Buying Land To Build A House In Spain

One of the most interesting alternatives to buying a finished home is buying a plot of land to build a custom home. It is an option with multiple advantages, but in this case, the risks skyrocket compared to buying a finished home, and it is advisable to be well-advised legally, financially, and technically if we want to avoid this adventure becoming a nightmare.

One of the main advantages of buying land to build on is that you have the opportunity to create the house of your dreams from scratch. Another advantage of buying land is that, generally, it is cheaper than buying a pre-built house in a similar area. This is because we save the developer's profit margin and marketing costs (around 20% of the sale price of a house).

However, buying land and building a house also has its drawbacks. One of the most significant disadvantages is the time and effort required to complete construction. Building a house from scratch usually takes an average of two years and requires a lot of effort and attention to ensure the work is done correctly. In these cases, it is best to rely on a team of professionals who will take care of absolutely everything in the process, from design to construction management and permits, so that you do not have to deal with and solve the typical problems that arise throughout the process. Companies like Me2 Design & Build in Marbella offer a turnkey service, taking care of the project and its development and management until final delivery.

Land purchase

The first step in the self-promotion adventure is buying the land. Once we have chosen the area where we want to build our house and have located the plot, it is advisable to contact experts in real estate law, such as Valido Home, to conduct a legal, legal, and urbanistic review of it. This way, we ensure that the land is suitable for building a home and that it is not affected by any burden or condition that could be an economic headache in the future. It is also important that the land be inspected by the architects who will develop the project so that they can indicate the possibilities and limitations it offers (views, access, orientation, etc.).

Taxes to be paid when buying land

Taxes to be paid in self-promotion are a key point since the cost of buying the land can increase from 10% to 21%, depending on who buys and from whom.

For example, from individual to individual, the Property Transfer Tax (ITP) is paid, which means adding a cost of 10% to the purchase price of the land. However, if we buy as an individual and the land is sold by a company, we will have to pay 21% VAT, which represents a significant increase in cost.

From a tax standpoint, the most advantageous option is to buy the land through a business entity that is registered in real estate activities and add the land to its circulating assets; in this way, we can deduct the VAT or significantly reduce the ITP paid. In any case, this option requires a deeper analysis of each particular case and cannot be taken as a generalized case.

How to finance the purchase of land

This point is fundamental, and there is a lot of ignorance about it on the street. It is common for many clients, when they request our services to manage the purchase of the land, to indicate that they plan to buy the land with part of the mortgage they will request from the bank for the development of the home. We regret to inform you that banks do not grant mortgages for the purchase of land. Generally, it is recommended to buy the land through equity, and savings. If you do not have this, you can apply for a loan, but the interest rates are usually much higher than those of a regular mortgage.

For the construction of a house, there are self-build mortgages that are usually divided into three stages: an initial stage for the start of the works; the certification stage, which is granted as the work progresses; and the final stage, which is given upon delivery of the property.

Self-build mortgages can cover up to 80% of the cost of the development, if it is the first home, and are only granted if we have previously purchased the plot and have it registered in our name. On the other hand, construction costs can vary, and it is common to encounter some increases throughout the development, so it is highly recommended to have a margin of 10% in the budget for material execution.

In addition to the costs of buying the land, taxes, and self-build mortgage, we have to take into account the costs derived from technical fees and other taxes that we will have to settle throughout the construction (ICIO, Municipal Works License, First Occupation License, etc.) and other fees.

In short, buying a plot to develop a custom home is one of the most interesting and rewarding options we can carry out in the real estate world, but it is important to bear in mind that, in addition to the legal and urban risks that we can encounter in any other purchase, we will face a very complex process where errors and lack of foresight can lead to a total project failure. Therefore, in addition to being perfectly advised during the purchase of the land with the services of Valido Home, it is essential to have an architecture and construction company from the beginning that takes care of all phases of the project and advises us transparently on the total costs we will have to face.

Are you about to buy a plot of land to build your own house? Reserve a call and tell us your case. Don't take unnecessary risks!