Very often we, ARCOSTEC specialists, are asked the question: “how much does it cost to build a house in Spain?” or “what expenses and what actions are necessary to build a house in Spain?” Therefore, in this publication we will try to answer such difficult questions and break down the entire process of investing in construction step by step.
INVESTING IN SPANISH CONSTRUCTION
And so, let's start with an explanatory diagram that shows all the stages of investment and construction of residential real estate in Spain. And also, all the necessary steps from purchasing a plot to selling the finished property, which can be combined into four main thematic blocks:
1. Analysis and study of urban planning parameters
Before deciding to invest and build in Spain, it is necessary to study the necessary points of land and urban planning legislation, regulatory requirements depending on the city and location of the land plot, parameters and indicators of urban planning (category of land plot, building density, maximum height, free perimeter, etc.) and, most importantly, feasibility study and liquidity of the project.
According to professionals, this stage is the most important and in some cases takes from three to four months. The cost of these professional services depends on the volume and complexity, but on average is 5.00 €/m2
2. Land or plot for construction
For real estate construction, a plot of land is required. In Spain, there are three categories of land plots, the cost of which depends on the construction project:
- Housing constructionThis publication will focus on this category
- Commercial or industrialNot displayed in this publication
- Agricultural or horticultural Not displayed in this publication
After determining the direction of investment, it is necessary to clearly define the status of the land plot, since in Spain there are two types:
2.1. Earth (Solar):
The plot is suitable for construction, but without utilities (light, water, etc.). The cost of such a site with a municipal license for communications will average 100 - 200 € per 1.00 m2 (2014 statistics for the Costa Blanca)
2.2. Plot (Parcela):
The plot is suitable and ready for construction with communications connected. The cost of such a plot is higher, depending on the proximity to the sea and the city, and will average from 250 €/m2 (2014 statistics for the Costa Blanca)
You have chosen an investment object and decided on the type of land plot. The next main question for the investor – tax upon acquisition of land:
2.2.1.Plot with buildings
This property can be either “primary” or “secondary” and the tax will be 21% of the value specified in the contract, regardless of the legal status of the buyer.
The investor receives the status and right of owner to the land plot after 10 days from the date of confirmation by the notary of the land purchase and sale agreement.
3. Costs for the construction period
Next we will talk about the costs associated with construction, not including the cost of the land:
- 3.1. TAXES
- 3.2. YUR. COSTS
- 3.3. PROJECTS and TECHNICAL DOCUMENTS
- 3.4. CONSTRUCTION
- 3.5. NOTARY and REGISTER
Taxation during the construction period
Administrative and legal costs, as well as costs associated with urban planning
Architectural and engineering projects, technical documents and reports, analyzes and conclusions
Costs and expenses associated with the cost of building materials and labor
Notary, property register and declaration of ownership
3.1. Taxation for the period of construction
The official contract for the construction of real estate in Spain between the Investor, the company (s) and the general (subcontractors) can be executed in any of two possible options:
3.1.1. Investor – Subcontractor (VAT-21%):
The investor acts as an individual and is a “general contractor” construction, independently hires sub-contractors for all types of work. In this option, the Investor pays VAT in the amount of 21% on each contract with a sub-contractor.
3.1.2. Investor - General Contractor - Subcontractor (VAT-10%):
The investor acts as a legal entity registered in Spain and is its tax resident. The investor has the right to create an Investment Company for the construction period. An investment company has the right to hire a general contractor company or independently hire subcontractor companies for all types of work. In this option, the Investor pays VAT in the amount of 10% on the amount of the contract with the general contractor company, or on each contract with subcontractor companies.
3.2. Administrative and legal costs:
The second most important thematic group, after material cost and labor, which must be taken into account before deciding to invest in construction in Spain.
3.2.1. Insurance:
Spanish legislation, in the case of construction for the purpose of subsequent sale of real estate to third parties, obliges the investment object to be insured, both during and after construction, for a period of at least 10 years.
Insurance policies must be issued as follows:
- For the duration of construction work (Seguro de Responsabilidad Civil - RC)
Compulsory liability insurance (R.C.). Necessary for both the Investor and the general (sub) contractor. The cost depends on the insurance company and the size of the construction, but on average it is about 1.50 - 2.50 €/m2
- 10-year liability (Seguro decenal de daños)
Insurance guarantees the integrity and quality of construction to the final transferee, i.e. to the owner of the property, within ten years from the date of completion of construction. The cost of this policy is on average 8.00 €/m2. There are three warranty stages:
- 1 year: Aesthetics and finishing materials.
- 3 years: Engineering communications
- 10 years: Load-bearing frame, reinforced concrete structure and foundation
- Bank mortgage or loan (Respaldo, Aval o Seguro bancario)
If the final transferee enters into an agreement with the Investor for the purchase of residential real estate and receives a loan from any of the banks in Spain, then standard practice is to issue an insurance policy in case the Investor-Developer fails to fulfill its construction obligations or does not complete the property in in general. As a rule, the Bank includes the cost of the insurance policy in the lending rate.
