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Article copyrighted © 2025. Plagiarism will be criminally prosecuted

Inset photo credit: Development Emare, by ERASUR

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
1^st of June 2025

Introduction

Continuing with last month’s topic (How to buy resale property in Spain), this month we publish an article on how to buy new construction homes from a developer. I leave for next month, how to buy commercial property in Spain.

The following article provides a sweeping outline of the procedure. If you are looking for concrete advice on a given matter, I suggest you follow the supplied links below for more details.

I have greatly abridged the procedure for ease of comprehension. However, if you fancy delving into greater detail, I advise you to read (or download) our free Guide to Buy Property in Spain.

Buying off-the-plan property normally means paying for a property that is under construction and only exists on paper. New builds take 2 to 3 years to build in Spain. During all that time, you will have to make interim payments to the developer and pay the balance of the asking price upon completion.

First stage: The Reservation Contract

New builds, for the most part, are built catering to the highest quality standards, employing only the most modern materials and technical know-how. This has a significant impact on insulation and noise reduction, which in turn impacts on your town hall bills by greatly reducing them. New properties have a smaller carbon footprint, which translates into town halls slashing local taxes to incentivise their construction. In plain English, fortunate off-plan owners can expect to pay significantly lower local taxes, in some cases 50% less, as opposed to older resale properties. On high-end properties, this translates into massive savings of thousands of euros a year! Not to mention you are actively contributing to saving the planet.

After making enquiries and looking around for a property you may have taken a liking to one. Off-plan properties are normally listed by developers, real estate agencies or property portals such as IDEALISTA. They will nudge you to sign what is known as a reservation contract (or holding deposit) which strikes the new-build property off the market for a pre-agreed period of time, normally spanning 30 days. During this time, the property is tied and cannot be viewed by third parties, nor can any further contracts be signed over it.

The security deposit normally ranges from €3,000 to €6,000, depending on the asking price. High-end properties command larger deposits. The deposit contract is a succinct document that is normally only one page long. It has very few details, amongst them the developer´s name and company details, the development’s facilities, a general property description and the asking price.

The reservation deposit is deducted from the final asking price at completion (third stage, see below).

Pro-tips:

• The first thing a buyer needs to do is open a non-resident bank account. This is required to transfer the amounts for stages two and three below, and also to arrange direct debits on the property and pay local taxes.

• It is strongly recommended you hire an independent conveyance lawyer from the outset (prior to signing a deposit contract). On following this simple, yet essential, advice buyers stand to sidestep most blunders on buying off-plan property in Spain.
• You should not pay any deposit unless the developer has supplied you with a copy of a Building Licence (BL). The reason is because bank guarantees, which secure all your stage payments, require a BL to be valid. In plain English, if there is no granted BL, your bank guarantee is worthless. You would lose all your money without any legal recourse. More details in our article Law 20/2015: Important new bank-guarantee legislation explained for offplan buyers.
• Reservation deposits are non-refundable unless expressly worded otherwise.
• You need to apply for a NIE number (Tax Identification Number for Foreigners). This is an important document that is required by all administrations, including banks. We can get you a NIE in under 2 weeks. More details in our article: NIE Number Explained.

Second stage: Signing a Private Purchase Contract

Before 30 days are up, you will be expected to sign what is known as a private purchase contract (or PPC for short). In Spanish, this is known as Contrato Privado de Compraventa. In English law, we know it as Exchange of Contracts (or Exchanges for short). The PPC will be a long legal contract that lists the buyer and seller´s personal details, a full property description, the agreed sales price, the schedule of stage payments, the buying terms and the time frame to complete before a Spanish Notary Public.

Your lawyer will supply you with a report on title, so you are perfectly aware of the legal situation of the property you want to buy before committing to sign a private agreement. This report on title should cover the following buyer’s checklist:

• Is the developer creditworthy?
• Construction track record?
• Has the developer filed for creditor receivership?
• Does the developer own the land?
• Is there a Building Licence?
• Are there any planning issues overshadowing the development?
• Is the construction site compliant with Spain’s Coastal Law?

Normally, on signing a PPC, you are expected to make a down payment equivalent to 10% of the purchase price, which is deducted upon completion from the asking price (stage three). This amount of money is non-refundable.

