Buying Guide

FOREWORD

Buying a property in Ibiza is a lifelong dream for many of us. With the possibilities of a better climate, cheaper property and a lower cost of living, it is easy to see why many Britons are opting for a life-changing move abroad.

It is important to make sure you are getting the right advice and making the most of your money. Buying abroad can be a complex process and there are many investors who have made mistakes along the way. This is why we have produced this beginner’s guide to buying an overseas property in IBIZA. The aim of the guide is to start you on the right track and highlight some of the key issues you might wish to consider when buying in Ibiza.

I would also like to draw your attention to a part of the process often overlooked by investors. At some point you will need to convert your Pounds into another currency to pay for your property, or to pay your overseas mortgage. It is important to remember that a change in the exchange rate between deciding to buy a property and your final payment could substantially increase the cost of your property. Methods of fixing the exchange rate in order to fix the cost of your property from the outset are available from specialist currency brokers.

Currency specialists such as Currencies Direct could also save you money by offering better exchange rates than the banks or building societies. Savings of 2% the equivalent of 3.000 euros on a property worth 150.000 euros are not uncommon.

The information provided in this guide should only be used as a summary of issues to consider when buying abroad and not as personal advice. Please be aware that planning regulations, taxation and local laws frequently change in Ibiza I suggest you seek professional advice at each stage. If you have any queries regarding foreign exchange or our service, please contact our currency specialist, Currencies Direct.

MAKING THE DECISION

Each year, thousands of people head to Ibiza without a definite idea of what they are looking for. At best they waste time; at worst they waste money and end up with a property with which they are not happy. To work out whether your dream of buying a property in Ibiza can become a reality, you first need to consider your investment objectives. These are just some of the questions and issues you should consider:

–       Why do you want to by in Ibiza?

–       How much will it cost?

–       Can you afford it?

–       What are the tax implications?

–       Do you have a particular resort in mind?

–       Are you looking for a holiday home, a buy-to-let, an investment property or a permanent home?

–       What size house are you looking for, how many bedrooms, m2?

–       Are you looking for a modern development or a more traditional property?

–       Sea views or country view?

The more decisions you make now and the more research you do, the more you can narrow your search and be better equipped to save time and money later on.

HOW TO CHOOSE THE REGION

You probably already have an idea of the property you’re looking for, but this will depend on whether you intend to use your property as a holiday home, investment property or as a permanent home. Culture, climate, lifestyle, rental income and investment potential will help you to narrow down the search from region property. If you need to find work in Ibiza, you need to consider whether language will be a problem.

PLANNING YOUR FINANCES

One of the first people with whom you should discuss your plans should be a financial advisor, so you can calculate what you can realistically afford. Working out a strict budget and sticking to it is essential, but you will need to remember that on top of the property purchase price you will also have a number of one-off and ongoing costs.

ONE-OFF COSTS

One-off costs include viewing trips, and legal fees. There may also be property transfer tax to pay, Stamp Duty and Vat (IVA) on newly built properties. You may also need to consider furnishings and renovations depending on the property.

ONGOING COSTS

Ongoing costs will include local taxes and insurance, and if your property is located within a development, then you will also have maintenance and management fees to pay annually. You may also have to arrange a mortgage, but do remember that there are not always mortgages available to foreign property buyers, and be aware that currency fluctuations could affect the cost of your mortgage, unless you fix the exchange rate.

CHOOSING AN ESTATE AGENT

There are various ways of finding an estate agent overseas, but the best way is to use an agent that has been personally recommended to you, or ask your solicitor to recommend a reputable company. The internet is an invaluable tool and may help you find agents that specialise in your chosen resort area in which you are interested. Local agents should have both in-depth knowledge of the area plus a wide range of potential properties for you to choose from. This generally ensures that they are a well established company, who are able to speak English and who possess a sound knowledge of the Ibiza property market, as well as the needs of foreign buyers.

BUY-TO-LET

The buy-to-let or jet-to-let market has boomed over the last decade. Buying the right property abroad and letting it out can potentially provide you with a good source of income and a holiday home. You will need to establish how the income will be taxed in Ibiza.

