spanish_property

ADVICE Spanish property

READER ADVICE

Rebuilding the dream in the sun Jo Chipchase investigates the state of play in the Spanish property market: is it a good time to bag a bargain or has the bubble of owning a ‘dream house in the sun’ burst for good?

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f you’ll pardon the pun, some people could be forgiven for thinking that ‘Eldorado’ has turned into ‘Helldorado’ during the last 18 months. Indeed, Spain has been badly hit by the recession and, for the struggling number four eurozone economy and English owners of Spanish property alike, the scenario isn’t so sunny.

In contrast to the growth of just a couple of years ago, Spain is suffering from an unemployment rate of 19 per cent, deflating house prices and a huge budget deficit. Since its peak in mid-2007 or early 2008 – depending on which figures you believe – the housing market has fallen and there’s little sign of recovery.

ABOVE Charming white villages, or pueblo blancos, in Andalucía, are very appealing for many UK buyers.

OPPOSITE Property in Ibiza is easy to rent out thanks to the island’s continuing popularity.

How did ‘helldorado’ happen?

According to some analysts, the crash was waiting to occur. Spanish house prices more than doubled in real terms during the boom when a healthy economy and foreign buyers drove the market upwards. Between 2001 and 2007, Spain constructed 29 per cent of

BELOW Prices vary widely on the Costa Blanca, properties in the north generally costing more than those in the south.

new EU homes despite having just nine per cent of its population (45 million people). Although, on average, 220,000 property transactions were recorded quarterly from 2005 to 2007, this figure fell to just 112,886 transactions in the second quarter of 2009 after the ‘credit crunch’ struck. Furthermore, the overconstruction that occurred during the boom has led to unsold homes sitting on the market.

And now? Spain’s unsold property includes approximately 1.1 million new build flats and houses and roughly 518,000 second-hand properties. Around 327,350 units remain ‘under construction’ and may never be completed: a drive along the Costa del Sol, for example, reveals the concrete shells of new builds which stalled when the developers went bust. Inland, residential blocks have been badly affected too. Roughly half of Spain's unsold houses are on the books of ‘cajas’ (regional savings banks) and major banks. Some analysts believe that these properties will flood the market later in 2010, further deflating house prices.

Which areas have been hardest hit?

Some areas of Spain have been worse affected by the 'crisis' than others.

Before the crash, house prices outside Madrid and Barcelona were highest on the touristy Mediterranean coast – especially Catalonia, the Costa del Sol and Valencia. These coastal regions saw the greatest price rises during the boom while foreign buyers flocked from the UK, France and Germany.

Chris Garwood of Costa Blanca Select (www.costablancaselect.com), a property broking and finding agency in Alicante, says, “The big casualties

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have been the greedy ‘mega-developers’ who concentrated on quantity and density rather than quality. The vast developments, urban sprawls and soulless golf resort developments south of Alicante spreading through the lesser costas to the Costa del Sol, have ultimately proved to be unwanted – and not before time.”

Are there any remaining ‘des res’ areas?

Meanwhile, other regions have suffered less drastic crashes. Drops in prices are reportedly lower on the Canary Islands and Balearics: the latter was one of the most popular second home locations for English buyers in 2009.

Stuart Mottram of Property Ibiza Auctions (www.propertyibizaauctions.com) says, “In Ibiza, the really high end properties have not been affected. The buyers with this type of budget will buy here because they want to, not because they need an investment opportunity.”

He adds, “The Balearics have weathered the downturn better than most parts of Spain. Ibiza is one of the most popular destinations in the summer and it’s famous for the nightlife, stunning beaches and popular with the rich and famous. The property rental market here is huge and it presents a great opportunity. There’s still a lot of demand.”

And the story is similar in some other regions. Mark Adkinson of Galician Rustic (www.galicianrustic.com), an estate agency in the north west of Spain, says, “Rural, rustic farmhouse properties in the non-touristy areas here have hardly been affected. Most of the sales we’re seeing are from Spanish owners and many are houses for restoration.”

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ADVICE Spanish property

Stephen Amore of Find Me a Home (www.findmeahome.es), based in the Almanzora Valley of Almería Province, Andalucía concurs. “Individual properties with character, farmhouses and cortijos in excellent locations are as popular as ever. Ruins for restoration also are attracting interest when priced correctly.”

According to Chris Garwood, the most desirable properties are those recently built in high-quality, mature locations, close to amenities, with good views and well presented. He points out that most demand is within the €120,000 to €800,000 range.

Andy Young of Costa Calida Properties (www.costacalidabargains.com), which has operated for 10 years in Murcia, says, “Sea view apartments still sell on a steady basis. As the old saying goes – location, location, location.”

A buyers' market or ‘buyer beware’?

Although some analysts believe the property downfall has bottomed out, others say prices could fall by a further 12-27 per cent while banks continue to sell repossessed homes and regional authorities finance the purchase of unsold homes with grants.

There is some risk is involved in property transactions during a continuing recession, but many estate agents believe it’s a buyers' market. In particular, cash buyers are in a strong position to pick up a bargain that will provide a medium to long term investment.

Stephen Amore agrees. “It’s an excellent time for English buyers. The Belgians and Dutch are currently very active in the Spanish market as they have a keen eye for knowing when it has bottomed out. If you’re seeking an investment property rather than a permanent home, buy something with good rental yield

ABOVE It depends how you define bargain, but this collection of three properties – farmhouse, villa and converted stable – was reduced in price from €1,200,000 to €750,000.

BELOW Properties that need restoration can provide a good bargain, as long as you’re prepared to get your hands dirty.

potential. A property with character, a pool and easy access to services should achieve between 3.5 and six per cent per annum on a long-term letting basis. If the property can also be used for summer holiday lets, the yield will be higher.”

