Ibiza is a small Mediterranean island which had a population of 142,000 in 2016. The Spanish territory is the third-largest of the Balearic archipelago with an extension of 572km2.
The economy relies predominantly on tourism, and therefore traditional economic measures such as GDP and export numbers aren’t as instructive as they are for Spain as a whole. Property sales and construction demand are better indicators of the economic health of the island, and the good news is that demand is strong. Land is a scarce resource on Ibiza, and the global reputation of the island means that demand is high.
While the island retains strong links to the Spanish mainland, it was not as badly affected by the global recession. The luxury property market is particularly strong, and helped to mitigate the effects of the financial crisis. In fact, the international reputation of the island means that the property market is largely sheltered from the vagaries of the global market.
The standard of living on the island is high, with a diverse population that hails from around the world. The island is well-served by airlines from all over Europe, and infrastructure continues to improve thanks to new roads to previously isolated rural areas.
As Spanish banks continue their recovery there is more liquidity and better mortgages are becoming available to property investors due to low interest rates. With the market set to continue its upward curve it looks like a good time to invest in Ibiza.
Ibiza Property Market
In the luxury property market, values have rocketed by approximately 170% in the past ten years, and as much as 5% since the end of 2012. This trend is set to continue as demand for property outstrips supply.
According to Pisos.com, the average price of a property in Spain is 1,546 €/m² and the figure for the Balearic Islands is 2,208 €/m². This is the second highest in the country after Cantabria at 2,639 €/m² and slightly more than the Spanish capital of Madrid 2,043 €/m².
For those that are fortunate enough to invest on the island, a lucrative phase of regeneration is in the offing. With the San Juan road running along the spine of the island now widened and able to handle more traffic, the north of the Ibiza is considerably more accessible. This means that there has been some movement of investors to the quieter areas around San Rafael, Santa Gertrudis and San Lorenzo, where there is now high demand for luxury properties.
New developments are being planned but building permits are hard to come by. The competition for them can lead to unscrupulous sellers promising properties with permits when none have been granted. Always double check if you are offered a plot with permits.
Alongside traditionally strong tourism figures for July and August, Ibiza is now attracting more visitors during winter. This may be due to a number of new airline routes operating in the offseason.
Offseason visitors can enjoy a few rounds of golf at the Golf Club of Ibiza, or take out a boat from one of the many marinas. For a more relaxing stay, there are Unesco world heritage sites in Ibiza Town and the nature reserves of Es Vedra, Es Vedranell and Illots de Ponent, which are home to many species of birds.
When it comes to property types, Ibiza offers a diverse selection. There are modern villas and luxury apartments, residential buildings and traditional Ibicenco fincas.
Fincas are traditional farmhouses usually found in rural areas, and generally sell for premium prices due to their extensive grounds. Many are centuries old and may be in need of renovation, but they are always full of character.
These renovations may require planning permission, and there will be maintenance costs to think about. Sa Penya and Dalt Vila are both popular places to buy these traditional properties. If you are buying a renovated property, make sure that the proper permits were acquired and check for good ventilation as damp can affect old buildings.
In contrast modern villas are not associated with as many future costs as renovation projects. The price of these properties is usually dictated by location and size rather than development potential, and you can move in straight after your purchase is confirmed.
A further benefit is that new properties are attractive to renters, with lots of floor space and modern amenities. However cleaning and maintenance fees can be significant due to sprawling layouts.
Apartments are another option for buyers, with new developments being built in Ibiza Town, San Antonio and Santa Eularia. Quieter places such as San Miguel, Santa Gertrudis, San Joan and San Rafael also have a good stock of apartments. This can be a good option for buy-to-let investors looking to attract renters who enjoy town life. Remember to factor in the monthly maintenance fee when calculating yields on an apartment investment.
When it comes to negotiating the price of your property, you may find that there is little room for manoeuvre. Due to high demand there is little flexibility from the original asking price in most cases.
As mentioned previously, the Ibizan property market has proved resilient to geopolitical shocks. One case in point is the Brexit vote, which led to a temporary drop in enquiries from the UK before these figures returned to normal levels. It is important to keep an eye on the GBP/EUR exchange rate as a weak pound means less demand for overseas properties from UK buyers, and the British market represents 35% of demand.