Besides this down payment, you will be expected to pay approximately 35% of the final sales price in stage payments over the next two years. These are deducted at completion (stage three) from the balance owed.

Pro-tips:

• All stage payments (including the initial reservation deposit mentioned in stage one) are secured by what are known as bank guarantees. I simply cannot stress enough its importance. This document will be handed to you each time you make a stage payment and acts as a safety net on all the interim payments you make until the property is built. This safeguards your money in the event the development is not finished or if the developer files for bankruptcy proceedings. Attaining copies of a bank guarantee is the top priority for your appointed conveyance lawyer. If your stage payments are not covered by a bank guarantee, you run the risk of losing all your money.
• Remember to store safely a copy of all the stage payments you make to the developer, as they will be required upon completion by the notary in compliance with Anti-Money Laundering Regulations. You may also need them further on should you instigate legal proceedings against a developer.
• A developer cannot amend the agreed delivery date of a property worded in the PPC without your prior written authorisation. A change of a few months on the agreed delivery date is generally acceptable, but more extended periods of time require the buyer’s written authorisation as it is a contractual change. And, should they do so, they need to serve you formal legal notice and even compensate you for serious delays (six months plus). A serious delay is a contractual breach of agreement that allows you to cancel the contract and opt for a full refund.

Third stage: Completion

One of the particularities of buying off-plan property, is that completion normally takes place two years after signing the PPC (stage two). The reason being is that the property is under construction and you only complete when it is delivered legally.

Once a developer has attained a Licence of First Occupation, or legal equivalent , he will serve a two-week legal notice to the buyer (or his lawyer) to complete on the property. 

Completion is the term used to sign the title deed which is witnessed by a Spanish Notary Public. Additionally, if mortgage finance is required, a second deed is signed called a mortgage deed. Completion is the time when you pay the balance owed, normally 65% of the sales price.

You should read carefully through the deed before you sign anything. This is particularly true of a mortgage deed. Your lawyer should ensure you do not sign abusive mortgage clauses.

If you need a mortgage loan to complete on the property, it is highly advisable you negotiate a reasonable time frame to secure it i.e. 45 to 60 days. This is particularly true if a borrower is non-resident. A borrower requires an Offer in Principle (or Agreement in Principle) from his lender known as Oferta Vinculante in Spanish. By law, borrowers must pass a short exam in Spanish on their mortgage terms and conditions in line with Consumer Law protection (your lawyer can take the test for you).

At completion, you take legal possession of the property which is symbolized by being handed over the house keys.

At completion, you may be surprised to find a great number of people:

1. The developer’s legal representative and his lawyer.
2. The bank´s representatives (if a mortgage loan is required).
3. The estate agent
4. A translator.
5. And finally, the notary himself.

Pro-tips:

• I strongly advise NOT to complete before you are handed a copy of a Licence of First Occupation (LFO, for short). This key document ensures the property is above board (at least in most cases). Completing without a LFO has associated a large number of problems:

1. It provides a check on the planning legality. A LFO means the developer has built the dwelling in accordance with the original town hall’s Building Licence as well as with all Planning laws. The inspection to grant this licence is carried out by town hall’s technicians who certify a dwelling is deemed apt for human habitation. If there is no LFO granted, it may mean the property has fallen foul of planning regulations.
2. It is required by utility companies to have access to official supplies: water, electricity and gas. Spanish law requires the granting of a LFO to hook up the dwelling to the supply grid. Otherwise, you will be on the builder's supply, which is precarious at best.
3. Lenders will ask for it if you require finance. Banks will also be asking you for a LFO. Even on reselling the property, buyers will demand a copy of a LFO. If there is no LFO, banks will refuse to finance the purchase, in which case you vastly reduce the pool of prospective buyers, as 80% of buyers need a mortgage loan to complete in Spain. You could be waiting many years to sell the property.
4. Holiday lettings. If you are looking to buy as an investment (buy-to-let), a LFO is required by Regional Tourist Authorities to attain a Tourism Licence. If your property hasn’t attained a first occupancy licence, you will not be able to rent out your house in the short term and may be landed with humongous fines if caught red-handed. The fines for non-compliance are eye-watering in some regions of Spain e,g, Catalonia.

