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Property in Tenerife

Tips, Buyers Guide

Buying real estate in Tenerife is an excellent investment.

Some pretty important stuff here, so if you are a serious buyer, please continue on this page.

Read this Tenerife Property Buyers Guide before buying an apartment, villa or property in Tenerife.

The following tips on buying property and real estate are important to you, and to anyone buying property in Spain.
Your Tenerife property purchase should represent a wise, satisfying and problem free investment and the aim of this property buyers guide is to help you achieve just that.

Below, I have divided the key purchasing information into four parts, first principles, financial, finding and verifying.

1. First Principles.

Its worth reassuring ourselves that Tenerife is the right location to invest in a holiday home. I don't have any doubt, and having lived in several other countries, most have only a few of the advantages of Tenerife.

Selecting a property you really like is the simplest part - we all love shopping. Generally, you will know what sort of property your are considering,

Make sure you are absolutely clear in your mind how you want to use the apartment. This 'intended usage' should be a crucial factor in your decision making. A 3rd floor apartment with 30 steps up and an incredible view may be perfect for letting, and quick holiday breaks, but 'semi-residential' long-term visits will be far more satisfying if you opt for less view, more space and car parking etc. So think through some of the issues, proximity to the airport, general tourism, beaches, amenities etc, and determine where you can be are flexible and where you need to be more rigid in your selection procedure. Read more on this in '3. Finding your property' section below

2. Financing the Property

Getting the finance pre-arranged is vital to negotiating a good real estate deal. For instance, you may see your dream property, feel the price is high, and wish to make the seller an offer. Few sellers are going to seriously respond to an offer without asking exactly how the buyer intends follow up the offer, should the seller accept. So, buyers that indicate they will immediately follow acceptance of the offer with (a) 10% deposit, lodged with the seller or sellers agent and, (b) signing of a private purchase contract, are far more likely to negotiate a price reduction.

(c) The purchase agreement will normally require the balance of the purchase price and completion within 4 weeks.

(d) If a mortgage will be required, consult your banker/lender and try to arrange most of it first. This will ensure that once you have chosen a property, you are ready to make a serious offer to the seller. Few sellers will take the property off the market and wait the time it takes to start arranging a mortgage through a bank.

(a) What will be the total cost by the time the Purchase is complete?
You need to allow 10% of the purchase price for the fees and costs of acquiring the property. Note that this 10% is 'over and above' the purchase price and will be needed to pay the 6% land taxes etc. If the purchase price is agreed at 60,000 Euro's (about 45,000 sterling) then the final cost will become ( Purchase price + 10%) a total of 6,000 Euro's. This 10% covers the conveyance, costs, which include the 6% of the purchase price payable to the Land Registry and other associated professional fees and duties for drawing up of new title deeds (the 'Escritura'), appointments at the notary office, a translator if you are not Spanish, search and various other conveyancing fees. Any moneys remaining will be returned to you, along with all of the various receipts and invoices for the work involved.

(b) When and how is my money paid out?
Noting that the conveyancer or solicitor will normally require the 10% acquisition fees before any work proceeds, and, the purchase option agreement will place a limit on how long you have to complete, you will want things to move fairly quickly. Thus, in our example, following signing of the agreement you would -

Special Notes
(c) If the seller is a foreign non-resident, he must pay a retention of 5% of the purchase price to the Hacienda (Tax Office). But, the Hacienda make it the buyers responsibility to ensure the 5% retention is paid. So, you will actually hand over the balance of the purchase price MINUS the retention, the retention will be a separate cheque made out for the hacienda. The seller will normally already know and understand this.
(d) If there are any debts, outstanding mortgages, unpaid Community fees etc, then you should make sure that these are paid directly to the debtors, the seller gets his purchase price balance MINUS the sums you pay out to those others who have interests in the property.
(e) The conveyancer will help you ensure that all of the various bank certified cheques required for the different parties are drawn up by the buyers bankers - ready to hand over at the notary office on the day of completion.

Cash Purchase.
If you have sufficient funds to purchase the property, without raising loans, then take advantage of this. Avoid being drawn into any 'decide on the spot' situations or impromptu purchases. Because you are able to quickly follow up any offer you make, be careful not to rush anything and lose this negotiating advantage. Use the Property Finder page, be patient and find the right property. Once you think you have found the property - verify everything is OK - and then drive the best bargain you can, sensibly, and without losing the property. If, like many others, you have any specific worries about tax implications, or confidentiality, feel free to email me for the more discreet advice.

Real Estate Banks Loan Purchase.
Generally, these are the four options open to most of us - 1. If you own property in your country of origin, you should be able to find an appropriate offshore bank that will make you a loan for purchasing a holiday home, using your existing property as security/collateral.
2. Your own bankers may be able to assist you in making a loan for this purpose.
3. Mainly for residents, offering low interest rates for residents who can demonstrate their ability to repay the loan, usually by submitting business accounts or nominas (payslips). They will normally lend up to 80% of the banks valuation of the property. Non-residents who can offer the appropriate financial evidence can be offered a foreigners loan, but at a higher interest rate.
4. Simply a matter of checking that the purchase price is realistic and that your deposit and other payments go to the principal lender (usually a bank) and not to the builder. Several mechanisms exist to secure your payments from the builders construction company 'going bust' before you have ownership of a completed property on a completed complex.