In the next five years we are set to see significant growth in the luxury market in Ibiza, with the completion of a new super port, an influx of high-end retailers, and the completion of a number of new five-star hotels, including a Hilton.
The Bank of Spain estimates that the demand for property in Ibiza will increase by 20% by 2021. Investors who buy now will be almost certain of being able to sell their property in 2021 and enjoying a return on investment (ROI) of 30%, equivalent to three times the estimated ROI in Northern European markets over the same period.
Ibiza Property Rental Guide
Ibiza is a hotspot for buy-to-let investors for a number of reasons. To rent out your property officially, you will need to get a rental license from your local town hall.
It is important to keep up with the latest legal changes governing holiday rentals. A new draft law was approved by the regional government in mid-2017 which aims to regulate tourist rentals for apartments or attached properties.
Under the proposed changes, property owners in each apartment building will be allowed to decide whether holiday rentals are allowed. If a majority of owners vote in favour, holiday rentals will be allowed if independent electricity and water meters are installed.
The law would also hand more zoning powers to municipal authorities, who would be able to control which areas were reserved for residents rather than tourism. This could have a knock-on effect on holiday rentals in certain zones.
Rental prices are rising rapidly and having a knock-on effect on purchase prices, especially in the high-end market. Higher rental yields have traditionally been possible at seafront properties during the summer months, while properties in rural areas bring in lower rents but are more popular throughout the year.
Yields can reach 8-10% in the 5-month peak season, from April to late October, when a four or five bedroom villa with a pool in a decent location can be rented for around €8,000. Larger, more luxurious properties can attract far higher rents.
However year-round yields are increasing as Ibiza becomes more popular during what used to be off-season months. The average net yield now sits at 4-5% for buy-to-let investors.
The increasing popularity of the island as a winter getaway destination is evidenced by the recent change in the number of flights from London City airport, which is popular with luxury travellers. There are now direct flights from London City to Ibiza six days per week during winter, and every day during summer.
If you are thinking of letting your property it is important to emphasize its most attractive characteristics at different times of the year. Our resort property guide will give you an idea of how to attract renters in different parts of the island.
Resort property guide
When it comes to choosing where to buy in Ibiza, there are no bad areas. The characteristics of the house itself are more of a factor than its location, and this is especially true in the prime property market.
Ibiza Town, Talamanca and Playa D’en Bossa are all highly sought-after areas, while Es Cubells and Cala Jondal are known for their luxury properties on the coast. Among the most exclusive inland areas are San Carlos and Santa Gertrudis.
Ibiza Town is the most densely populated part of the island, with a walled city that has been declared a Unesco World Heritage site. Due to its accessibility and amenities Ibiza Town is one of the most exclusive areas of the island.
San Jose is the largest municipality in Ibiza, sitting in the south-west of the island. Known for its beaches, the area is a favourite with tourists and is home to the renowned luxury enclave of Es Cubells.
San Antonio Abad is a municipality that covers both inland and coastal areas of central Ibiza. The port of San Antonio is a hub for fishing and sailing, and the area is great for year-round rentals.
San Juan, in the north of the island, is now more accessible than ever and is seeing a steady stream of buyers and holidaymakers who come to see its natural attractions, such as impressive mountains, creeks and beaches.
Santa Eulalia municipality has a long coastline on the east of the island and remains busy throughout the year thanks to its golf course, marina and picturesque towns.
Buying a property
Once you have decided on a property, it is easy to complete the purchase. The team at Unique Living will be on hand to offer assistance throughout the process.
Although it is not a legal requirement to have a lawyer, we advise that you do so.
It is imperative that you find a lawyer that is registered with the “colegio de abogados.” Find one that speaks English unless you are happy to conduct business in Spanish.
Ask your lawyer to check that the vendor has the right to sell the property and that is it is free from encumbrances. Have the property surveyed to ensure that there are no structural defects and it complies with planning lawyers. You should also check that the power and water connections are compliant with standards set by local utility companies.
Buyers who need a mortgage should apply for one at this point at the latest. Make sure you provide your bank with the correct supporting documents. Once the bank has accepted your mortgage application, they will send someone to value the property.
