site
Print-friendly version |
Home Page > Market Update > Market Overview - July 2010
 You are not logged in. Click here to log in.

Market Overview - July 2010

Market overview

Spanish Property Market Update - July 2010

DON'T LET THE SUN SET ON YOUR DREAMS

JULY 2010
Global confidence is in short supply at the moment caused in part by recent evidence that world economic growth is slowing including even China. This plus the spreading sovereign debt crisis and worries that Euro zone banks have not come clean on the true state of their bad debts are all making the immediate future unclear.

However the good news is that the sun still shines in Spain if not on Spain. The market for properties at bargain prices is still moving as are villas in good locations where prices stopped falling siz months ago. There are also a steady number of Euro zone buyers in the market especially from The Netherlands and Belgium.

From July 2010 the purchase tax on property rises from 7% to 8% while normal IVA (VAT) increases from 16% to 18%

Many UK buyers are returning home dissappointed after arriving in Spain with the false impression that they will have very low bids on properties accepted. There have been reports in the media of give away prices in Spain since the property bubble burst and this has been confusing for the buyer.  The official Government fugures show a 13% drop in Spanish property prices since 2008 but the real drop has been 30%. Why is this? The reason is because the government figures are based on sale prices at the Notary for new property that was sold off plan 2 or 3 years ago on fixed price contracts. Because these sales have only recently been completed at the Notary they are recorded in the current figures.  With resales and new key ready properties being sold at 30% less than values of 2007 but in smaller volumes this has therefore distorted the official figures for current sales values.

The property market in Spain has changed and the last two years with vendors lowering their asking prices to reflect the real world. Most sellers are now asking at least 30% less than prices that they could have achieved 2 or 3 years ago. Of course it is still very much a buyer's market and vendors will consider offers but only if they are reasonable offers. Nobody is building in a margin to allow for a big discount because they just would not get anyone to view in the first place. So having dropped their asking prices by 30% few vendors will accept an offer of another 20% less.


BACKGROUND
Banks are offering "repossessed" properties but beware because many of these are in poor areas and are being offered at higher than current market values because the bank need to recover a high loan to value mortgage. There are also agents who are using "distressed" sales as a marketing tool. Again beware these are not the bargains they are claimed to be.

The Spanish property market is split into three distinct groups. Prices for property built close to the large cities with good access (1st group) and good quality individual property in good locations (2nd group) seems to have leveled out with the prospect of a return to increase in values on the horrizon. While the values are forcast to continue falling for the 3rd group - that is all the rest including property built (and overbuilt) in poor locations with no amenities, large blocks of empty apartments and large estates of mass produced properties that are all similar.

Therefore buyers should avoid this third group and concentrate on the 2nd group of Spanish property in good locations which still can be bought at bargain prices of six years ago as this will be the first sector to start to increase in value.  There is still large number of new enquiries coming in from all over Europe including Russian UK with buyers seeking a new home in the sunshine with a better lifestyle.

There are some tremendous property bargains still about including detached villas from €160,000 in good locations with amenities within walking distance, apartments from €80,000 and even a selction of properties with 90% mortgages and nothing to pay for 3 years!

The winter in this part of Spain is mild and pleasant with plenty of winter sunshine and with so many Spanish property bargains about now is a good time to make a viewing trip. Winter is an excellent time for selling properties in Spain as buyers can come and sample the wonderful sunny blue skies when the rest of Europe is covered in cloud with rain, snow, frost and fog. In the UK and northern Europe it gets dark before 4 o'clock while here in Spain it is light until 6 o'clock and the there is clear visability with wonderful long distance views particularly in beautiful inland areas like North West Murcia.

How does the exchange rate effect the Spanish property market? In theory if Sterling becomes weaker it makes a purchase of a Spanish property more expensive for the UK buyer. However in practice the purchase is not more expensive as the Spanish property vendors have been dropping their selling prices accordingly. Also interest has remained strong throughout the summer as many UK residents, who for the last two years have had their plans on the back burner, now want to make their dreams a reality.
 
If Sterling gets stronger, which many economists are predicting for next year, then it will bring the turning point for the Spanish property market. As buyers for the UK will start to exchange more Euros for their Pounds this will be reflected in future Spanish property prices. Vendors with Spanish properties for sale will start to revalue their properties upwards. There will not be a dramatic increase in prices but it will mean there will be less bargains next year, so is possibly the best time in the last 20 years to buy a Spanish property at a price well below the real value.

Several other factors are having an effect:   the UK property market is beginning to stablise   -  Spanish prices have dropped by 30% - 40% making them competitive once again -- the Spanish weather and lifestyle will always be appealing  --  those who planned to retire to Spain are not getting any younger and cannot keep putting their plans back -- the rest of the Eurozone has realised Spanish prices are now a bargain and are actively in the market and have been joined by buyers from Russia.

Buyers are still more interested in re-sale properties than new and with plenty of choice and is the best option. There are also some good "key-ready" new property bargains that are also worth consideration but our advice to buyers is to stay clear of most off plan developments as it is just not worth the risk in the current market - otherwise you could end up on a building site for years to come.

If you are selling your Spanish property to return to the UK the current exchange rate is still good news and presents you with a window of opportunity. The current exchange rate has meant you will receive many more pounds for your euros when you sell. This is also good news for buyers as most sellers are passing on this gain so offsetting the negative aspect of the decline in the value of sterling.