There are several factors to consider which might enhance the potential of a successful buy-to-let property. The area should attract tourists and have a fully developed tourist infrastructure, regular budget flights and international attractions. You will need to consider the region carefully, plus the holiday market you are trying to attract. Are you looking for sun worshippers, golfers, families or retired couples? Would you prefer a short but high rental season or a lower but steadier year round income? Rental properties by the sea tend to experience short bursts of high rental yield, interspersed with periods of no rentals at all, dependent on the tourist seasons of the location. Inland rental options, on the other hand, tend to provide lower, but continual rental returns. Obtaining information on the area and the potential rental income achievable is essential before you buy.

LEGAL

Ensuring that you receive good legal advice is one of the most important parts of the buying process. Unfortunately there are still many people who do not take adequate advice when buying abroad, in the hope of saving money. Such investors are often featured on television shows and newspaper articles, telling their story of the property purchase that went wrong.

You firstly need to make sure you know as much as possible about the property law. For example, are debts (mortgage, etc.) accrued by the owner, or by the house? In some countries, the previous owner can lend against his property, with the debt then passing to the next owner of the property. (NOTA SIMPLE)

Building regulations need to be checked carefully to ensure that the home you are buying is legal. Spain received a lot of bad publicity in 2007 owing to property scandals, but the majority could have been avoided if the buyer’s lawyers had checked that all paperwork was in order up to date. Many British investors who did not take sufficient legal advice encountered problems with properties that had been built on land designated as green rather than urban.

It is important to appoint an independent lawyer, as problems often arise when investors use lawyers connected to the selling company. Such conflicts of interest rarely benefit the buyer.

TAX

Assuming you are a British resident, you will need to consider the following taxes when buying property overseas. On buying the property you will have to pay the equivalent of VAT (known as IVA) and local taxes (known as IBI’s).

MORTGAGES

If you need a mortgage, you can either take a foreign mortgage on the property or, if you have sufficient equity in your UK property, you could raise the funds on a standard mortgage. British lenders tend to offer a higher percentage of the property’s value than those in IBIZA.

In Spain, you will find a wide range on offer, though due to the economic climate, currently offering lower loan to value rates than they were a couple of years ago.

Whatever mortgage you opt for, in Britain or Ibiza, make sure you leave yourself some flexibility in case the interest rates in the country where you’ve got your mortgage rise. As this is a complex topic, seek advice from a professional who can advise you on international mortgages. Visit the website of one of our mortgage partners, MORTGAGE DIRECT, for more information and guidance.

CURRENCY CONVERSION

One aspect of buying abroad that is often overlooked is the requirement to exchange your Pounds into another currency. If ignored, the exchange rate you obtain could result in the purchase of your property costing thousands of Pounds more than it should. There are simple ways in which you can save money on foreign exchange and we suggest than you consider both carefully.

1.-  The vast majority of people converting currency and transferring money abroad use their bank, as they are unaware of specialist currency brokers such as Currencies Direct. By using a currency broker you could save up to 2% of the value of the property just by securing a better exchange rate than most banks offer.

2.-  The date on which you commit to buying your property and the date on which you need to pay are often months apart. The currency market moves quickly, and an adverse movement in the exchange rate could cost you thousands on the property purchase, and put your investment over budget.

Fixing the exchange rate through a currency broker will give you peace of mind in knowing exactly how much your property will cost from the outset.

Currency brokers can assist you in explaining what is happening in the currency market and assist you in selecting the type of currency transaction that will best meet your needs. Brokers could even save you money on smaller currency transactions such as transferring money to cover living expenses, renovations or property maintenance. If you are letting your property and transferring the income from a foreign currency into Sterling you can also save money on the conversion and transfer costs.

INSURANCE

As with your UK property, you will need to insure your overseas property. If you are using the property as a holiday home, check the policy carefully. Is it fully covered even when you are not there? Are you required to turn off all power or drain the water when you leave?

If you are planning to let out your property, you will need extra cover, such as cover for the cost of alternative accommodation for your guests if your property becomes unavailable (after a fire, for example) and cover for any loss of income. You will also need Public Liability Insurance (PLI), in case a guest is injured while at your property (for example, slipping on a tiled floor). Make sure your pool is covered by the policy, both against damage and with PLI.