• Unlike in other countries, such as the United Kingdom, where chartered surveyors are normally hired only on buying resale property, I strongly recommend you hire one to carry out a snagging list of your Spanish new-build. The time to detect and mend all outstanding construction flaws is before completion. Once you complete, you lose your leverage unless your lawyer has practised a retention, which in practice is fairly challenging and should not be relied upon. Commissioning a comprehensive snagging report avoids countless problems and is worth every eurocent in my experience. Once all the construction flaws are fixed by the developer, you can complete at the notary. More details in our article Off-plan construction guarantees in Spain.
• Failure to secure a mortgage loan in time may result in the loss of the 10% deposit. The developer will always offer a buyer to subrogate himself in his legal position, taking on the developer´s mortgage loan. However, the pre-agreed terms and conditions with a developer are not always suitable for an individual borrower, which is why you should shop around and compare with other mortgage offers.
• It goes against a buyer´s best interests to under-declare part of the sales price at completion (besides being illegal). More on why in my article Taxes on selling Spanish property.
• You should immediately replace all the locks of your new property (including storage rooms) as countless people have had access to copies of your home keys during the construction phase. This avoids thefts and break-ins during the first months.
• Request an Energy Performance Certificate from the developer prior to completion. Properties with high energy efficiency ratings qualify for tax rebates of up to 20% on their local town hall tax (i.e. IBI tax).
• Request a 10-year building warranty from your developer.

 Fourth stage: Post-Completion

Post-completion at the notary office, your lawyer will file and pay the buyer´s taxes and then lodge the title under your name at the land registry. Title registration normally takes several weeks.

Congratulations, you are now the official owner of a Spanish property. Enjoy!

You should open a Spanish bank account if you haven’t done so already. Utility companies do not accept overseas payments. You should set all the below as direct debits against your Spanish account:

• Utility bills (water, electricity, landline, gas, internet, security, etc).
• Rubbish collection tax. Refuse charge is paid one or more times a year, depending on your town hall.
• IBI tax. Normally paid annually (akin to the UK’s Council tax).

Pro-tips:

• On owning property in Spain, it is strongly recommended you make a Spanish will. This avoids your heirs a great deal of problems, saving them time, money and aggravation at a time of bereavement. Spanish wills are exclusive only to your Spanish estate. Ideally, I advise you to make two wills; one in your home country and one in Spain dealing exclusively with your Spanish estate.
• You should set as a direct debit all utilities.
• You should set as a direct debit all local taxes on your property (such as IBI and garbage collection tax). On new build properties, IBI bills are normally received two years after completion.
• On owning property as a non-resident, you must appoint fiscal representation to comply with your annual Non-Resident tax filing. You start paying this tax on the following year of the property purchase.
• If you plan to rent out your property as a holiday home accommodation, some regions in Spain have stringent laws on the matter – seek legal advice. You may need to apply for a Tourism licence, or you register your holiday rental home. Non-compliance attracts humongous fines.
• Buyers should be mindful of La Complementaria or Bargain-Hunter tax.

Associated taxes and fees

As a rule of thumb, purchase costs add 10 – 13% over and above the asking price.

Please take thorough legal advice to budget your purchase before you commit. You can read our article Taxes on buying property in Spain.

On buying new property in Spain, buyers face the following taxes and associated fees:

1. Taxes

• Value Added Tax (IVA, in Spanish): 10%.
• Stamp Duty (AJD, in Spanish): 0.5% – 1.5%

2. Fees

• Notary fees (to witness the sales and mortgage deed): approx. 0.1 – 2 %
• Land Registry fees (for the inscription of the deeds): approx. 0.1 – 2 %
• Mortgage & gestoría fees (if finance is required): 1 – 2 %
• Lawyer’s fees: 1 – 2 %

Pro-tips:

• On selling property, almost all the above-listed items are tax-deductible. It is strongly advised that you keep hard copies of all the invoices above. This will greatly mitigate a seller’s Capital Gains Tax (19% tax rate for non-residents). More details in our taxation article: How to avoid capital gains tax when selling property in Spain.
• Storage rooms (trastero) and car parks (plaza de garaje) sold as separate legal units from the main dwelling, attract a VAT of 21%.

Where to buy property in Spain?