After completing these preliminary steps you will be expected to pay a deposit, which is usually 10% of the purchase price, and sign a contrato privado de compraventa (private purchase contract) in order to remove the property from the market. This contract will also set a date for completion and is usually binding on both parties unless stated otherwise.
Make sure to open a Spanish bank account. This will allow you to issue a bank-guaranteed form of payment, such as a banker’s draft, upon completion.
Apply for a número de identificación extranjera (NIE) (foreign identification number), which you will need when dealing with the Spanish tax authorities, known as the Hacienda. In most cases your lawyer can handle the application process, although you can do it yourself by filling in some documents at the local police station.
EU citizens who are resident in Ibiza for three months or more per year are legally required to apply for empadronamiento (residency). Your lawyer will be able to handle the application, but you can also do it yourself by filling in some documents at the local police station. You will need to get the documents stamped at your bank and return them to the police station before you are issued with a tarjeta de residencia (residency card).
Non-EU citizens must follow a slightly different process with different paperwork. Consult your lawyer for specific advice.
Once the process is complete you will be able to exercise your rights as a resident, including access to healthcare, education and marriage.
After the period of time agreed in the private purchase contract has elapsed you will have to sign the escritura (public title deed) in the presence of a notary. You will also be expected to pay the vendor in full at this point, and take possession of the property.
Post-completion there are a number of tasks that your lawyer is expected to complete. This includes:
• Paying taxes and charges to relevant authorities
If the vendor is a non-resident your lawyer will withhold 3% of the purchase price to pay the Spanish tax authorities on their behalf. This will ensure that the plusvalia (the municipal tax on the increase of the value of the land) is paid.
• Transfer existing contracts for utilities and other property services to your bank account
After this step is complete you will be able to pay for utilities, internet, cable TV and other services via Direct Debit. You may have to pay a small deposit when contracting utilities, but you will be refunded if you change provider or end the contract.
• Register the change in ownership with the Catastro (Cadastre)
This will allow you to receive future bills in your name. If you do not register the change you may be fined.
In certain cases you will also have to inform the comunidad de propietarios (community of owners) of the change.
• Register the change in ownership with the land registry
• Make a Spanish will
If you bought your property with your spouse you will need to make a will in Spain once the registration is complete. When a married couple buys a property in Spain they are tenants in common and not jointly and severally as is the case in other countries.
Each person owns 50% of the property as an individual, and the other half doesn’t automatically pass to the other owner at the time of death. This can be addressed by creating a will in Spain.
In Spain the buyer of a property is liable to pay the majority of taxes and costs. It is recommended that you put aside another 10-15% more than the agreed sale price to meet any bills for purchase taxes.
You may have to pay taxes to your local ayuntamiento (town council) and the Hacienda (Spanish tax authorities). These taxes may include:
• Municipal tax on the increase in the value of land (Plusvalía)
Vendors are required to pay this tax by law. However buyers can pay the tax if both parties agree.
In some cases vendors try to insist that the buyer pay, but there is no obligation to agree. If you feel that you are getting a particularly good deal you may want to agree to pay the plusvalia to ensure completion, but this is not recommended.
The tax bill depends on the cadastral value of the land at the time of sale and the length of time the vendor has owned the property.
The taxable base is calculated as a percentage of the cadastral value. The tax rate varies from municipality to municipality and is set by the local council.
• Taxes on resale property
If you buy an occupied property from a private individual you will be liable to pay the impuesto de transmisiones patrimoniales (transfer tax) to the Spanish tax authorities.
It is levied on a sliding scale, depending on the sale price:
8% up to 400,000€
9% from 400,000.01 to 600,000€
10% over 600,000.01€
Parking spaces (when sold separately from a dwelling or, if sold together, when more than two spaces are sold at the same time) are taxed in line with a separate scale:
8% up to 30,000€
9% from 30,000.01 to 50,000€
10% over 50,000.01€
Joint owners may enjoy a discount on this tax. While the same rates of tax apply, the taxable base of the purchase price is calculated in proportion to ownership.
• Taxes on new property
If your new residential property has never been occupied and is being sold for the first time, you will have to pay the impuesto de valor añadido (IVA) (value-added tax) at a rate of 10% of the sale price.
