The Comprehensive Tenerife Buyers Guide
We do try and update this Tenerife buyers guide as aspects change, we would be pleased to answer any questions you might have or confirm any specific point. Just ask us.
When we set up Expedia Tenerife Property we analysed the Tenerife property market and the habit continues as we strive to become the best Tenerife Estate Agents. Of course we believe we are but that sentiment also comes out of our professional culture, as does this Tenerife buyers guide. Most of us originate from the UK where we worked as highly trained professionals.
Our analysis and background has enabled us to be confident about the services we can offer and to provide clients with what they need. Through our experience we have discovered that some of our clients are surprised how far we will go to support them through the Tenerife property buying process.
Firstly we are mindful that most foreign buyers are about to make important and costly decisions with major implications. Secondly we recognize that most clients lead busy lives and they are also investing their time finding a suitable Tenerife property and dealing with the formalities.
As an organisation, we will take great care to ensure we do not waste your valuable time, we achieve this by carefully assessing your requirements and arranging suitable viewings so that you appreciate us when you do have time to enjoy your leisure time. All too often, clients visit Tenerife for a short property hunting break and we recognize that leisure time is necessary to reflect on important decisions and we will be close at hand if you need us.
We are proud of our philosophy and our business ethics. We prepared this comprehensive Tenerife buyers guide to save your valuable time.
Most buyers will have reasons to buy a property in Tenerife. The purchase of holiday homes on the island accounts for a large sector of the market and retirement buyers are another. Others buy a property to live and work in Tenerife but we find in all cases, people are very conscious about the financial investment they are making.
Buyers who are purchasing for investment will normally be looking to achieve capital growth as well as income from letting. Options for Tenerife letting include holiday rental or long term letting, both markets are quite strong at the moment. We entered the Tenerife long term rental market to assist our clients with investment objectives.
If you are considering buying a Tenerife holiday home you would probably rather benefit from some rental income to cover expense. Some rent out their properties when they are not using them to family and friends and others choose large scale holiday letting.
The rents achieved from holiday letting may be higher than for long term rentals but wear and tear also needs to be considered. Choosing suitable management will also be important if you are not close at hand. If you are buying to let in Tenerife, facilities such as swimming pools will be important to attract tourists. Most Tenerife apartments in complexes have a swimming pool and some villas do.
Location will also be important for different reasons. Not many tourists would expect to hire a car, or use public transport and taxis whilst they are on holiday in Tenerife, so for holiday letting, a central location is very important.
Some residents, or people who spend more time in Tenerife, may prefer to be located away from the busy resorts. Generally property away from the main Tenerife resorts is less expensive, especially in residential areas.
Tenerife Property Investment Potential
The current Tenerife property climate has been affected by the global economy and since homes abroad are usually on the luxury wish list the number of buyers has fallen dramatically, over the past two years. Apart from the cost of borrowing, the Euro has remained strong against other currencies, especially Sterling.
At the moment, the only properties selling are those that are reasonably priced. The properties with faded photographs in the agents windows with aged price tags bear testament to this, but there are conflicting reports.
Some claim that annual property increases of 10% or more in Tenerife are possible, this may have been so in past years but it is not the case now. Recently published figures from the Ministry of Housing show property in Tenerife has fallen by 1.7% over the past 12 months. (October 2008)
Few believe that is the case. Housing markets in most countries have fallen by double figures over the past 12 months, but areas with holiday homes have fallen more sharply, certainly that is the case here in Tenerife.
The reality is that many people have taken advantage of the fall in prices because they see it as a better time to invest. Some UK clients who have been keen to sell have been able to drop the price of their properties by as much as 15% against two years ago but that loss is mitigated by the Euro exchange rate gain when converting the proceeds back to Sterling.
Despite the slowdown in Tenerife property prices, the rental market has not been affected in the same way due to demand. Although prices have not increased, they have remained stable.
