Mansion Global

How to Buy Luxury in Madrid

Property is a hot commodity in the world-class metropolis, where demand is growing and supply dwindling

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Prime residential prices in Madrid have increased by 5.2% this year. Apartments with views of El Retiro Park, shown above, usually cost over 1 million euros.

fotoVoyager / Getty Images
Prime residential prices in Madrid have increased by 5.2% this year. Apartments with views of El Retiro Park, shown above, usually cost over 1 million euros.
fotoVoyager / Getty Images

Supply was no match for demand this year, giving sellers in Madrid’s prime housing market the upper hand–and potential buyers less room to negotiate. “Up until 2007-2008, it was a seller’s market, then the bubble burst and it became a buyer’s market,” José Gregorio Faría, senior manager for luxury residential at Knight Frank España, said. “Now homeowners see the market growing and some are actually holding off on selling, hoping for a higher profit.” According to Knight Frank’s Prime Residential 2015’s report, the difference between asking and closing prices, which are now higher, is now minimal. Furthermore, the average time on market for a property has been reduced from between 10 and 12 months in 2014 to three to six months this year. A lack of supply, which went from 700 million euros in available stock for sale last year to 500 million euros in 2015, is driving a seller’s market. Virtually no new-build supply coupled with a significant decrease in resale housing stock and strong buyer appetite could keep tipping the scale in favor of sellers. If Madrid, a city of 3.2 million with a history that dates back to the 9th century, world-class museums and Michelin-starred restaurants is on your radar, here is what you need to know to enter the market.

Where to buy?

How much will it cost you?

While luxury residential prices in Madrid increased by 5.2% this year from 2014, sales in the sector grew by 25%, according to the federal government. Seventy percent of buyers are local, but the share of foreign investors has doubled since two years ago and now makes up 30% of all purchasers. Most housing in Madrid’s prime neighborhoods are apartment units. Prices go from 560 to 1,115 euros per square foot, depending on location and whether the unit has been renovated or not. “A very well located apartment in Salamanca of about 1,615 square feet can cost you around 1.2 million euros, or 1.6 million if it is brand new,” said Faría.

How to buy?

Buyers need to obtain an NIE, or Número de Identificación de Extranjero, a tax identification number issued by the National Police in Spain or at Spain’s consulates abroad. Buyers are also recommended to find a local realtor and a lawyer to help them through the buying process. Most real estate transactions follow this format: the buyer and the seller sign an initial agreement known as a “contrato de arras”, at which time the buyer pays a 10% deposit. One or two months later, both parties meet at a notary office to complete the transaction, at which point the buyer pays the remainder of the balance, in most cases in cash. If the buyer fails to fulfill the agreement, the seller will keep the deposit. If the seller defaults, he or she must pay a penalty twice the amount of the deposit.

Combining classical and modern architecture, Serrano 7 is a new residential building in Salamanca that offers units with three to five bedrooms, communal gardens, swimming pool and gym. Asking price: around 6 million euros.

Knight Frank

The seller is responsible for the listing agent commission, which goes from 3% to 5%. Buyers must pay a purchase tax of 6% for an existing home or 10% for a new development. Notary fees depend on the price of the property and can range from 1,000 to 3,000 euros. Buyers should double check the deed of the property, to verify the owner’s name, if there is an outstanding mortgage or pending foreclosure, they should also confirm with public records if the property has residential use and if there are any renovations or fixes pending, in case of old buildings. Confirm early on what fees will be paid by the seller and which by the buyer.

Some useful websites (Spanish language only) : • Calculate notary and registry feesVerify deed and related informationDiscover out if there are renovations or fixes pending in a building

Write to Andrea López Cruzado at andrea.lopez@dowjones.com