Spain: Overview

RENTAL YIELDS

Yields are low in Spain

Returns from rentals are low, Global Property Guide research shows. Rental yields for luxurious condos in the centre of Madrid range between 2.9% and 4.2%. Properties in Barcelona have lower yields at around 2.6% to 3.75%.

According to Bank of Spain figures, show that gross returns from renting for Spain as a whole fell from 3.8% in Q1-1998 to 2.07% in Q4- 2006.

Read Rental Yields  »

TAXES AND COSTS

Taxes are high in Spain

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	24%	24%	24%
Click here to see a worked example
Source: Disclaimer

Rental Income: All property owners are subject to a flat tax of 24% on gross rental income.

Property and Wealth: A special annual 3% tax is levied on the cadastral value of real estate owned by non-residents. Property owners are also liable to Net Wealth Tax and Real Estate Tax levied by the municipal government.

Capital Gains: Non-residents pay a flat rate of 18% on the capital gains tax.

Inheritance: Each beneficiary’s inheritance is taxed at progressive rates (7.65% - 34%) after certain tax-free amounts have been deducted.

Residents: Resident individuals are liable to tax on their worldwide income and assets but they are entitled to some allowances and tax credits.

Read Taxes and Costs  »

BUYING GUIDE

Total transaction costs are moderate in Spain

The total roundtrip transaction cost is around 10% to 14%. This includes the Property Transfer Tax (6% or 7% depending on the autonomous region) and the real estate agent’s commission, which is around 2.5% to 3%.

For new properties, VAT is imposed instead of transfer tax. VAT for vacant land is 16%, while VAT is 7% for new houses, plus stamp duty. It is advisable to buy land with a house under construction or finished to minimize tax liability.

Read Buying Guide  »

LANDLORD AND TENANT

Law and slow courts benefit tenants

Spain’s rental market is extremely pro-tenant.

Rent Control: The landlord and tenant have the contractual freedom to fix the rent and state the due date of payment. However, rent increases are tied to the Consumer Price Index and limited to once a year.

Tenant Security: The 1994 Urban Tenancy Act aimed to restore balance between the interest of landlords and tenants. It failed. Tenants are guaranteed tenure for five years. Courts are painfully slow in resolving cases of tenant eviction and compensation for rental arrears and damages.

Read Landlord and Tenant  »

ECONOMIC GROWTH

Strong economic fundamentals in Spain

The strong performance of the property market has been based on sound fundamentals:

* Spain’s relatively high rate of economic growth since 1994. The average annual GDP growth of 3.7% from 1998 -2006 was substantially above the EU average of 2%.

* Despite recent interest rate hikes, mortgage rates are still low at around 4.5% - 5.5% in April 2007, in sharp contrast to the 17% mortgage rate in 1991 and 10% – 12% from 1995 to 1996.

* The numbers of unemployed have fallen from 19% in 1994 to 8.4% at end-2006, and more women have entered the labor force. Real wages grew by an average of 3.2% annually from 2000 to 2006.

* There has been strong internal immigration, as Spaniards move from rural areas to the towns. Spain’s prosperity is very recent, and till recently Spain was a largely rural country.

Located in southwest Europe, Spain is a modern industrial country with a GDP per capita of US$27,814 in 2006 and a population of 45 million. Spain joined the European Economic Community in 1986 and was one of the founder members of the European Monetary Union in 1999. In 2002, Spain achieved full monetary union with the EU and adopted the Euro.