Property: The terrain in Spain

The country is back in favour. Felicity Cannell examines the property market

THE BRITISH sun-lover looking for a holiday refuge in Spain has two countries to choose from. There is English-speaking Spain, centred in the coastal resorts where you can bank at Barclays and drink in pubs. And there is the rest of the country.

The former is still more popular: "The majority of visitors and property buyers are still going for the sun, sea, sand and sangria," says Roger Faulks, of Spanish Property News. "But there is increasing interest in the `real Spain', to use the guide book jargon, which still exists inland."

But in 10 years' time, the southern inland villages may be just as full of foreigners as the coast. The younger generation are moving to the coast to find work and selling up their family homes.

Buyers of inland property may have to be prepared for a mammoth renovation job. Wessex Homes is selling a cortijo - farmhouse - in the Almanzora valley of Andalusia for around pounds 12,000. It is described as a ruin with no electricity. You can buy water from a nearby well by buying a share in the well for another pounds 5,000. To compensate, it does have excellent views.

If renovation does not appeal there are still plenty of homes for sale on the Costas, where prices are starting to recover after the severe crash in the early 1990s. Prices fell more dramatically than in the UK and developers simply downed tools and left. Now, on the Costa Blanca and the Costa del Sol in particular there is a shortage of quality accommodation.

Karen Poland, of Marbella Costa Real Estate, says the impending European single currency has contributed to the recovery. "The market is very buoyant. Citizens of countries going into EMU who have cash to get rid of are buying here."

Although prices are rising again, Mr Faulks believes there are still bargains to be had: "Since the recovery, the market is all over the place. No one knows exactly what their property is worth until it is sold. The shortage does not affect prices as it would in the UK. "

Hand in hand with rising prices is the increase of buy-to-let investors - with a difference. They buy for investment but use the property for a few weeks' holiday a year. Ms Poland says: "Owners hand them over to us to rent out for the rest of the year. A two-bedroom apartment can fetch between pounds 400 and pounds 600 per week during July and August. At the very minimum, outgoings are covered with an income on top." This sort of rental can be achieved whether your apartment costs pounds 70,000 or pounds 120,000, as long as it is a short stroll to the beach without having to cross a motorway.

Location is everything. With very little beach front land left for development, such property is at a premium. Drive a few miles into the hills and you will be looking at "country" property at considerably lower prices. But if you are prepared to take your farm labourer's cottage in the hills, you may not feel totally isolated. A considerable amount of EU funding is pouring into the Spanish road network. "Motorways are being extended and facilities are increasing. Fifteen minutes inland you can get a huge plot of land and build your own villa for a fraction of the price on the coast," says Ms Poland.

If a site already has a building, albeit a ruin, you have automatic building rights. Wessex Homes estimates building costs at Ptas50,000 (pounds 200) per square metre, depending on materials. But whatever you choose, buy in pesetas. Agents are making great play of the pound's strength, but if you buy in sterling you will get no benefit.

It is vital to understand how the property-buying system works in Spain before you sign to buy a home. Get a copy of The Complete Guide to Buying a Property in Spain, by Anthony Foster, an estate agent in Andalusia. He wrote the book after seeing numerous disastrous transactions over the years. As Spain began to exploit the British love of sunshine, horror stories abounded of unscrupulous developers and private vendors. Many holiday villa purchasers arrived for their first holiday to find nothing but foundations and a bankrupt development company.

Under Spanish law debts are registered to a property rather than an individual and you may become liable for the previous owner's mortgage. If you are buying an ancient farmhouse that has been passed down through one family for generations it may not have an escritura, or title deed, and when you come to sell it this will cause problems.

All non-residents are subject to an annual wealth tax and when you sell your property the government will retain 10 per cent in case money is owed by you in tax, rates or capital gains. After deductions the money will be returned to you - but only if you ask for it. Properties bought before December 1986 are no longer liable for this retention.

This all sounds complicated but it is straightforward compared with home buying in the UK, according to Alan Simmons who has bought and sold in Spain twice. "The beauty of the system is you know where you are from the moment you decide on a property. It becomes a binding contract very quickly and there is no gazumping." Instead of using a lawyer, he gave power of attorney to the estate agent and when he arrived on holiday, "it was simply a matter of signing on the dotted line."

A reputable Spanish estate agent should be registered to one of the official bodies controlling estate agency. Using the agent to draw up the contract may be sufficient for a second-hand or fully constructed property but not if you are buying a plot of land, or in a development under construction.

Mr Foster strongly advises using an English-speaking Spanish lawyer for these deals. If you choose to buy from England through a property company specialising in Spain they will often have a lawyer to recommend. But even if you go to Spain it is not hard to find a lawyer. It helps to speak some Spanish so that you can negotiate more effectively and you are not left with a huge and unexpected bill. Mr Simmons was advised to use a lawyer to recover the pounds 4,800 retention on the apartment he sold last year. "I don't speak Spanish and there was form after form to fill in. The abogado recovered nearly all of it. But his fee amounted to nearly pounds 2,000!"

q Contacts: `Spanish Property News', 0181-297 9194; Marbella Costa Real Estate, 00 3495 283 1586; Wessex Homes, 01903 231080.

`The Complete Guide to Buying a Property in Spain', by Anthony Foster, is available at pounds 14.95 from Property Search Spain on 01223 462244.

Popular regions such as Andalusia combine sand with `real Spain'