'Introductions' to banks and other lenders by people with 'connections' are usually meaningless. We all carry brochures for CitiBank and others. Contact the banks yourself - at the end of the day, no matter who you know, you will be asked by the lender, to reasonably demonstrate how you will meet the repayments and reduce the lenders risks to virtually zero - that will never change - and its usually the difficult part of property purchase for most of us.

3. Finding your property.

Real Estate Funding Hopefully, if you have taken the advice and arranged your finance - you know what your real budget is. You can now start to seriously look for a property that meets your initial requirements. How can you be sure your requirements are what they should be? Lets analyse a typical requirement

A one bedroomed apartment, on the flat, near the beach, shops and facilities, with a sea view.

This requirement is one of the commonest we receive. Yet, for any coastline, how many properties can be built that meet that criteria. In reality, only a tiny fraction of properties meeting that description, and they usually command unprecedented prices. This is true for virtually anywhere in the world.

It's useful to remember, that properties close to resort fronts, may also enjoy higher noise levels, higher running costs (eg, community fees), and are often smaller and less desirable to stay in than many other 'non-front' properties. Ground level may be important if a family member is disabled, but it rarely offers a real 'sea view' and may be noisy if there are many floors above. So its useful to be flexible and 'open to some compromise' unless your budget is unlimited, you found your ideal existed, and it was not affected by any of the points above.

Some facts to consider, which may help to broaden your horizons.

Get the best compromise for you! Ocean Views We purchased our villa for its views. For us, the pleasure of wining and dining outside, with a valley and sea view, outweigh any minor'baddies' such as walking up slopes ,that are to be expected with any property offering superb views.

So if you have managed to sort your finances, and read the above, you will already be far better prepared and more knowledgeable than most potential buyers. Go to the Finding page and see what's going.

4. Verifying you have a good deal.

Real Estate Verifying

Ok - the finance is sorted and you have found the property - what next?

Simply pause - its imperative to verify if there are hidden problems BEFORE offers, deposits or agreements.

For example, when we are selling or simply conveyancing a property - we will only transfer the buyer's deposit to the seller once all of the checks are complete, and we are satisfied there are no problems. In this way, the seller then knows you have lodged the deposit, and will take the property off the market, and will consider it sold - but subject to all of the checks and safeguards being satisfactory.

If a problem arises, what is it most likely to be?
Usually, it will either (1) a financial debt, (2) a dispute in ownership or (3) disagreement over what was included in the sale. The checks that need to be made may seem very obvious, yet it amazing how often they are overlooked. When we conveyance properties, the documents are obtained and important steps are taken are.

Get these documents

These documents and checks will immediately reveal -

(a) True ownership and right to sell. Who actually owns the property, and all permissions to sell have been obtained from those with an interest in the property (note that if a mortgage exists, the owner is the bank or lender of the money, so they need to Ok the sale and be settled at the Notary office signing.)
(b) Legal Definition of the property. Exactly what is being sold - (bit embarrassing to buy a villa, and then find the deeds don't include the land it stands on)
(c) Liabilities and debts. The extent of any borrowings or liabilities, if any, guaranteed by the property and any outstanding debts on the property.
(d) Running Costs. The value of Community fees, rates and wealth tax submissions.

There is more information on our free information site http://www.tenerifeowners.com.

Other details of interest.
By now, we are (i) exactly sure what we are buying, (whether includes furniture, etc), (ii) certain that the seller has the right to sell and with the agreement of any interested party, and (iii) know what the liabilities of purchase and running of the property are. Here are a few further explanatory points that may or may not be relevant to the purchase. Escritura Value. As the buyer must ensure that 5% of the purchase price is paid to the Hacienda, it is clearly in the interests of the seller to have this value as low as possible. The seller's accountant will endeavour to recover as much as possible of the 5% held by the Hacienda, after the sale. If the seller's original Escritura value shows he purchased the property at 36,000 Euro's, and your Escritura is drawn up to show that you paid 60,000 Euro's - the buyer will show a profit of 24,000 Euro's, which is taxable. So the seller may suggest that you pay 60,000 Euro's, but 18,000 Euro's was for the furniture, giving an Escritura value of 42,000 Euro's. This has three main effects
  1. The buyer now only has to retain 2,100, not 3,000 Euro's for the Hacienda retention.
  2. The seller's taxable 'profit' is now 6,000 Euro's, not 24,000 Euro's
  3. It will be the same when the buyer sells, a low Escritura 'buy' price will become more 'profit' later.
It is obviously in the seller's interest to show less than the real purchase price. It is the buyers interest to show as much as possible of the purchase price on the Escritura. A sensible compromise is usually reached by mutual agreement. Escritura values that are clearly below any reasonable market value may be penalised by the Hacienda at a later date. It is fairly reasonable to allow 6,000 Euro's for the furniture, thus, the Escritura value will be 6,000 Euro's below the actual price paid.

Currency.
If the buyer wants a foreign currency, it is simply a matter of fixing an exchange rate on the private purchase agreement. This rate is used to calculate (i) the Escritura value, which must be in euros, and (ii) the 5% retention, which must be paid to the Hacienda in euros. After any other parties with an interest in the property have been paid, the buyer can pay the seller's balance in any currency the seller/buyer agree.

Bank Certified Cheques.
This is the normal method of exchanging money at the Notary office, on the day of signing. A bank certified cheque is as good as cash. The bank has specially stamped the cheque, which guarantees the bank will honour it when it is issued to the recipient. Allow 2 working days for your bank to arrange the cheque. They simply require the name of the recipient and the amount. There will usually be a charge for the service.

Try the Property finder form when searching for your ideal island property.