Looking at the long term rental market, yields of 7-10% are being achieved depending on the type of property and location. Rental yield is the yardstick used to express “ROI” or Return on Investment, it is the annual rental expressed as a percentage of the purchase price. Since rental yield is related to purchase price it is important to invest in a Tenerife property which is reasonably priced and which will provide a good rental return.
We are expecting Tenerife property prices to begin rising again soon in which case it is probably a very good time to invest in a Tenerife Property. The investment potential is there.
Buying Off Plan
Off Plan developments are popular in areas where property prices are rising. Developers function in this way because they can expand their operations without taking on so much borrowing.
During periods of rising property prices many people have been able to make considerable gains by investing off-plan. When you sign up you pay a deposit and then make stage payments during the construction process. The price is always fixed when you sign up so the property value will have risen during the construction process, sometimes by as much as 20% by the time you get the key.
If you are thinking of buying off plan to let, this is a good investment option because rental yields are increased. Most of the developers are offering very attractive deals at the moment.
In the case of off-plan developments the Developer will offer buyers a mortgage as part of the agreement.
If you need a mortgage to purchase a Tenerife resale property please contact us and we will provide every assistance we can. We have some very good contacts in this field.
We can handle your mortgage for you, our experience in the market enables us to put forward the best deal in Mortgages for your circumstances.
Obtaining an NIE
If you are non resident, in order to purchase a property in Tenerife you will need a National Identification Number (N.I.E. – Numero de Indentification de Extranjero).
You will need to visit the local police station in person with your passport to make the application. We can help you fill out the relevant form and assist you with the application. It normally takes several weeks for the application to be processed and we can collect it on your behalf.
Using a Lawyer
Under Spanish Law any property transaction must be Notarised.
A Notary is a fully trained lawyer and his or her function is to oversee the signing of property transactions, wills and other documents to ensure that they have been correctly drawn up, signed, witnessed and registered. The Notary is a very important and respected figure.
The Notary will ensure that Title Deed (Escritura de Compraventa) has has been properly drawn up, the declared price is paid to the vendor and any mortgages are discharged. The Notary also collects fees and taxes and ensures the property is Registered. When the Title Deed comes back from the Land Registry the purchaser will be given an authorised copy.
Strictly speaking, It is not necessary to use a lawyer to conveyance a property but it is necessary to have the transaction Notarised. As part of our service we often carry out all preparations prior to Notarisation including the transfer of utility bills, community charges, etc to the buyer. This is a free service and clients do have the comfort of knowing that the entire process is being overlooked and certified by the Notary.
Should you choose to us a lawyer, we recommend that you use an Abogado (Spanish Lawyer) who speaks you own language and is a registered member of the Bar Association. There are many Spanish Lawyers here in Tenerife with other language skills and most of them speak English. A list of lawyers is usually available from most Consulates.
Bearing in mind most purchasers will be going back to their homeland after they have paid a deposit to secure a property, it may not be convenient to return to complete the legal process. In these cases the purchaser will need to appoint a Power of Attorney (Escritura de Poder de Compraventa) to act on their behalf. We recommend that you appoint a local lawyer if this is the case.
You may have heard stories about under declaring property values. This process enabled sellers to reduce their tax liabilities but it often leaves purchasers with big tax bills in subsequent years. The process is now shunned by the Tax Authorities (Hacienda) and fines and penalties are levied. We are unable to be involved in transactions with under declared property values.
We endeavour to keep this Tenerife Buyers Guide up to date but please contact us and we can advise you of any future changes we might know about.
Currency Exchange and Transfer
We have connections with a number of accredited foreign currency exchange brokers who can help you with currency exchange and transfer into your Euro Bank Account. The exchange rate will usually be advantageous when compared to a normal bank, so significant savings can be made with large sums of money. See our currency converter.
The process is quite straightforward but it is not an overnight process. Firstly you have to open a foreign exchange account with a broker and then they give you a spot transaction rate for immediate exchange or a spot forward rate for a future exchange.
The rate will depend upon the amount, the current market or prediction of the future market in the case of a spot forward rate.
You will need to transfer funds to the brokers client account the exchange and transfer normally takes about a week after you deposited funds have cleared.
