Sunday, June 20, 2010

Investing in a Holiday Property in Spain – Dangers You Need to Know

For many people, the dream of owning a property abroad is too irresistible to miss. Think about being able to own your own property in the sun, and to be able to escape the winter months of another European country and bask in the Mediterranean sunshine while your friends and family go through a harsh winter. Or that convenience of being able to hop on a plane and spend a month in the summer at your dream home on one of the Spanish “costas”. And no, I’m not talking about those out-dated timeshare deals that were once the fad in the eighties and have left a bitter taste in many people’s mouths. Your own property, which you can rent out for the majority of the year, and then take the holidays you fancy for the times you don’t want to rent. This way, the property pays for itself with the rental income, you have no worries that your empty property will be overtaken by squatters or thieves, and you make a sound investment.

Well, let’s just look at the dangers for a moment. Without trying to begin on a negative note, it’s worthy mentioning that many families or individuals have a fantastic time in their  overseas properties year after year, and experience none of the problems that I’m about to detail, however, it’s always better to be informed before taking such a big leap, right?

If you choose a largely touristy area in Spain, which can be anywhere from the small coastal towns to bigger cities such as Barcelona and Madrid, you firstly need to check the legalities of such a practice as renting to tourists. Many local authorities demand certificates, inspections and licences to allow a property to be viewed as a legal tourist or vacation apartment. Take Barcelona, for example. Given the boom of tourist apartments which mushroomed in 2005, especially in the old town districts of El Gotico, the fisherman’s quarters of Barceloneta right on the beach front, the Raval and El Borne, the local council put a stop to any new licences being given for properties within that area. So, if you’re thinking of buying a downtown apartment in any of those areas, think again, as you’ll be slapped with a hefty fine.

Those apartments operating outside the old town neighbourhoods also need to apply for a licence, and whilst the process itself is not particularly difficult or costly, there are certain requisites needed which can prove awkward for a foreign investor – namely a contact telephone of 24 hours which every neighbour in the building must have in order to contact the owner, if their clients are misbehaving, for example. This is not always a feasible option and can leave many a new owner perplexed as to the options. Many are forced to hand the keys over to a local agency who then take the burden of the 24 hour availability, but obviously at a price, thus lowering the income of the rental.

Any foreign owner must also pay capital gains tax on an overseas property, which depending on the country can be a very hefty sum of the total price of the property. Spain recently revised its capital gains tax in 2010 to 19%, which is a considerable amount.
(ArticlesBase SC #1722145)
David Brydon - About the Author:
David Brydon has been living in Barcelona, Spain for 10 years and writes for Barcelona Real Estate Agents Modus Vivendi. Their Barcelona Real Estate Guidelines are a must-read for anyone serious about investing in the property market.