A new trend – Real estate lottery

The sale of your property through a lottery system

More and more often, you may see on television or read in the newspapers that owners are drawing their properties through a lottery system.

In the first moment, it sounds simple. The prospective buyer buys a lot and takes the risk not to win – as with most lottery systems - but could participate at the draw with a small amount of € 50 or € 100, depending on the property´s value, and has the chance to win an apartment or a villa valued for e.g. € 500.000 or € 1.000.000. You think: I will take the risk! It is preferable to lose € 100 once than missing the chance of being one of maybe only 2.000 participants and owner of a quality property.

Vitalux grabbed the subject and went into it. We came upon many information, faced lawyer´s rejections, legal loopholes, a great rush and interest of prospective buyers, fears of vendors, etc.

The basic idea of the real estate lottery system hails from Austria where it is legal. Spanish laws have some loopholes that could lead to fatality.

Information for property owners:

Who would be interested in selling his property through a lottery system must be aware of the following costs and circumstances.

    •    Prohibition of internet lotteries: An auction of real estate through the internet is not legal unless you fight public authorities for the permission. The official lottery and bidding authority can issue a permit valid only for the Spanish territory. Should the lots also be offered in further countries, the respective permissions would have to be applied for and fees been paid in each single country. The official participation conditions, which define the drawing´s procedure, have to be handed in when applying for the permit. It is advisable to deposit these at a notary, even though there is no obligation to do so, for guaranteeing no obscuration during the draw and to provide a legal backup in case of a participant claiming or appealing anything. The notary´s fees could be much higher than at a regular sale of a property.

    •    Advertisement draft: Also, a draft of any advertisement announcing the draw must be presented previously. The organizer is also obliged to register at the authority for data protection and obey their guidelines to guarantee the protection of the lot buyers' personal data.

    •    Required documents: The required documents are the Spanish NIE or DNI number and a clearance certificate.

    •    Prepayment: The property's owner must pay a fee of 15% of the total value of all lots to the lottery agency before the lottery starts.

    •    Income tax: The vendor has to pay income tax for the total amount generated through the sale of all lots. As the property transfer is tax wise technically not considered as a sale, non-residents have to pay 24% and residents in Spain up to 43% income tax.

    •    Bank certificate of execution's suspension: It is advisable to apply for a certification of the loan's registered beneficiary bank so that this will not execute the property during the draw.

Conclusion: Many more lots than the property's value have to be sold to achieve a profit!

Information for the buyer of lots:

The following precautions have to be taken as prospective buyer of the lots:

    •    Misuse: Due to existing legal loopholes, you might face misuse through sold lots without any existing property. First cases on this have been published.

    •    Preliminary information: Before buying any lots, the prospective buyer should find out whether the vendor of the drawn property abides by the above-mentioned legal conditions and laws.

    •    Capital gain tax: The draw's winner has to pay capital gain taxes on the profit (for resident taxpayers up to 43%).

Conclusion: The tax office is the greatest beneficiary of the draw!

Vitalux is in contact with lawyers investigating how to set up a legal draw. We will keep you informed.

Vitalux will provide you with the relevant details as soon as we see a way, in which the vendor as well as the prospective buyer may decide for this way of a property sale, without having to take fatal risks, and a legal execution of the draw is granted.

Your Vitalux team!