Purchasers Fees and Taxes
In order to purchase a property in Tenerife you will be expected to pay certain fees and taxes. These fees will be in addition to the cost of employing a lawyer should you choose to do so.
Firstly there will be the Notary Fees and there is also a document tax of 0.75% of the property value when the property is registered.
When you complete the purchase you will also have to pay a local tax similar to VAT called IGIC. This tax is 5% of the purchase price when buying a new property and 6.5% if you are buying a resale property.
There is also another tax called Plus Valia which is a tax on the value of the land since the previous sale. This is calculated on an annual basis and can be significant if the property has not changed hands for many years. Strictly speaking the seller is liable to pay the Plus Valia tax but since it is not levied until sometime after completion and also the tax is charged against the property the purchaser usually pays.
It is not possible to quantify the fees and taxes payable but we recommend you allow 10% of the purchase price to cover these costs.
Currently, under Spanish Law the seller will be required to pay 3% Capital Gains Tax based on the property selling price. Normally this money is deducted from the sales proceeds and paid to the Hacienda in Taxes within 30 days.
However if the vendor is resident and can produce a Certificado de Fiscal Residencia, the monies will not be deducted on the basis that the seller would declare the gain on their personal tax return.
As a property owner you will be expected to pay Community Fees, Electricity bills and Water bills, usually on a monthly basis. We will set up all of those to be paid automatically form your Euro Bank Account but you will need to arrange for the account names to be changed after you have received your copy of the Registered Escritura.
Property owners are also required to pay Annual Rates or Community Tax known as IBI and Refuse Collection Fees (Basura) if they are not included in the Community Fees. These are payable at the local Town Hall (Cultural Centre) again the new owner will be required to produce the Registered Escritura to arrange transfer of the accounts.
We can advise you on transferring all of these accounts into your own name.
In the same way as Spain, all personal debts will be registered on the property.
Property owners must also take out insurance on the property and perhaps it is advisable to take cover out on the contents. Life Insurance may be advisable and we can arrange this for you.
If the property is part of a Community you will also have other obligations.
Living in a Community
Most properties in Tenerife are part of a community and if this is the case the purchaser will become a member of the Community of Owners and these are governed by Spanish Law.
Communities are set up to deal with components of a development which are jointly owned, for example, passageways, parking areas, gardens and swimming pools.
Each member of the Community of Owners is required to pay a share of the upkeep of common areas which will be jointly owned. The size of that share will be dependent on the size of the property, expressed as a percentage against the other properties within the community.
Each Community will have a President, a Vice President and perhaps an Administrator to deal with day to day management. This Tenerife Buyers guide is not intended to be authoritative in relation to any particular community, you are advised to check specifics at the community office.
Apart from paying Community Fees, it is advisable to attend the AGM (Annual General Meeting) to vote on matters and issues affecting the Community as a whole.
Most lawyers would advise you to make a will in Spain to avoid any property ownership problems. Wills in foreign languages are likely to be a problem and will possibly cause problems for your heirs.
Making a will in Spain involves visiting a lawyer who will then draft a suitable will which will then be signed in the presence of a Notary and also witnessed by others. A copy of the will then be placed in the Central Registry of Wills and you will be given an authorised copy and an official number identifying the document. The Spanish system offers security and ensures only one will is valid. If you change your will the process is repeated and the previous will superceded.
Inheritance tax Planning
Before you purchase any property in Spain you need to be aware of the Fiscal Laws concerning Inheritance tax which are more severe than some other countries, surprisingly the UK has less severe Inheritance tax laws. However when you buy a property in Spain or the Canary Islands you will be subjected to Spanish Fiscal Laws. Please read more about Spanish Inheritance Tax and a Spanish inheritance tax saving scheme.
Please note we are expected changes to the Law in the Canary Islands on 2016 so please ask for more information. We will update the Tenerife Buyers Guide as soon as we know what the ne laws are.
Your are very patient is you have read down to the bottom of this Tenerife buyers guide!