Sales of the ‘bare ownership’ of dwellings are steadily growing in Spain. According to land registry data, 1,657 such transactions were carried out in 2022, 23.7% more than a year earlier, hitting the highest level since 2014.
While there are relatively few transactions of this type, it could prove to be an interesting option for many people looking to buy property in Spain as an investment opportunity.
What is bare ownership?
In Spain, property ownership is divided into two types: bare ownership (“nuda propiedad” in Spanish) and usufruct (“usufructo”). Bare ownership grants ownership rights to a property, while usufruct grants rights to use the property.
For example, a landlord may possess bare ownership of a rental property, while the tenant holds usufruct rights.
In most cases, when a buying a property in Spain, the buyer will gain both bare ownership and usufruct rights. However, in a transaction where only the bare ownership changes hands, it can benefit several parties involved.
A solution for the over-65s
This type of transaction is quite uncommon, but there is nonetheless some demand for it in larger cities.
Behind the increase in the purchase and sale of the bare ownership of dwellings in Spain are several factors, such as lengthening life expectancy and the corresponding increase in the need for economic resources at the end of active working life.
The transfer of bare ownership is a good alternative for the over 65s who need to obtain liquidity to, in many cases, supplement their pension. In doing so, it also allows them to continue living in their home until their death – at which point the property would pass into the hands of the buyer of the bare ownership.
This type of sale can be useful for older people without descendants and for investors seeking a long-term return.
How to value bare ownership
The main advantage for the seller of the bare property is that they can obtain liquidity. Meanwhile, for the buyer, this is a way to purchase a property below market price – albeit without being able to use it until the occupant’s death.
A study by the valuation company Tecnitasa shows, on average, a property owner can get just over 60% of the value of the property by selling bare ownership. This equates to a saving of more than 30% for the buyer.
However, the percentage can vary depending on the age of the owner, the value of the flat and the province in which it is located.
For example, according to the figures, a 70-year-old person could receive 61% of the property’s value if they decide to sell bare ownership. This percentage would rise to 84% in the case of an owner of around 95 years of age.
As you can see, this can be an incredibly difficult calculation to make and often takes a lengthy negotiation before an agreement can be reached.
What are the rights and obligations of the bare owner?
While the buyer will take ownership of the property, that doesn’t entitle them to its use and enjoyment until the usufructuary has died.
They can, however, carry out a number of operations, provided that rights of the usufructuary are respected and that the character of the property is not altered. These include selling the bare ownership to a third party and carrying out works and improvements on the property.
However, bare ownership also comes with the responsibility of:
- Carrying out and paying for urgently needed repairs
- Paying the taxes and duties corresponding to the property (with the exception of the IBI Land Value Tax).
- Being liable to the usufructuary for losses should the property be seized or sold judicially for the payment of debt
- Paying community (“comunidad”) charges
Numbers are increasing, except in the north
The land registry data showed that the highest number of sales of bare ownership of homes during the last year came in the Valencian Community (379), the Community of Madrid (293), Andalucía (287), Catalonia (157) and the Canary Islands (132).
In the rest of the regions, the volume of sales was below 100, with Cantabria, the Basque Country and Navarre registering the fewest transactions (less than 20 transactions in each).
In terms of year-on-year evolution, however, the increase in the Balearic Islands stands out, where sales of bare property have risen by more than 130%. They have also grown strongly in Extremadura (68.8%) and the Canary Islands (51.7%).
A total of 11 Autonomous Communities recorded an increase in transactions, while Aragon (-3.8%), Catalonia (-10.8%), Galicia (-18.2%), Navarre (-11.1%) and the Basque Country (-48.4%) were the only to register decreases.
More operations of this type are expected
A large proportion of homes in Spain that are headed by people over 65 are fully paid for. So are the other properties that they own. In fact, property makes up the largest percentage of the asset portfolios of Spanish households.
More transactions of this type are therefore expected, as the elderly seek to obtain liquidity from the savings they have invested throughout their lives in the purchase of their homes.
Also, with it common in Spain for most seniors to want to stay in their home until they die, selling bare ownership is a solution that is increasingly appealing.