ABSOLUTE gUIDE sERIES to Investment Property
Spain
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Date of Publication: November 2008 © Obelisk 2
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Contents 5. Welcome to Spain
Dedicated to providing impartial information.
6. Economic Growth & Stability
Spain averaged annual growth of 3.6% between 1994 and 2007.
7. Currency & Banking
Spain’s banking system is currently unaffected by the subprime crisis.
8. Foreign Investment
Spain is the 9th largest recipient of foreign investment in the world.
9. Political Situation & Stability A politically stable parliamentary democracy.
10. Tourism
Spain is the world’s 2nd largest tourist destination.
11. Infrastructure
Recent huge investment in infrastructure.
12 - 13. Property Market
Prices increased by 190% in a decade, but the current property market has experienced a downturn.
14 - 15. Secondary Market
Huge shortage of long-term rental accommodation.
16. Mortgage Market
A well-developed mortgage market with wide choice of products.
17. Market Risks
Spain presents some issues for foreign investors.
18. Purchase Process
Buyers need to sign a preliminary contract.
19. Investment Costs
Buying costs average between 10% and 12% of the property price.
20. Summary
Spain has one of the strongest economies of the EU.
21. Verdict
Spain will retain its popularity as a foreign investment location.
22. Obelisk Advantage
Obelisk approaches its projects purely from an investment perspective.
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La Coruna San Sebastian Valladolid
Zaragoza
Salamanca
Barcelona
Madrid Valencia
Merida
Alicante
Seville Cadiz
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Murcia Granada
Malaga
ROMANIA
Teruel
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Spain forms part of the Obelisk Absolute Guides Series, dedicated to providing impartial information to numerous property investment destinations worldwide.
Welcome
to Spain
As the market leader for overseas investment property,
with in-depth, clear-cut knowledge on the most important
we are committed to providing cutting edge information
factors influencing your property investment decision in
for property investors, one aspect that has earned us the
Spain.
award of International Property Specialist 2008 by Business Britain magazine.
In this guide you will find recent economic performance and predicted growth, a profile of the current property
We are therefore pleased to present our latest Property
market and its future potential, along with tourism trends
Investment Guide to Spain, an essential tool for the
and infrastructure improvements. The guide also includes
investor planning to buy property in this country. This
information about Spain’s mortgage market, the buying
guide forms part of the Obelisk Absolute Guide Series,
process and buying costs.
dedicated to providing impartial information about numerous investment destinations worldwide.
Obelisk’s Absolute Guide to Spain offers investors objective and authoritative information to facilitate an
At Obelisk, we are only too aware of the importance of
informed decision about investing in Spain. We trust that
extensive research into an investment destination and, as
you, as an investor, will find this guide indispensable.
part of our policy to offer investors the definitive service, this guide has been rigorously researched to provide you
Here’s to Successful Investing!
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GDP Growth (Q2 2008): 0.1% GDP Per Capita (2008): US$33,700 Inflation (Sept 2008): 4.5% Unemployment (Q3 2008): 11.33%
Economic Growth
& Stability Since the Franco dictatorship ended in 1975, Spain
growth in 2008 is expected to be 0.9% and forecasts
has become one of the strongest economies in the
for 2009 are -0.6% with an improvement predicted for
European Union (EU), averaging an annual GDP
2010 (1.6%).
growth rate of 3.6% between 1994 and 2007. When Spain joined the EU in 1986, the income per
The main symptom of Spain’s economic downturn is
capita was a mere 68% of the EU average. In 2007,
rising unemployment. A country traditionally suffering
this percentage rose to 90% and living standards in
from high unemployment (24% in 1994), Spain has
Spain are now higher than Italy’s.
recently been one of the highest creators of jobs in the EU and jobless levels reached the record low of 8%
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However, like many other EU countries, the Spanish
in 2007. However, unemployment has risen sharply
economy has seen a sharp slowdown since 2007 when
during 2008 and in September 2008, the rate was
GDP growth was 3.7%. According to The Economist,
11.33% with further increases expected during 2009.
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Currency
& Banking Since the Franco dictatorship ended in 1975, Spain has become one of the strongest economies in the European Union (EU), averaging an annual GDP growth rate of 3.6% between 1994 and 2007. When Spain joined the EU in 1986, the income per capita was a mere 68% of the EU average. In 2007, this percentage rose to 90% and living standards in Spain are now higher than Italy’s. However, like many other EU countries, the Spanish economy has seen a sharp slowdown since 2007 when GDP growth was 3.7%. According to The Economist, growth in 2008 is expected to be 0.9% and forecasts for 2009 are - 0.6% with an improvement predicted for 2010 (1.6%). The main symptom of Spain’s economic downturn is rising unemployment. A country traditionally suffering from high unemployment (24% in 1994), Spain has recently been one of the highest creators of jobs in the EU and jobless levels reached the record low of 8% in 2007. However, unemployment has risen sharply during 2008 and in September 2008, the rate was 11.33% with further increases expected during 2009.
