of selling it, perhaps that is the biggest benefit of legalising your illegal property: by registering it properly, you will be able to benefit from its full value when selling it. When a property is illegal, the appraised value will probably be no more than 40-45 percent of its real value at best.

The renovations needed to get your property in shape to meet the building regulations could be costly, but will they cost you half of the total value of your property?

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