Chris Garwood concurs. “It’s the perfect time for English people to buy in Spain. First decide what you can afford, allowing a further 10 per cent for purchase expenses, and then research target areas. Spend time finding a trustworthy relocation agent, check their references and follow their guidance.

Always use a fully qualified, local, English-speaking solicitor, follow correct procedures and insist on a survey.”

many of the new developments, golf properties etc, in areas where the water tables are dropping yearly; in the future there may be water shortages.”

Andy Young says, “If you’re buying a ‘key ready’ property – and off-plan properties are generally key ready these days thanks to the amount of cancellations over the last two years – don’t give the deposit to the promoter.

Many are at the point of bankruptcy and this could happen when they have your deposit. Find a good lawyer from the start and ask them or your trusted agent to hold the deposit until you finalise the purchase at the notary’s office.”

Off plan, off limits?

Money exchange and mortgage matters

He adds, “There seems to be a false perception, in the UK in particular, that the Spanish property market in the costas is literally awash with property for sale. This is something of an illusion as the majority of properties are either ridiculously overpriced, flawed or both.

Identify the worthwhile 10 or 15 per cent of properties to view. Buy quality! The most desirable and sought-after areas hold their status for good reason and will provide the safest investment.”

Mark Adkinson agrees. “Be extra wary of super cheap properties. I worry about

Many English property owners with euro mortgages are paying considerably more than in the era when the exchange rate was nearer €1.50 than €1.10. That era is long gone. With eurozone instability continuing, some pundits have made drastic predictions that the euro will collapse and Spain may revert to the peseta.

David Lamb of money broker, Number1currency.com, says, “I would bet 70/30 in favour of the euro staying intact. How euro weakness will play out against sterling is uncertain. Assuming

Selling your property In a difficult market, vendors who want to offload their Spanish property must make an effort to attract buyer attention, albeit at a distressed price. Chris Garwood advises, “Vendors have a decent chance of selling if they’re in one of the more desirable areas and their property is priced competitively.”

A well maintained property, in good condition, can make all the difference.

Stephen Amore says, “The agent or vendor needs to take as many excellent photos as possible as most buyers will see the property first on a website.

Presentation is so important.”

Sellers should entice buyers by providing sufficient online information about the property, the surrounding area, its infrastructure, benefits and the buyer’s potential new lifestyle. Personal service goes a long way too: why not offer to collect potential buyers from the airport and arrange accommodation for their visit?

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that the euro is protected, it looks as if sterling will be the weaker of the two currencies over the next few months.

However, currency stability can change daily.”

Chris Garwood says, “If the pound continues to weaken, Spanish property prices for UK buyers will become slightly more expensive. However, this will also increase the ‘windfall effect’ for English sellers of Spanish property who intend to return to the UK and convert the purchase price back to sterling. These sellers may be more amenable to price reductions.”

Andy Young advises, “If the property you’re buying is a second or holiday home, a sterling mortgage is worth examining. If, however, you plan to live full time in Spain, I think a euro mortgage is the best option. The banks in both

countries are offering various deals so do your homework and get quotes.”

Problems with instability in the exchange rate can be overcome with a dual-currency mortgage. This means buyers can use sterling to make the repayments on their Spanish mortgage.

The maximum loan to value for this product is 60 per cent. Stuart Mottram comments, “A sterling mortgage for a buyer of a Spanish property whose income and main residence are in the UK means they have a fixed cost for the next 20 years. Taking a euro mortgage is easier at present but it’s a riskier strategy.”

Go the rental route The idea of rental may not appeal to everyone, but it could be the answer to your problems. Amore says, “Many

ABOVE Almería on the eastern coast of Andalucía has a varied landscape of wildwest style deserts and fertile valleys.

BELOW This villa is in the village of Adsubia in the northern Costa Blanca.

owners who couldn’t sell took our advice to let out their properties long term and now they have an income while waiting for the market to improve, which it will eventually. They’ve been able to relocate, earn income and they still own the house.”

Another option is holiday rentals. The rents charged are normally far greater than long-term rent prices, although there is less certainty. Andy Young says, “Last year, many Brits stayed in the UK for their summer holiday to save money. When surveyed in September 2009, the majority said they would go abroad in 2010.”

However, some property owners fear that the rental income will be insufficient to compensate for the wear and tear caused by renters.

Andy Young says, “In most cases, long-term renters leave the property well maintained. The problem of damage occurs more in short-term rentals, in my experience. You can always redecorate when times are better.”

Employing a management company to handle the rental can bring peace of mind, albeit for a price, and a good lawyer will draw up a contract to protect your interests and those of your tenant.

Most contracts are for 11 months, which need to be renewed before the arrangement can continue. This ensures the tenant can’t stay in your property without your agreement.

Will the property market’s cracks be filled?

Although Spanish real estate remains weak, late February figures from TINSA, the company that values for most of Spain’s mortgage lenders, suggested that property prices in the Valencia region had increased by 2.2 per cent, while the Bank of Spain suggested that the number of properties available on the market had fallen by 7.5 per cent.

Mark Adkinson remains positive. “I think people have been afraid and holding back their funds but now they’re looking for a tangible asset.”

Stuart Mottram agrees. “The real crunch came during 2008 when people noticed a huge reduction in their buying power that put them off property in Spain. Now, buyers are fully aware of what the exchange rate ‘was’ and ‘is’.

They seem to be buying just to get a bargain.”

So, even though major cracks exist, it seems that the dream house in the sun hasn’t collapsed just yet.

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