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Foreign Companies Investing in Portugal Boeing International, Cisco Systems, Ernst & Young, General Electric, Kraft Foods, Orange, PricewaterhouseCoopers
Foreign Investment In terms of foreign direct investment (FDI), Spain is the 6th
out of the top 25 countries for foreign investment. In the
largest recipient in Europe and the 9th largest in the world
Forbes Best Countries for Business 2008, Spain ranks in
(it is also the world’s 7th largest foreign investor). FDI inflows
35th place and achieves high scores for personal and
in 2007 reached a record level of US$53.4 billion, a
trade freedom, but low for its corporate tax rate and red
massive increase from the previous year’s US$23 billion.
tape. However, in the Index of Economic Freedom, Spain ranks above the European average.
Foreign investment in Spain has recently been dominated by the construction sector – accounting for 40% of total
Keen to attract FDI, Spain offers numerous investment
FDI inflows over the last decade – although industries
incentives particularly for sectors such as research,
such as information technology and renewable energy
development and innovation, tourism and renewable
are now emerging as main recipients of FDI. Main
energy. As Spain is an EU member, investors are able
investors include France, Germany, the UK and US who
to access European aid programmes, which provide
between them total 60% of investor stock in Spain.
additional incentives for investment. The official investment agency, INTERES Invest in Spain, acts as
According to the latest AT Kearney FDI Confidence Index 2007, Spain has fallen from its 17th position in 2005
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a central body to promote FDI.
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EU Member: Since 1986 NATO Member: Since 1982 WTO Member: Since 1995 Political System: Parliamentary monarchy Ruling Party: Partido Socialista Obrero Español (PSOE), socialist Next General Elections: 2012
Political Situation
& Stability After nearly 40 years of dictatorship, Spain became a parliamentary monarchy in 1976 and has since enjoyed its longest period of democracy. A stable country politically, Spain is currently ruled by the Socialist party (PSOE) led by President José Luís Rodríguez Zapatero who was re-elected in the last general elections (March 2008). King Juan Carlos is Head of State. Spain has 2 main political parties, the PSOE and the Partido Popular (PP), right wing. Regional political parties such as the Catalan CiU and the Basque PNV are also prominent in national politics. Spain is divided into 17 autonomous communities led by regional governments.
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Visitor Figures (Jan-Sept 2008): 47 million Tourism Contribution to GDP: 17.2%
Tourism Tourism is one of Spain’s most important industries and according to the World Travel & Tourism Council (WTTC), represents 17.2% of the country’s GDP (US$276.7 billion). Growth in the tourist sector is expected to average nearly 3% between 2008 and 2018, and the travel and tourism industry provides employment for almost 18% of Spain’s workforce. Spain is the world’s 2nd largest tourist destination and a perennially favourite holiday spot. Spain received 47 million tourists in the period January to September 2008, a slightly lower figure than the previous year. Between them, visitors from the UK (27.5%) and Germany (17.3%) account for nearly half of Spain’s tourism. The recently launched government plan, Turismo 2020, plans to develop a comprehensive strategy to improve the tourist sector and ensure Spanish tourism remains attractive in an increasingly competitive market. The ‘Winter in Spain’ plan aims to attract tourists to Spain out of season and has a budget of €500 million for refurbishment of hotels and resorts. Spain also plans to set up tourism offices in the emerging markets of China, India and Russia.
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Tourism Contribution to Employment: 17.7% World Ranking: 7/176 (in terms of absolute size)
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Infrastructure €249 billion investment in infrastructure from 2005 to 2020 High-speed railway network to cover most of the country €18,000 million in airport investment between 2007 and 2010 Spain has recently made huge investment in infrastructure,
According to government estimates, by 2010 Spain
particularly transportation with the main emphasis on
will have more kilometres than any other European
roads, airports and high-speed railways. In 2005, the
country and by 2020 every Spaniard will live within
government announced a €249 billion strategic plan
50km of a high-speed train station.
to be implemented from 2005 to 2020 on a range of large projects. The European Investment Bank is
Airports are another major investment target with a
providing €10 billion to fund some projects from
total investment of €18,000 million between 2007
2007 to 2013.
and 2010. Madrid and Barcelona airports are the main recipients with Malaga airport, the gateway to
Since 2006, Spain is the world’s top spending country
the Costa del Sol, also set to receive substantial
on high-speed railways with a network planned to
investment.
cover most of the main population areas in the country.
