The legal process when buying property in Mallorca

The purchase of a property in Mallorca is a process in which numerous details must be considered. In Spain and, of course, in the Balearic Islands, there are numerous bureaucratic hurdles to overcome from signing the option contract to the notary's appointment. Without legal assistance, the purchase of real estate in Mallorca for foreign prospective buyers can hardly be accomplished. An independent lawyer (span .: Abogado) accompanies you through the whole process and is involved in the negotiations with the seller.

We clarify what steps are required until the final purchase of a property in Mallorca and what is to be considered on the way to home ownership.

Step 1: Get the tax number

The application for the Spanish tax number NIE is mandatory for the Mallorca Property Buying Guide. Without this "Número de Identificación de Extranjeros", you will not be able to buy a home on the Balearic Island, take out a mortgage loan or buy a car. You can apply for the NIE tax code at the Oficina de Extranjería in Palma de Mallorca. As an alternative, hire a Gestoria with this official agency. Under this name service providers are summarized, which - equipped with a power of attorney - residents and locals to take the time-consuming administrative procedures. To apply for the NIE number, the passport and two passport pictures are required.

Step 2: Open a bank account

After receiving the NIE number, you can open a bank account in Mallorca. You need this to handle the purchase of the property. As in the whole of Spain, it is customary on the Balearic Island to hand over the purchase price to the seller in the form of a check at the notary's appointment. For this check bancaria the Spanish financial institutions charge a fee, the amount of which you should inquire in advance. You will continue to use a Spanish bank account later, for example, to pay for the finca furnishings and pay the running costs.

Step 3: Check the property

Real estate professionals know the pitfalls that can bring a real estate purchase in Mallorca with it. Before deciding on a property and signing a reservation or option contract, you must thoroughly review the property. The warm and humid climate of Majorca places high demands on the fabric of many properties. For this reason, you must inspect the house for moisture damage and check the condition of the electrical and water pipes. In the course of this analysis, you check whether and which heating options are available and in which state windows, doors and sanitary facilities are located.

Also important is a review for mortgages or residual debts that weigh on the property. If this is the case, the buyer of the house has to bear all liabilities. In the ideal case, you should hire a lawyer of your own with the search. To prevent fraud, have your lawyer additionally check whether your contracting party is really entitled to sell the property.

Step 4: Reservation or option contract

If the dream property is found and the price is within the available budget, a reservation or option contract is concluded in the first step. A reservation contract (Contrato de Reserva) makes sense if the real estate buyer has a real interest in buying the property, but the financing is still uncertain. The reservation contract has the character of a letter of intent. The interested party pays a small down payment and the seller agrees to reserve the property for a period of a few days. If it comes to the conclusion of a purchase contract, the down payment is credited to the purchase price, if not, the money is lost.

The situation is different with an option contract that is similar to a binding declaration of intent. For a deposit of 10 to 20 percent of the purchase price, the interested party acquires the right to purchase the property within a precisely defined period. If there is a contract, the option sum is credited to the purchase price. If no purchase contract is concluded for reasons that the prospect has to answer, the entire deposit is lost. If the seller has to answer for the failure to make a purchase, he must pay the buyer the option sum plus a compensation.

Step 5: Ensuring funding

People who can not or do not want to pay for a property in Mallorca in cash should take care of the financing at an early stage. After the Spanish banks survived the global banking crisis in 2008, loans are being issued to foreign homebuyers again. Most of them are mortgage loans, which are approved on the basis of a differentiated real estate valuation. The functioning of such a loan in Spain is fundamentally different from that in the rest of Europe.

Mortgages are issued for a maximum of 20 years. The complete repayment of the debt is compulsory during this period. For this, the loan can be claimed for tax purposes. The negotiations with the bank should not lead you on your own, but hire a lawyer with this process. The lawyer monitors the mortgage on request and handles the formalities.

Step 6: Taxation of the property

When buying and maintaining a property, a distinction is made in Mallorca between one-time and current taxes. In the case of a real estate sale, the one-off tax is either the land transfer tax or the VAT. The amount of the former tax is between 8 and 11 percent and depends on the purchase price. The property tax is levied by the municipalities and the amount depends on the cadastral value of the property. An exception is vacant real estate in the Balearic Islands.

As the only autonomous region in Spain, the Government of the Balearic Islands passed a law in 2018, which allows cities and municipalities to increase the property tax on vacant real estate by up to 50%. Background of this amendment are the exploding rents in Mallorca, which should be counteracted with a speedy rental of unused living space. Ongoing costs are causing income tax and the wealth tax re-introduced in 2012.

Step 7: Notary appointment

Once all the formalities have been completed, the property purchase on Mallorca will be sealed with a final notary appointment. In the presence of the buyer, seller, legal counsel of both contracting parties and a representative of the bank, if a mortgage has been taken, all contracts are signed. Only then can the entry in the land register be made. The notary is required by law to notify the land registry within 24 hours of the sale of the property. The buyer, in turn, must pay the property transfer tax to the appropriate tax office within 30 days of signing the contract. After the registered payment receipt is the entry in the land register nothing in the way.