You will also have to pay the impuesto sobre actos jurídicos documentados (AJD) (stamp duty) at a rate of 1.5% of the sale price. This makes a total of 11.5% of the sale price.
• Taxes on plots and commercial property
Buying a plot of land or commercial property will mean that you are liable to pay value-added tax at a rate of 21% of the sale price. You will also have to pay stamp duty at a rate of 1.5% of the sale price, making a total of 22.5%.
• Mortgage taxes
If you take out a mortgage in order to buy a resale or new property you will be required to pay stamp duty at 1.5% on the principal loan, as well as any costs or interest levied if you don’t pay.
• Withholding tax
Anyone who buys a resale property from a non-resident vendor is required to retain 3% of the agreed price and pay it to the Spanish tax authorities within one calendar month of the date that they signed the public title deed.
Failure to do so will see the buyer held liable for 3% of the agreed price.
• Fiscal arrears
All of the taxes arising from the sale of a property must be paid within 30 days of the date that you signed the public title deed. If they are not paid the buyer will be charged another 20% in fines and interest on top of the amount owed.
It is recommended that you get a potential property surveyed in order to ensure that there are no hidden problems.
Unique Living offers a choice of surveys carried out by a qualified British chartered surveyor, based on the internationally recognized Royal Institute of Chartered Surveyors (RICS) Home Survey standard. Both options include photography of the property and are normally completed within two weeks.
RICS HomeBuyer Report
This survey is recommended for conventional properties that are in a reasonable condition or for those where small-scale work is planned. It includes a valuation based on market comparison.
The surveyor will carry out a limited inspection of the property and provide concise information regarding the state of repair and condition, restricted to immediately accessible and visible areas. It also includes a description of any urgent or significant defects and is designed to provide the information necessary to help a potential buyer decide whether to purchase.
A building survey is recommended for older properties, those in poor condition in need of extensive renovation, or those whose structure may be unsound.
This type of survey includes an extensive inspection of the property and provides detailed information about its structure and condition. It typically includes checks for signs of movement and deterioration, damp and rot, and the general condition of finishes, fittings, and services.
It also provides a description of visible defects and potential hidden problems, a rundown of repair options, details of serious problems, and legal advice.
Even buyers who have enough capital to buy a property outright may want to take out a mortgage for various reasons. These reasons may be fiscal, as you could benefit from tax allowances; financial, as you could see higher returns on invested capital than to service a loan; or security, as banks will only lend against properties that meet its criteria.
Unique Living advises that you arrange a mortgage in Ibiza, where terms are more favourable to buyers. Foreign investors may find that they are offered special terms, including commission-free international bank transfers or simpler tax payments.
Mortgages are issued against the valuation or the purchase price, whichever is lowest. Banks are unlikely to lend over 70% of the valuation for a primary residence, but younger buyers who are resident in Spain and have a low-risk profile may be able to negotiate more.
Second homes, older buyers and non-residents normally see mortgages capped at 60-70% of the purchase price, while rural and high-value properties may be capped at 50%.
The maximum monthly loan payment will be calculated at 35% of your net income. If you have an existing mortgage on another property, both payments are usually taken into account.
In Spain most mortgages are variable rate, and sometimes have an initial fixed-rate period at a preferential rate. Most are subsequently tied to the Euro Interbank Offered Rate (Euribor) plus an additional percentage.
Younger residents may be offered terms up to 35 years. Non-residents and older buyers are normally given a maximum of 30 years up to an age limit of 75 years old.
Set-up and cancellation fees
Mortgages fees are generally higher in Spain than in other countries. Most banks charge a setup fee of 1-1.5% of the loan, up to 1% for partial or total cancellation, and 0.5% to change lender.
Your bank will appoint a firm to value the property. You will be expected to pay for the service, and a valuation can cost around 1,000€ for high-value properties.
Completion fees and taxes
If you have a mortgage you must tell the notary when you sign your public title deed. You will also have to have a mortgage deed witnessed.
The Spanish government fixes the fees for these services. Buyers who take out a mortgage will need to pay stamp duty on new and resale properties. The rate is 1.5%.
Your mortgage will also need to be registered at the Land Registry. It costs 200-400€ to do so through the bank.
