How to buy a holiday home in the Canary Islands [2022 edition]

When investing in real estate property abroad, one of the main questions that first comes to mind is about the costs and taxes involved.

Why is it cheaper to buy in the Canary Islands than elsewhere in Spain?

In general, the total costs (due taxes and transaction costs) of buying residential real estate in the Canary Islands are an extra 8.5% of the final sale price of the property, compared to the 11% average in mainland Spain. This is because the Canary Islands enjoy some financial benefits that the rest of Spain does not. When in mainland Spain the purchase tax of residential real estate is 10%, in the Canary Islands it is 6.5%. On a €250 000 investment, that represents an €8750 discount.

What are the parties involved?

In general, the parties involved in the transaction would be:

• buyer,

• an agent or broker representing the buyer,

• seller,

• a real estate agent representing the seller,

• a real estate lawyer,

• a notary,

• and a bank.

What are the transaction costs?

These costs are divided between transaction costs and transaction due taxes. Costs involved in the transaction include:

• property valuation, to determine the market value priced at around €500, but normally included in the costs of handling a mortgage, if the buyer uses this source of financing,

• a real estate lawyer, to provide counseling and revise deposit and transfer documentation priced at around €500,

• notary services, to witness, validate and register the property transfer, priced at 0.5% - 0.75% of the property's value,

• property registration priced at around 0.25%. It is assigned from a chart based on the sale price and can vary from €24,04 to €2.181,67.

• deed request and handling are priced at around 0.02% of the property value,

• if you took a mortgage from a Spanish bank, add charges between 1.5% to 2% of the mortgage’s value.

What are the taxes related to the purchase?

The taxes involved in the transaction include:

• Property transfer tax (IGIC): in the Canary Islands it is 6.5% of the sales price.

• Stamp Duty (AJD): tax related to the official documentation. It varies between 0.5% - 1% of the property’s value. It is paid through a form directly to the tax administration max one month after the signature of the deal.

What are the yearly costs and taxes of owning a property?

Once you own a residential real estate property, you are responsible for:

PROPERTY TAXES & FEES

• Property tax (IBI): is a town/district yearly tax for residential property. It is calculated by multiplying the cadastral value times a rate assigned by the town/district. For example, the rate in the south of Gran Canaria is 0.57/100. Although it is not always the same, note that in general the cadastral value of vacation homes in the islands stands between 1/4 to 1/5 of the property's market value. So for example, if you own a €500 000 residential property, and its cadastral value is around €100 000, then the IBI local taxes add up to €570 per year (€100 000 X IBI rate).
  

• Public services fee: is a yearly cost for trash management and other residential services. For example in the south of Gran Canaria, depending on the type of residential property, it varies from €29 to €48 per year.

INCOME TAXES

• Foreigner Income-tax (IRNR): is a bit of a controversial tax because whether the property is generating an income from rental or not, for the Spanish tax administration your property generates value. In the case of not being rented, the value comes from the variation of the market price (can be a loss too if, for example, the market suffered from loss of value). In the case of being rented, the tax is 19% of the property's net income (revenue from the rental after discounting related costs like utilities, repairs, homeowner's fees, amortization, loan interests, etc.). For a greater explanation and how to calculate it, please check out FAQ number 6 on our website.

As a foreigner, what are other important issues to should consider when buying a property in Spain?

There are three aspects you should pay special attention to and where an expert on the local real estate market would be of great help.

1. Income potential: like most foreigners who own property in he Canary Islands, there is a good chance you might want to generate some extra income on the property when you are not using it. Make sure that you are buying a type of property, in a tourist-friendly location, to maximize your income potential.
   

2. Property/owner verification: there have been cases where a property's official characteristics did not match the seller's communication, or where a property has debts that have not been communicated, therefore make sure to verify this before any commitment is made.
   

3. Negotiations: Spanish people have their own ways of negotiating, and being familiar with them can be very helpful to gain a reservation commitment on a highly demanded property, or to gain more favorable prices or terms.

While buying a property in Spain is not much different or complicated than any other EU member country, there's a much lower risk of the operation going sour when hiring an expert on the local market. Having knowledge of the local market can make a huge difference in your property's value and income potential. And being familiar with local negotiations can already save you the cost of the local market expert. It's clearly a win-win that will save you time and money.

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Are you considering investing in a foreign home? Contact Canary Home Invest and we will help you make a proper evaluation based on your property preferences, and return on investment expectations.

Why Canary Islands, Spain, and not invest in foreign property elsewhere? Here are nine sound business reasons why it is not only a safe choice but also a rewarding one.

Or check out our example case study on €250 000 and €450 000 properties in the Canary Islands to get an idea of what kind of property and return you can expect.

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