Ten Tips for Expats Buying Property in Madrid

Buying a property Madrid is quite different from the typical process of house buying in Spain, which for many expats means purchasing something quaint and endearing on the coast. 

 

For one, if purchasing in Madrid you will likely be buying an apartment, and thus you will not have to deal with issues that have plagued foreign home owners in Spain as of late (many of which are related to ownership of the land). 

 

Also, it’s important to realise that as a capital city, Madrid has some of the most expensive real estate in Spain, and certain areas of the city are far pricier than other areas. 

 

Overall though, real estate market trends for 2012 reveal that average home prices in Madrid will fall another 20 percent, at least between 2012 and 2014, after having already dropped by an average of 20 percent since market highs recorded in 2007.

 

►For investment: banks and individuals are cutting prices to up to 70 percent

►To buy-to-rent: the rental market is going up while purchase prices are going down
►To buy to live on the long term: if you negotiate well, the prices are due to go back up at a steady rate starting in 2014, and the Madrid market is already recovering in some neighbourhoods. Thus, even if you want to sell down the line, you may be able to do so for a large profit. 

 

That said, like in all markets, buying a house in Madrid comes with risks as well; thus expats should follow these 10 tips to increase their chances of making a successful purchase.
 

 

► 1. Beware of the market variations in Spain, and buy now only if you plan to hold the property for more than a minimum of five years. It’s helpful to use the New York Times calculator to evaluate the minimum number of years you need to hold before selling, in order for buying to be a better financial option than renting

 

► 2. Be aware that on top of the selling price, you will have to pay either an extra 7 percent of the property price for second-hand purchases (“Patrimonial Transmission Taxes) or 4 percent (Value Added Tax) for newly built properties. Additionally other legal and administrative expenses related to the purchase and the mortgage will amount to costs equivalent to 1 to 3 percent of the property price. 

 

► 3. Location, Location, Location: Choose your neighbourhood well, and make sure it is one that suits your lifestyle and budget. Prices change considerably depending on the area in Madrid; the average price per square meter in Madrid was 3478 € as of the last quarter of 2011. Housing in the cheapest neighbourhood is about 40 percent cheaper than housing in a moderately priced (under 2000 €/m2) neighbourhood, and housing in the most exclusive area 40 percent more expensive (around 4800 €/m2).

►4. Real estate agents in Madrid usually charge commission to the seller: 6 percent is the average. This is different to other parts of Spain. However, some agencies, such as Red Pisos, charge 3 percent to each party, the seller and the buyer. Just be aware that, in most cases, you will not have to pay commission, but it may occur.

 

► 5. Take into account that if you have a refurbished and modern flat in the centre of Madrid, you will be able to easily rent if for days or weeks to tourists for good money. This can be a good way to make extra cash while travelling, especially for expats who are planning to leave their flat empty for months. 

 

► 6. Negotiate. All real estate professionals know that average advertised prices are 20 to 30 percent higher than the final sale price. To negotiate well in Madrid, you need to be patient, have alternatives and be prepared. 

 

►7. If you have kids, be aware that all quality schools are in the northern and north-western parts of Madrid, which tends to be, like in nearly all capital cities in Europe, the poshest parts of the city.  Look at these maps to get an understanding of:

► 8. Always compare the mortgages you can get in Spain to what you could get in your home country. Spanish banks are still very cautious with mortgages, and charge high interest rates. 

 

► 9. Get help, you will need support, and keep in mind that real estate agents are not your friends - they are only business people working to sell houses. It’s recommended that expats use the services of a flathunter: a professional who can help get the best property at the best price. These service providers will ask for a percentage-based commission or fixed fee. 

 

► 10. Finally, and just to be on the safe side of things, get a lawyer - you will need a local trustworthy lawyer to make the buying process easier and stress-free. If you use a flathunter, they should recommend a good professional from the start.

 

Buying a property will most likely be the single largest purchase or your life, so it’s expected that many more questions and details will come up. Do not hesitate to ask the local expert, Pierre, anything you want – he will come back to you within 48 hours.