3.2.2. Municipal licenses, permits and taxes:
For any type of construction work in Spain, you must obtain a municipal license or permit. The following types of licenses can be distinguished:
- Demolition of existing buildings:
If there are buildings on the site that cannot be reconstructed or do not fit into the design of the new project, then they must be demolished in order to begin new construction in their place. The city hall must approve the demolition project and obtain permission to carry out this work. The average cost of this municipal tax in Spain is 4.00% of the declared cost of work. Approximately within 1000 €.
- New construction tax
Obtaining permission to begin work, which determines the timing of all construction work, is possible only on the basis of an approved architectural and engineering project. Depending on the city hall and location in Spain, a positive decision can take up to 12 months, but on average the procedure takes 6 months. The cost of this permit also depends on the city hall. On average, the tax is up to 4.00% of the construction cost indicated in the project + a fixed portion of 1,500 €.
- Deposit in favor of the city hall
This amount is a guarantee of maintaining order during construction work and the safety of public property (sidewalks, parks, lighting lamps close to the site, etc.), as well as the official starting point of construction. After completion of construction and the certificate of commissioning of the facility, it is returned to the Investor (General Contractor) of construction in whole or in part.
The deposit amount is 40% of the new construction tax. (clause 3.2.2.2.)
- Waste recycling and environmental pollution
The state tax on environmental pollution from construction waste is paid during construction work, depending on the volume of waste. The average tax in Spain is 2.00 €/t.
3.2.3. Connecting communications:
Costs for the supply of resources during construction work. Included in the overall construction estimate.
Costs for connection and execution of contracts with operator companies for the supply of one or another type of resource.
Each site and project is unique, so it is very difficult to determine the average contract value. Depending on how close and correctly the communications are, the final cost of the services of a particular operator company is determined. It is recommended to study all possible costs in advance at the stage of preliminary investment analysis, see point 1.
In general, just drawing up contracts for connection to municipal networks (water supply, electricity, sewerage, gas pipelines, etc.) in Spain costs the final transferee up to 1000 €/ 1 (one) contract
3.3. Architectural and engineering design and technical documentation
Next we will talk about the participation of professionals in the field of architectural and engineering design, technical analyzes and examinations, measurements and author's opinions
3.3.1.Quality control, technical analyzes and examinations:
According to Spanish law, if an Investor builds real estate (both residential and commercial) for subsequent sale to third parties, it is mandatory to use the services of an independent technical supervision company, which guarantees compliance with all technical regulations and standards during construction work, and also certifies their completion.
The facility is monitored quarterly and the compliance of the pace of construction with the approved project and in compliance with technical requirements is recorded. The participation of an independent technical supervision company is required by the insurance company. The cost of these services is 500 €/measurement
- Geodesy and soil analysis (Estudio geotécnico)
It is mandatory to conduct soil tests: specific strength, resistant layers, composition, material, etc.
The cost of these services depends on the area of the site and on the final purpose of the property, but on average the price is set around 1000 €/expertise
- Topography of the site (Levantamiento topográfico)
Before starting to design an object, it is necessary to clearly understand the topography of the site, the specifics of its location and the subsequent “reference” to the city and existing communications. Official topographic survey is carried out by authorized independent experts. The presence of a topographic plan guarantees the future successful work of the architect and engineering staff.
The cost of these services depends on the area of the plot and on the final purpose of the property, but on average the price is set around 500 €/plot
- Project execution control (Control de calidad y OCT)
The participation of a third independent supervising company during construction is necessary, first of all, to protect consumer rights and for the peace of mind of a potential buyer of built, but not yet sold, real estate. Spanish law requires this in the case of investment projects and construction for resale. The list of professional services is as follows:
Control of concrete and steel: at the concreting stage, cylindrical concrete samples and samples of steel reinforcement of each diameter are taken. Subsequently, the samples are tested in the laboratory for fracture and compression (two stages: after 7 days and 28 days, while the third sample is stored for up to a year). Only after acceptable indicators are compliance with standards certified and construction work allowed to continue.
Control of other building materials: throughout the entire construction process, random analyzes and examinations of noise and thermal insulation, the composition of partitions and walls, facing materials, etc. are carried out. All deliverables must meet building standards. After completion of construction and upon execution of the commissioning certificate, this technical documentation will serve as a guarantor of a quality product and an argument for obtaining an insurance policy.
The cost of the services of the supervising company depends on the complexity and scale of the construction project, while the ratio of area and price is not proportional, but on average the price does not exceed 7.50 €/m2
3.3.2.Architectural project:
Based on the data obtained, an architectural project is developed, which will determine what the final investment object will look like. An architectural project in Spain includes all the necessary engineering projects (architect: 60% of the necessary design documentation, engineers: 40%) and is divided into three stages:
- Basic project (Proyecto Básico)
The project does not include utilities and load-bearing parts, only drawings for masonry, facades and sections. This project serves to request a municipal license.
- Executive or “Worker” project (Proyecto de Ejecución)
The final project with detailed justification and drawings (utilities, load-bearing frame, landscaping, etc.), in accordance with which the entire construction stage of the investment will take place.