When it comes to arranging a mortgage, your bank may offer you property and contents insurance. You are not legally obliged to do so.
You may also be offered life or employment insurance. While you are not obliged to do so, taking out a policy may mean that you are offered better terms on your mortgage.
When you apply for a mortgage you will need to supply the following supporting documents:
• Copy of your passport
• Copy of your NIE
• Recent credit report
• Last six months of your personal bank statements
• The property registry filing of the property
If you are employed, you will also need to provide:
• Copy of your last annual tax certificate
• Proof of last three months of salary payments
If you are self-employed, you will also need to provide:
• Copy of your last annual tax declaration
Properties in Ibiza must be paid for in euros. Make sure you shop around to find the best exchange rate, as even a small difference can really add up for large amounts of money.
Look for specialist currency brokers, who generally offer better rates than banks, and check that they are FSA-regulated. Alternatively you can ask your Unique Living team member for our list of recommended currency brokers.
Cost of Ownership
Property owners both resident and non-resident have to pay a number of costs. Costs vary by size and location of property but it can add up.
In general terms there are taxes and fees to be paid to the local council and the Spanish tax authorities, as well as community fees, utility bills and insurance.
Municipal property tax/rates (Impuesto de Bienes Inmuebles, IBI)
Every property in Spain is subject to this annual levy. The rate is calculated by the local town council for the property and parking spaces if they are registered on a separate title deed.
Estate/wealth tax (Impuesto sobre el Patrimonio, IP)
The regional government is responsible for collecting this annual tax. Spanish residents will pay tax on their global assets, and there are generous tax-free allowances. Non-residents will pay tax on net assets in Spain, but tax-free allowances are less generous.
Non-resident income tax (Impuesto sobre la Renta de No Residentes, IRNR)
Non-resident owners must pay an imputed income tax, even if a property is owned solely for personal use and does not generate rental income. Rates vary from 1.1-2%.
If you rent out your property the rental income, minus certain expenses, is subject to tax. As of January 2015, residents of the European Union member states pay 19% tax and residents of the remaining countries pay 24%.
It might be far from your mind when buying a property, but you also need to think about inheritance tax. Under Spanish law the surviving spouse has to pay inheritance tax on assets when their partner dies.
Beneficiaries that are not spouses are taxed between 7.65-35%.
If you buy a property within a community of owners that share common areas or services, you will have to pay a fee towards shared costs, such as cleaning and maintenance. The fee will be calculated as a percentage of the community that your property represents plus a share of communal areas.
Fees are generally paid on a monthly basis. You may be asked to contribute towards extra work that takes places unexpectedly.
Each local council charges a fee for refuse collection. Some are billed together with municipal property taxes, while others are billed separately. Properties in shared communities may have refuse collection covered by their community fee.
Check which companies supply utilities to the area in which your property is located. Mains gas supply is limited outside urban areas, so you may have to use butane or propane suppliers.
Some properties will have underground gas tanks while others will need an area to store gas bottles.
Water and sewage
This service is also dictated by which companies serve your area.
There are a number of operators to choose from when it comes to telecommunications. Properties in rural areas may suffer poor mobile coverage.
Most areas receive satellite TV signal. It is worth checking with your neighbours or your lawyer to see which services are available.
Buildings and contents insurance is important in Spain just as it is anywhere else.
If you take out building insurance you will be covered for the property itself, including the structure and fixtures, based on the insurable value. This is calculated as the cost of rebuilding the property.
Contents insurance covers everything that isn’t part of the structure or fixtures. This includes furniture, jewellery, electronics, white goods, and other personal items.
Spanish home insurance policies generally include some third-party liability coverage for claims that arise from issues with your property. Insurance premiums can be reduced by improving security at your property, for example by fitting burglar alarms, window bars, and reinforced doors.
Rental properties may be subject to additional risks and you must check that your policy covers you in this case. Properties in shared developments may be covered by communal insurance, but it is recommended that you take out an individual policy.
Home insurance policies tend to be cheaper in Spain than many other countries. Ask your Unique Living team member for details of our approved insurance brokers.
Serge Cowan is founder and Managing Director of Unique Living. Considering purchasing property in Ibiza? Give Serge a call.