Spain is a wonderful country that offers multiple enticing options catering to all tastes. It is not without good reason that Spain is the second most visited tourist destination in the world!

You will be spoilt for choice: Barcelona, Costa del Sol, Granada, Madrid, Malaga, Mallorca, Seville, Sotogrande, or Valencia.

If you need a visa to stay in Spain, I advise you to read our article on the matter: Moving to Spain in 2025? Spanish visa overview.

Conclusion

The Spanish government pursues a lofty goal of facilitating access to the property ladder for its struggling nationals who, in most cases, are priced out of the market. However, these well-meaning laws have backfired as the government’s misguided housing policies have greatly increased the red tape, leading developers to build fewer new homes compared to previous decades. This has triggered an affordability crisis in Spain.

Under 100,000 new homes are built a year (Spain ranks as the second country in the EU that builds fewer homes), while Spain’s annual housing demand is well over 500,000 and growing steadily due to unbridled immigration. This housing stock shortage translates into a supply crunch, which has led new builds to appreciate by two digits a year, especially in large Spanish cities (such as Barcelona, Madrid, Malaga and Valencia). Indirectly, these housing policies have also caused rental prices to soar i.e. by 20% in Madrid in 2024. 

Although other underlying reasons have also contributed towards the house price hike (such as the disruption in the global supply chain of construction materials caused by the Covid-19 pandemic or the unbridled rise of inflation caused by QE which incentivises savers to pile their savings into real estate to hedge against inflation), Spain’s housing shortage is the main factor by a long shot. Although Spain indeed built a large glut of housing in the last property boom, most of these units are poorly located, far from city centres, and with poor infrastructure, making them unfit and far less attractive compared to sought-after newer developments. 

Unfortunately, following years of the government’s inaction and oversight, there is no quick solution in the short or mid-term, as land takes several years to be developed. We can expect new build prices in Spain to continue to increase without reprieve over the next 3 to 5 years, given the strong fundamentals for housing demand, both domestic and foreign.

Ironically, the government’s housing policy, which aimed to treat housing as a basic necessity and not as a speculative asset, has had the opposite effect. New builds, because of the government’s induced supply crunch, have become the hottest asset, greatly appreciating year-on-year. If you also factor in huge rental yields growing by two digits a year, also caused by the government's intervention in the rental market with its new Housing law from 2023, you have the perfect recipe for investors to pile in and buy property in Spain as buy-to-lets fuelling a new property speculative bubble. The road to hell is paved with good intentions.

In my humble opinion, Spain’s government should step in decisively and defuse the housing situation they have created by cooling down housing prices on allowing developers to build more units and also by proactively fostering state-subsidised property nationwide on a large scale. Banning golden visas or approving a 100% tax on property purchases by non-residents is not the way, as builders will build even fewer homes, further exacerbating and compounding the housing problem.

To close, hiring a seasoned lawyer pays for itself on all the money you stand to save on avoiding the most common pitfalls of buying new build property in Spain. Whilst it is possible to buy property in Spain without using a lawyer, it would be very unwise to do so, particularly if you are a foreigner, as you would be gambling away with your life savings. I should also mention that lawyers’ fees are tax-deductible on selling the property (CGT)!

Make sure you are assisted in your house-hunting by reputable experts (such as a long-established real estate agency, a reliable mortgage broker or a seasoned conveyance lawyer) to benefit most from the wide range of available new builds – you will be spoilt for choice!

It is important you avoid being pressurised into completing; take your time to fully assess the information you are supplied, and do not hesitate to ask any questions. As a quick recap, I advise you to read our article 8 tips on buying new property in Spain.

And finally, as a golden rule for new builds, I draconianly advise not to complete without a Licence of First Occupation.

At LNA, our friendly team can assist you in buying (or selling) your property anywhere in Spain. Give us a call.

At Larrain Nesbitt Abogados (LNA) we have over 22 years of experience specialising in property conveyance and taxation all over Spain. We also assist clients with immigration & residency visas, and inheritance procedures (probate). You can contact us by e-mail at info@larrainnesbitt.com, by telephone on our UK line (+44) 0754 3838 218 or Spanish line (+34) 952 19 22 88, or by completing our contact form.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Ní neart go cur le chéile. VOV.

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