- Engineering project (Proyecto de Instalaciones y Telecomunicaciones)
Although the engineering design is a part of the architectural project, the importance and specificity of each part of the engineering project determines the participation of the necessary specialists and their professional fees. The following engineering projects are required for residential real estate construction projects in Spain:
- Electricity and telecommunications
- Plumbing and water supply
- Sewage and landscaping
- Alternative energy, ventilation and climate
- Domotics and smart home
3.3.3. Construction phase and technical supervision:
In Spain, unlike Russia and the CIS countries, the so-called “responsible team of specialists” (“direction facultative”), consisting of an architect, a construction engineer (“aparejador”), participates in an architectural project for the construction of residential real estate. telecommunications engineer and other engineers. The task and responsibility of each specialist is different, as is his participation in the project, but this diversification serves as a guarantee for the Investor and the final transferee.
The cost of an architectural project registered with the relevant professional body depends on the complexity, duration and scope of the project. On average, the cost of an architectural project in Spain is up to 60 €/m2 architect + 40 €/m2 engineers
3.4. Construction
The most important part of construction costs with a high percentage relative to all costs. The choice of quality of material and contractor will determine the final cost of the property. In this thematic group, three points should be highlighted:
3.4.1. Material cost of construction:
In this case we are talking about the cost of materials and labor. The final cost does not include taxes and is calculated relative to the total area and directly depends on the quality of the materials used and design solutions. The average price level at the moment in Spain (high-quality construction using medium-range materials) has established itself within 700 €/m2
3.4.2. General Contractor's income:
Despite the name of this paragraph, the General Contractor’s income is an expense for the Investor, as well as his other expenses. Therefore, for transparency and a clear understanding of the cost of construction, it is recommended to highlight this item from the total cost of construction and do this in percentage terms. On average, the General Contractor's income is 18.00% of the material cost of construction (clause 3.4.1.); It should be noted that when this amount is underestimated, it is worth thinking about the professionalism and viability of the company offering General Contractor services.
3.4.3. Unforeseen costs:
Possible changes in prices for building materials associated with economic fluctuations and political conditions. All other price changes must be indicated and recorded in the Investor (customer) - General Contractor contract for an agreed period, after which they are not subject to revision or change. In general, fluctuations of no more than 10.00% are allowed. To summarize, we can say that the cost of quality construction in Spain, not including taxes and administrative costs, starts from 900 €/m2
3.4.4. Completion of construction and commissioning:
After construction is completed, this fact must be officially recorded. There are two stages here:
- Technical:
Expertise from an independent company regarding compliance with all design requirements and construction regulations. Measurements and acoustic listening of sound insulation are carried out to confirm a positive result and obtain an “acoustic certificate”, on the basis of which the city hall issues a “certificate for first occupancy”. Only after this the notary can declare the completion of construction and sign the bill of sale.
The cost of services of a professional company is indicated in clause 3.3.1. of this document.
- Administrative:
Municipal costs for drawing up a certificate of commissioning of real estate and obtaining a “technical certificate of conformity”.
The cost of this stage is on average up to 1000 €/apartment
3.5. Notary and property register
3.5.1.Signing of the deed of sale by a notary
After putting the property into operation and if there is a potential buyer, it is necessary to legally formalize the completion of construction and subsequently the bill of sale. The notary has these powers. At the same time, at the time of signing the bill of sale or “escritura” You must pay property tax in the amount of 8.00% of the officially declared value (this is usually underestimated, but there are minimum standards that are based on annual averages).
Registration costs, real estate tax and notary services amount to 9.00 - 10.00% of the official value of the investment object.
3.5.2. Registration of real estate in the property register
After the notary has signed the escritura, it is necessary to enter the new property into the general Spanish property register. This is the last formal stage, after which the new building is legalized and receives the appropriate documentation for issuing permanent contracts for connection to municipal networks of water supply, electricity, sewerage, etc.
The cost of this procedure also directly depends on the officially declared cost and is 1.50% of the cost + 500 € fixed amount.
4. Income and liquidity
After all the previously listed information, it is necessary to summarize and evaluate the attractiveness of a possible investment project, but for this it remains to determine the final and, above all, attractive market value of the property. To do this, you need a business plan and market analysis specified in paragraph 1 of this document
4.1. Final analysis of the investment project
So, summing up the relationship between prices, costs of construction and registration of real estate in Spain, the final percentage of each stage is determined by the above schedule
As an example, a single-family two-story house in the “modern” style is given. with a total area of 200 m2 in a condominium with a swimming pool.
4.2. Example of an investment deposit IN NUMBERS
Total: the cost of the investment contribution for the construction of a house with an area of 200 m2 and a completion period of no more than 12 months is 297,000 €
- Market, competitive price not lower than 350,000 € → profit ≥ 15%
Construction company Spain
Specialists of the company "ARCOSTEC" For more than ten years they have been developing business proposals for investment and preparing economic and technical feasibility studies for construction in Spain.
Our well-coordinated team of certified architects, engineers and lawyers carries out architectural projects of any complexity and scale, but primarily based on the liquidity of the investment and the final attractiveness for a possible buyer.
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