Buying a new-build property in Spain

Buying a new-build property in Spain can be exciting and daunting in equal measure.

There are already plenty of things to think about when buying Spanish property, and acquiring a new-build can bring with it specific challenges and considerations.

Because of this, we’ve written up a guide to buying a new-build Spanish property, so you can simplify the process and avoid potential pitfalls.

Types of new-build properties

New-build properties in Spain tend to be modern in design. Some people prefer the character of older buildings over the contemporary style of newer dwellings, but new-builds often have blank-canvas interiors, allowing you to decorate however you want.

Often they are apartments or semi-detached homes built as part of a development, but they can also be detached homes or completely custom builds.

It’s also important to distinguish between whether a property is off-plan, under construction, or newly built.

Off-plan

Off-plan homes are bought either before construction has started or during the very early stages. You’ll have to wait for the property to be built, and there are potential uncertainties, but you could get a discount of around 10% to 20%.

Under construction

A property that is under construction is simply further along in the building process. There’s less uncertainty than buying off-plan as the project is already well underway, so there’s less risk of delay and you can get a sense of what the finished product might look like.

Newly built

Finally, you can buy a new property that has just been completed and put on the market. There’s far less uncertainty and no waiting around for construction to finish. However, you may end up paying a little more and supply tends to be scarcer, as some people will have already bought properties before completion.

Why buy a Spanish new-build? Exploring the advantages and disadvantages

If you’re considering buying a new build, it’s important to consider the advantages, disadvantages and even potential risks compared to purchasing a resale home. It’s worth noting that no property purchase – whether newly built or second-hand – is 100% risk free. But being aware of the potential pitfalls can help you make informed choices.

Advantages of a new-build property

1. Modern amenities: New-build properties often come equipped with modern amenities and conveniences. From energy-efficient appliances to smart home technology, these features enhance comfort and functionality, aligning with contemporary lifestyles.
   
2. Customisation: Purchasing a new-build can allow for greater customisation. You can often choose finishes, fixtures, and layouts to suit your preferences, creating a personalised living space tailored to your needs and tastes.
   
3. Warranty protection: New-build properties typically come with warranties that cover structural defects and major systems for a specified period, usually ten years in Spain. This provides peace of mind to buyers, offering protection against unforeseen issues and repair costs.
   
4. Energy efficiency: Many new-builds are constructed with energy-efficient materials and design principles, resulting in lower utility bills and reduced environmental impact. Features such as double-glazed windows, insulation, and high-efficiency heating and cooling systems contribute to long-term savings.
   
5. Minimal maintenance: New properties tend to require less immediate maintenance compared to older homes. With brand-new appliances, fixtures, and building materials, it’s far less likely that you’ll be forking out for repairs or renovations.

Disadvantages of a new-build property

1. Higher cost: New-build properties often come with a premium price tag compared to resale homes. Buyers should be prepared to pay a higher initial cost, which may require careful budgeting and financial planning.
   
2. Potential delays: If you’re buying off-plan or under construction, there could be delays in the construction timeline. This can disrupt moving plans and financial arrangements, requiring flexibility and patience from buyers.
   
3. Limited character: New-build developments may lack the character and charm of older properties. Architectural features tend to be plainer, and new neighbourhoods are less established, impacting the aesthetic appeal and sense of community.
   
4. Landscaping and amenities: In some cases, new-build developments may lack mature landscaping and community amenities that are commonly found in established neighbourhoods. You should consider the availability of green spaces and local facilities when exploring new-build options.
   
5. Resale value: Some new-build properties can actually lose value during the first few years following completion, so many people advise against buying a new-build if you plan on selling it soon after. However, this is a loose rule with many exceptions.

Paying for a new-build property in Spain

For off-plan or under-construction properties, you’ll typically need to make payments in stages throughout the construction process.

Initially, a deposit is required to secure the property. You’ll then make payments at crucial construction milestones. Often this is one payment when the foundation is complete and one when the main structure is finished.

You’ll then pay the remaining balance when the property is completed and you’re ready to move in.

Note that when it comes to Spanish property tax, new-builds are liable for VAT and stamp duty. VAT is 10% on the mainland and 6.5% on the Canary Islands, while stamp duty varies from 0.5% to 1.5%, depending on the region.

Getting a mortgage for a new-build property in Spain

Securing a mortgage for a Spanish property can differ for new-builds, particularly if you’re buying a home that’s off-plan or under construction.

When it comes to off-plan properties, the mortgage is typically activated upon the property’s completion. Therefore, you’ll need to find a way to cover the stage payments during the construction process. This could involve using personal funds or obtaining a bridging loan to finance the instalments until the mortgage funds are released.

Some banks have pre-agreed arrangements with specific developers for off-plan properties, which can streamline the mortgage process. These agreements can provide buyers with smoother financing options and potentially more favourable terms due to the established relationship between the lender and the developer.

License of first occupation

Upon completion of the property, you’ll need a Licencia de Primera Ocupación, or license of first occupation (LFO). It ensures that the property meets all building regulations and is fit for habitation.

Obtaining this license is essential before you can move into or rent out the property legally. You can buy a property without an LFO, but you won’t be able to connect utilities or inhabit it. In fact, your mortgage provider will need to see the LFO before they release the funds.

It’s the developer’s responsibility to get the LFO, and they cannot force you to complete the purchase if they haven’t obtained one. Make sure you get your lawyer to check before handing over the final payment for the purchase.

Currency exchange when buying a new-build

If you’re buying a Spanish new-build, chances are you’ll need to transfer money overseas as part of the process. This could be to cover living expenses, transfer pension payments, or even pay in cash for the purchase.

However, exchange rates are highly volatile, which can make it particularly tricky to budget effectively and time your transfers. This is especially true when buying a property overseas, as the process can take a long time – particularly if you’re buying off-plan. The longer the process takes, the more exposed you are to FX volatility.

Fortunately, there are ways you can protect yourself from shifting exchange rates and streamline your overseas payments.

For instance, you can use a forward contract with us to secure an exchange rate in advance. Although you won’t benefit if the rate improves, you’ll be protected from any adverse movements and you’ll have the security of knowing exactly how much money you’ll get from your transfer.

Additionally, we offer PropertyPay, our new service that streamlines property completions by eliminating the need for bank visits. This a free, secure and fully digital service that offers instant* fund guarantees between buyers and sellers, helping reduce the stress and hassle of buying Spanish property.

There are plenty of other ways we can help you save time and money on your currency transfers, whether you’re sending £100 or £1,000,000. And with 24/7 expert support available through our app, we’re always here to help.

Get in touch today if you want to find out more.

*The transfer of funds between buyer and seller can be instant if both have an account with Currencies Direct Spain, E.D.E., S.L.

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