With the real estate market in Spain seeming to have weathered the effects of the coronavirus pandemic, and investment in property on the rise again, it's no surprise that housing prices are again increasing. That being the case, many people are looking for alternatives to the traditional process of buying a house. One of these alternatives, that allows you to potentially buy a home at a lower price than the market value is to do so through a cooperative. This is an option that allows savings of close to 20% and includes tax benefits, which is why it is arousing the interest of many young people when it comes to buying their first home.
According to data from the LACOOOP platform, two out of every three young buyers are currently opting for this alternative to traditional purchasing, which offers the possibility of buying a new home for a more affordable price. Currently, the Confederation of Spanish Housing Cooperatives (CONCOVI) brings together 2,700 housing cooperatives throughout Spain.
To clear up any doubts about this option, the General Council of the Official Associations of Property Agents in Spain has summarised in a study how a housing co-operative is formed, what tax incentives they have and why the price of properties is more affordable.
What is a housing cooperative, and what benifits does it offer?
As Lola Alcover, Secretary General of the General Council of the COAPI, explains, a co-operative is "a non-profit company that builds homes at cost price", which means that in the buying and selling process the housing developer is dispensed with. By cutting developers out of the process, Alcover insists, "the house is more affordable, because their share of the profit is eliminated, as the co-operative does not make a profit".
Thanks to this set-up, housing co-operatives benefit from a series of tax benifits, such as a tax rate of 20% on Corporation Tax, 95% reductions in Business Tax (IAE) and exemption from payment of Transfer Tax and Stamp Duty (ITP-AJD).
In addition, says the Secretary General of the General Council of Estate Agents, co-operative members "can deduct their financial contributions towards their home in their Income Tax Return". All of these tax benefits, according to Alcover, make it "an interesting option to explore" when looking for a home.
How is a co-operative formed?
Alcover points out that when a co-operative is formed, this association of people acts as the developer of the homes, in such a way that "the member is both the developer and the successful bidder for the property at the same time".
Thus, the properties are built by a non-profit association of people, who are obliged to participate in meetings and have the right to make decisions jointly. Cooperative housing is therefore new construction, a type of housing that is increasingly in demand in the wake of the pandemic.
Based on this formula, each autonomous community has its own cooperative system, although in general a General Assembly, Governing Council, and Auditor must be formed.
When does it make sense: disadvantages to consider
Despite the benefits of buying a home through a co-operative, there are also a number of disadvantages that can arise.
"It is important to bear in mind that managing a housing co-operative is complicated and requires both dedication and knowledge in different areas", says the expert, who points out that when you join a housing co-operative, you also acquire a series of responsibilities.
For this reason, Alcover recommends that a specialised manager should be hired, as most people do not have the necessary knowledge to take on these tasks. This figure, despite entailing a cost, "will always provide security and guarantees for the success of the company". In addition, she insists, "it is very important to have more than enough proof of the legal guarantees offered by the co-operative to avoid unpleasant surprises and financial damage".
On the other hand, the expert warns that the lack of a developer, despite reducing the price of the property, can become a disadvantage if there are unforeseen events in the works. "Given that we are not starting from a fixed figure, any problems in the building work have to be assumed by the co-operative members themselves," she adds.
On the whole however, Alcover believes that "considering all these guarantees", buying a co-operative home "has enormous potential" and can be very beneficial for the buyer.