Buying real estate in Mallorca: what you should know

Buying an island home is an unknown challenge, especially for foreign investors.But if you are sufficiently informed about the customs of the industry and the regulations that apply here,you can't go far wrong.

And they still exist. People, mostly of foreign origin, for whom the purchase of a property in Mallorca does not end as happily as originally imagined. This is usually due to the ignorance, credulity and impatience with which foreign buyers on the island approach the purchase of a property. But it's actually not that difficult.

Professional assistance recommended
If you want to be on the safe side, get professional help. Especially if you are not at least 100 percent proficient in the official Spanish-Catalan language.

A lawyer or tax consultant specializing in regional real estate law is more than recommendable for such assistance during all phases of the purchase. Established, large and reputable real estate agencies have been offering their clients a complete support service for some time. In other words: With the help of in-house or external service providers, they take care of the entire purchase process, from applying for all necessary permits, licenses and other documents from authorities, agencies and service providers such as electricity or water suppliers.

Independent expert pays off

However, this all-in-one service, which is advertised free of charge and often charged via the estate agent's commission, has a catch. Real estate salespeople pursue a very specific goal in their work: to sell the selected property as quickly as possible. It can therefore happen that defects in construction or building law that are not apparent at first glance are only discovered by the new owner after the property has been purchased. With regard to the legality of a property, the following things must be clarified in advance:

Before buying, the actual size of the property (dimensions, living space, etc.) should be checked in detail in the land register.

Are all the necessary permits available for the property and any subsequent extensions or conversions?

Have all municipal taxes been paid for the property?

Is the property subject to any fines or penalties?

In cases of suspected grandfathering, a lawyer or architect should always be consulted.

For both the purchase of new buildings and existing properties, it is therefore advisable to engage a local, independent building surveyor or expert who will put the property through its paces.

What needs to be included in the purchase contract?

The "contrato de compra", i.e. the purchase contract, should always be drawn up by a legal expert such as a lawyer or notary. In addition to the purchase price, it must also specify the exact legal description of the property. The buyer and seller can reach various preliminary agreements before the final notary appointment.

Securing the right of first refusal

For example, in the form of a so-called "Contrato de Opción de Compra". This is the usual option contract in Spain, which gives the buyer the right to buy the seller's property by a specified date in return for payment of an option sum. The contract is usually drawn up when certain details or the financing are unclear.

The amount of the down payment is usually between 10 and 20 percent of the purchase price. If the purchase does not materialize, the seller retains the option amount. Otherwise, it is offset against the purchase price. Once all the details of the purchase transaction have been clarified, a private-law purchase contract is concluded and legally signed in front of the notary.

As in Germany and other European countries, there are tax obligations for both parties to the contract when purchasing a property in Mallorca.
Tax obligations for buyers and sellers
The so-called capital gains tax, "Plusvalia", must be paid by the seller of the property under Spanish law. Nevertheless, it happens again and again that a seller tries to force it on the buyer's ear. It is therefore advisable to include an explicit contractual provision on the payment of this tax in the purchase contract.
The "Plusvalia" is a municipal tax. It taxes the increase in value of the land (but not the value of the property built on it) since the last change in the land register. The basis for the calculation is a recently introduced "real estate reference value" . The determination of this reference value is the responsibility of the respective municipality in which the property is located.

Another payable tax is the property transfer tax, ITP. It is calculated according to regionally defined percentages that depend on the amount of the purchase price.

Anyone who owns a property must also pay communal taxes (IBI) to the town hall every year, including for waste disposal. The amount varies from municipality to municipality.

Consider financing options
If you want to finance part of the purchase price through a bank, you should also make use of cover from appropriate financial institutions. Reason: The range of mortgages offered by banks varies considerably in some cases.Conclusion:
Like anywhere else in the world, buying a property in Mallorca is associated with certain risks. However, if you familiarize yourself with the local conditions and requirements in advance, you need not worry about any bad surprises. In any case, the assistance of an expert experienced in real estate law is recommended.