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According to The Economist’s Global House Price Index, Spanish property prices have increased by 190% in the last 10 years. Capital Growth (Q2 2007 to Q2 2008): -0.3% Average Annual Rental Yield: 3.65% to 4.7%
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Property
Market
Spain has an established reputation as one of the world’s
option. However, in recent years, the massive increase in
most popular places to buy property and according to
properties prices has meant that Spain has also been an
the Foreign and Commonwealth Office estimates, around
investment location offering huge capital gains. According
1 million Britons own a property in Spain. The country
to The Economist’s Global House Price Index, Spanish
is also a favourite with other Northern European buyers,
property prices have increased by 190% in the last 10
particularly from Germany and Scandinavian countries.
years, a similar rise to the 213% experienced in the UK.
Favourite destinations within Spain include the Costa
However, since 2007 in common with other European
Blanca, Costa del Sol and the Balearic and Canary
markets such as Ireland and the UK, Spain’s property
islands, although in recent years, many other coastal
market has experienced a downturn. The Spanish National
areas such as the Costa Brava and Costa Cálida have
Statistics Institute reports that house prices fell by 0.4%
become popular with foreign buyers.
and 0.3% in the first 2 quarters of 2008 with experts expecting higher decreases in the near future. Although
The increased availability of low-cost flights and the warm
the Knight Frank Global House Price Index Q2 2008
climate on Spain’s islands and Mediterreanan coast has
reported a 2.4% rise in Spanish property prices, the
led many investors to buy in Spain primarily as a lifestyle
report warns that “wider price falls could be imminent.”
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Secondary
Market
Many of the millions of tourists who visit Spain every
from income tax on all rental earnings if the tenant is
year stay in rented accommodation. According to
under 35 and 50% exemption if the tenant is older.
the Spanish Institute of Tourist Studies (IET), 8.2% of Spain’s 58.2 million visitors chose rental holiday
Spain’s buoyant property market from 1999 to 2006
accommodation in 2006. This figure, around 4.8
led to high capital gains, no longer the case in the
million people, is indicative of Spain’s buy-to-let potential.
current market. However, falling prices, the country’s depressed economy and the huge supply of housing
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Spain has a huge shortage of long-term rental
means that Spanish property currently represents a
accommodation and just 8% of properties are rented
good long-term investment. Aguirre Newman believes
(the European average is 30%). According to one of
the resale market will decrease by 45% in 2009 and
Spain’s main property consultants, Aguirre Newman,
that price adjustment needs to be 23%. This means
the rental market is expected to grow 15% during 2008.
that the Spanish property market should offer good
Government tax incentives for rentals include exemption
investment opportunities in 2009 and 2010.
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8.2% of Spain’s 58.2 million visitors chose rental holiday accommodation in 2006. This figure, around 4.8 million people, is indicative of Spain’s buy-to-let potential.
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Mortgage
Market Spain has a well-developed mortgage market and a range of banks offer a wide choice of mortgage products. Mortgages are available to residents and non-residents who are citizens of the EU or North America. Spain has recently introduced mortgages for clients from Eastern Europe. As a eurozone country, Spain’s mortgage lending rates are linked to the European Central Bank’s benchmark rate, known as the Euribor. In October 2008, the 6-month Euribor was around 4.5% with mortgage interest rates slightly higher. Banks need to be satisfied that you can meet your mortgage repayments and the amount you can borrow is based on your affordability or 70% of the property valuation, whichever is lowest. Mortgage terms are up to 40 years (or the age of 80). In the current global economic downturn, Spanish banks are less ready to grant mortgages and in September 2008, Reuters reported a year-on-year drop in mortgage borrowing of over 40%. However, Spanish banks have not been affected by the subprime crisis and are, according to Forbes, “looking stronger than ever amidst an unprecedented financial crisis.”
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The current resale market should provide some good long-term opportunities for the investor.
Market
Risks
Property investment into emerging markets may carry
property analysts expect resales to fall by 45% during
some degree of risk. However, the degree that market
2009. However, this situation should provide some good
risk in a particular country affects a property investment
long-term opportunities for the investor since predicted
depends largely on thorough due diligence conducted
price adjustments should lead to the availability of many
prior and during the purchase process.
low-price properties.
A major problem currently facing Spain (and many other
Recently, there have been numerous scandals regarding
countries) is the downturn in its economy, which has led to
Spanish property, particularly ownership issues, illegal
a sharp fall in economic growth and a huge rise in
construction and municipal corruption. These include the
unemployment. This situation is expected to continue during
so-called ‘land grab’ issues in the Valencia region, illegal
2009 with improvement in 2010. According to the
properties built on rural land in Almería and corruption
International Monetary Fund, Spain’s economy is strong and
by councillors in resorts such as Marbella and Estepona.
will return to its potential growth path in the medium term.
