I would like to suggest that any potential purchasers who are buying for cash consider having a bank valuation carried out. Lawyers in Spain act in a different role to that in the UK. In order to ascertain the definite legality of any property purchase, a bank valuation will highlight any irregularities that relate to what is recorded at the Land Registry. Frequently I have clients who purchased for cash who wish to arrange refinance or equity release mortgages only to discover that the house they bought is incorrectly registered or the previous owner has added terrace or an extension without obtaining the correct Licenses. Thus they have bought a house for 500,000€ which is actually only worth 300,000€ because a part of it is technically illegal. If this then has to be registered correctly (on the assumption that it can be) it can take up to 18 months to do so. 300€ to 600€ is small price to pay for peace of mind. The report will confirm that the house you are buying isn’t officially registered as a warehouse or a garage or alternatively that all of the 200 sq m is officially recorded at the Land Registry. Invariably this problem mostly relates to houses.
There is not a great deal of extension work etc that you can do to an apartment although apartments have their own issues. The Government provides affordable housing for qualifying Spaniards to buy. These properties have a price control imposed on them. Similar to Housing Association or Right to Buy in the UK. This control is imposed for quite an extended period of time (typically 20 to 25 years). If one buys a resale apartment subject to the VPO (as it is called) a bank will only value the property at its Government controlled valuation. I have a client who has been trying to buy a property that was subject to a VPO – he was paying 190,000€ in Fuengirola – the valuation report assessed it at 66,000€. Fortunately the VPO has expired, but it still has to be officially registered by the vendor, both with the Land Registry and the regional Government. The process has taken 16 months. During that period buyer and seller have been in limbo. If the client had arranged the valuation before parting with any money he would have been in a position to purchase something else instead. However significant deposit monies had been paid before that step was taken. Estate Agents are not required to (nor probably qualified) to report on these things. Once your deposit has been handed over it can prove extremely difficult to get it back. In this instance all parties were keen to complete the transaction, however the purchaser feels rightly so, that he should have known about it before any monies changed hands.
There are a great many developers and builders constructing urbanizations inland from the coast. These are frequently on land that has not been approved for urban development. Thus one is buying what is defined as a rustic property. For a number of reasons the great majority of banks deem this to be a higher risk than urban land for mortgage purposes. For one there is not necessarily defined approval that the land can be developed, therefore in theory at some point the authorities could decide the property or properties should be demolished. Secondly any permitted development could be severely restricted to a building that is appropriate to the use of the land – such as a small farm dwelling house. Alternatively they could decide that they will not permit registration of the property. These situations will all prove problematical at some point in the future if you wish to sell. There could even be problems if you don’t decide to sell. If you have an independent bank valuation done then any potential issues should be highlighted to you in the bank report.
Finally a valuation will also highlight the property’s true worth. The developer might be selling them like hot cakes at 350,000€. However the valuer will take a true assessment of the land and the construction and will provide a true appraisal, based on the cost per square metre to build in that area and the true value of the land. I have recently had a client buying a resale where the proposed purchase price was 315,000€. The property was just over a year old. The developer is still selling houses on the same development in excess of 325,000€. It is a beautiful house and I can understand why the client wanted to buy it. However the valuation report came back at 210,000€. The official figures proscribed by the Land Registry for land value in that area was 50% of the value the developer had put on the land. While market force is a factor in the assessment of value the principle part of the equation is the official value of the land and the construction cost per square metre.
Generally this seems to be happening in the less well developed areas – inland Murcia, Denia, Valencia, Alicante etc. Land has become so much more expensive on the coast and the authorities are becoming more protective of the coastline. The developers still want to make money from construction, so they have moved further inland. 20 minutes drive to the beaches can save you 50% of the price – hence the property looks so much more attractive to the buyer. The question is whether the true value of the property is the same as one is paying for it. Worse still what is the classification of the land that it is built on?
In short an independent bank valuation will do more to confirm that what you think you are buying is what the Land Registry think you are buying. They are significantly more detailed than a UK valuation and not as much emphasis on structural features, but massively more thorough on the legal aspect. It might cost a few bob but it could save a lot of sleepless nights and heartache at some time in the future.
Apologies for the diatribe but you should have seen the first draft!
Rgds