Property investors are advised to carry out comprehensive due diligence on a purchase and employ the services of
Oversupply in the housing market is another risk in Spain
an independent lawyer to revise all legal aspects of the
where the resale market is currently saturated and
investment.
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Purchase Process Spanish laws and legal processes may be very different to what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase. Below is the standard purchase process in Spain and issues that may affect a property purchase: In order to purchase property in Spain, a Numero de Identificación de Extranjero (NIE) is required. The NIE is a unique identification number required to open a bank account or purchase property. The NIE must be obtained in person at a Spanish police station. An initial reservation deposit of between €3,000 and €6,000 is normally required, although this may vary depending on the purchase price. Once the offer of purchase is accepted, both parties sign a sales contract or ‘option to purchase’ contract and the buyer pays a deposit of 10% of the purchase price. This is non-refundable if the buyer decides not to complete. If the vendor decides not to sell, they must usually return double the deposit to the buyer. The title deeds are signed by both parties in the presence of a Notary Public and the buyer makes final payments. Purchase taxes and fees must be paid and the title deeds are registered in the buyer’s name at the Land Registry.
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Investment Costs Spanish taxation is complex and subject to change. You are therefore recommended to take expert and up-to-date advice on taxation issues affecting the purchase and ownership of property in Spain. The costs of a standard property purchase in Spain may include the following: The costs of a standard property purchase in Spain are high and average between 10% to 12% of the property price. They include the following (all percentages are of the purchase price): Property Transfer Tax is payable on the purchase of resale property between 6% to 7% depending on the region. VAT (IVA) is payable on the purchase of off-plan property at 7% depending on the region. Notary and Land Registry fees are fixed by law and based on a sliding scale. They range from 0.5% to 2% of the purchase price. Stamp duty is payable on the purchase of off-plan property at 0.5% or 1% depending on the region. Legal fees are payable and range from 1% to 1.5%. Capital gains tax is payable on profits (adjusted according to inflation) at the rate of 18% for EU nationals and 35% for non-EU nationals. Profits from principal residences are exempt provided the profit is reinvested in another principal home within 2 years.
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Summary The following summary provides key highlights to consider when investing in Spain’s property market: Spain has become one of the EU’s strongest
Spanish property prices have increased by
economies and averaged an annual GDP
190% in the last 10 years.
growth of 3.6% between 1994 and 2007. Around 4.8 million tourists stay in rental The Spanish banking system is currently one of
accommodation every year.
the few in Western countries unaffected by the subprime crisis.
There are generous tax incentives for income from long-term rental accommodation.
Spain is Europe’s 6th largest recipient of foreign investment and the 9th largest in the world.
Spain’s mortgage market is well-developed with a wide choice of mortgage products.
Since 1976, Spain has enjoyed its longest period of democrary and is politically stable.
The downturn in the property market is expected to lead to lower prices and good investment
Tourism represents 17.2% of Spain’s GDP and
opportunities.
Spain is the world’s 2nd largest tourist destination.
A 10% non-refundable deposit is paid when the sales contract is signed by both parties.
Spain has a €249 billion strategic plan for investment projects from 2005 to 2020.
Purchase costs are high and average between 10% and 12% of the purchase price.
Around 1 million Britons own a property in Spain.
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The Absolute Guide Series Rating
Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.
Verdict The Spanish property market has suffered greatly during the last 12 months. This has been mainly due to an oversupply of cheap tourist accommodation on the coastal resorts. Spain is still one of the most favoured destinations for foreign investments, mainly due to the climate and this perception is not likely to change. Several infrastructure projects are underway including the new Malaga airport and the AVE train link. The airport is expanding to handle passenger traffic of 20 million each year. The AVE train link at present services Madrid to Malaga and will soon connect Malaga to Barcelona in less than 5 hours. A new rail link between Malaga and the commercial centre of Marbella is proposed. In general, Spain’s future looks very bright.
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Obelisk
Awards Obelisk ‘International Property Specialist 2008’
Advantage
Voted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism. Obelisk has identified a simple and transparant purchase process for its clients as a simple, four step process: 1.
The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.
2.
An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.
3.
On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.
4.
The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.
For more information about Obelisk’s investment opportunities in Spain, contact us now on info@obeliskinternational.com, visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).
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Disclaimer The material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future. The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.
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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514 For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790 Alternatively you can email: info@obeliskinternational.com or visit: www.obeliskinternational.com