Vendors
eg: Say you have a property that three years ago valued at €200,000 when the exchange rate was 1.45 euros to the pound. Had you sold at that time then you would have received 137,931 sterling pounds (@ 1.45). As at  7th July 2010 with an exchange rate of 1.1999  you could afford to drop your price by 34,496 euros to 165,503 euros and still buy the same number of pounds as 3 years ago (137,931 pds) and so be no worse off financially but with a better chance of selling.

Many vendors have realised this and have accepted what appeared to be low offers but in fact have not been any worse off. They also have the benefit of falling UK property prices when they move back. These are the properties that are selling and why there are still buyers in the market who are snapping up tremendous bargains.

Buyers
There really are some excellent bargains to be had at the moment particularly for those who have planned to retire to Spain. If you still have money left in the bank or indeed if you still have a bank, then now would be a good time to secure your retirement in the sun with a better quality of life and cheaper living. Most vendors have dropped their asking prices to reflect both the market and the weakness in Sterling when it was almost one for one. Now sterling has gained 10% against  the euro you can buy more for your money.

Throughout Spain, as in may parts of the UK, there has been an oversupply of two bed apartments (900,000 unsold - mostly in the big City's) causing several large builders to to seek administration and in turn put downward pressure on this are of the property market

Official Government figures show only a 13% drop in prices, but in reality over the past year prices for most properties have fallen by around 30% This has offset the fall in the value of the pound and has attracted the investors back into the market.

Builders of new developments are offering very good deals including excepting payment in Sterling. Re-sale properties have followed suit making prices similar to three years ago. There are also many buyers from Scandinavia and Russian who have not been effected by currency problems and who are snapping up the bargains.

Prices appear to have bottomed out for detached properties in nice areas and not everyone is as desperate to sell therefore the next few months should be the best time to buy a property in Spain, providing you do your homework and buy wisely.

Prices of new key ready property have also gone down over the last 12 months yet the quality of build and specifications have improved tremendously. Most new developers are offering incentives and some are accepting payment in sterling with exchange rates pegged to the better rates of several months ago. There is a shortage of new detached villas in good locations and these could be like gold once the credit crunch eases off.

There are also great value resale buys to be made as there is a lot of stock on the market but much of this is not in prime locations.

If you have planned to relocate to a warm and sunny climate with a better lifestyle or you just want a holiday home, then don't be put off by all the negative talk that has been doing the rounds for the last several months.

Yes of course the property inflation boom has come to an end in most countries and this may well be for the best in the long run. Property in the medium and long term has proven to be a sound investment. Whenever there has been a period with static prices or where there has been a short downturn this is always followed by a sharp upturn.

Spain will always be Europe's favourite holiday and retirement destination because it has the best year round climate and boasts a healthy stress free lifestyle.

Unless you are a short term investor looking for a quick profit then there is no reason to postpone retirement plans because of a fear of the ups and downs of property markets. There is an old saying "you are a long time dead" so why put off such important benefits to your life because of a strictly short term problem that will be forgotten in a couple of years.

Q: How will all of this effect anyone planning to buy a property in Spain?

A: Firstly you should determine your reasons for buying. If it is for a short term investment then perhaps you should wait for the market to settle. If however you have planned to retire to Spain (full or part time) or want a holiday home for more than a couple of years then there is no reason to delay. The weather and lifestyle have not changed and now is a buyers market.

The world financial turmoil has meant that there is good news and bad news. The bad news is that with weaker Sterling you get less Euros to the pound. The good news is that the property boom in Spain ended about 18 months ago and property prices have been adjusting for the last 12 months. You now do not have to wait as long for a new build (many key ready properties are available) and prices are now better value than 3 years ago. Developers have increased the quality specification and pegged their prices, so will offset some of the drop in the value of the pound.

There is currently an oversupply of 2 bedroomed apartments in large blocks and also there are many resale properties for sale on the large urbanisations. So there are real bargains to be had. However many resale properties are over priced in our opinion, when compared with some of the new houses which now offer a much better product for the discerning buyer with smaller more attractive developments with much higher specifications.

The market for detached villas in good locations is still strong particularly in the choice inland areas like the one in the photos below.

As always it is Location Location Location! Good quality and value properties in good locations will be sound investments (as well as a wonderful places to live and enjoy the climate and lifestyle)

We would add the importance of using an ethical professional estate agent and solicitor to find that quality property that meets all of your requirements.

If you are an investor looking for a quick profit, we suggest now is not the time. However the property market in Spain is now a mature one with a good history of growth and so investment prospects are excellent for the medium and long term.

If your main reasons for buying are for a better quality of life, a wonderful all year round climate and a lower cost of living then then don't delay - paradise awaits!

The demand for property in Spain is forecast to grow substantially over the next ten years as increasing numbers of Northern Europeans retire to warmer climates. According to an Alliance & Leicester International in reported that by the year 2020, one in five older people will be living outside the UK, the vast majority in Spain. Spain is the leading country for the many Europeans who desire a property as a holiday home or investment, which has lead to a doubling in prices in many parts of the country over the past eight years. Also, younger families are choosing to build a new life in Spain.

 
BREAKING NEWS

Over the Christmas holiday period Polaris World in Murcia has asked the court to allow several of its companies to benefit from three months Insolvency proceedings / Creditors genetal meeting protection in accordance with the Insolvency Act to allow them to renegotiate their debts, according to company sources of the residential tourism group.

The company filed for approval on 22 December and the request was presented to the Commercial Court in Murcia according to judicial sources. Polaris World is now under a provision of the Insolvency proceedings law that allows commercial companies the opportunity to amicably resolve their debt situations without resorting to judicial process. The Act states that if the negotiations do no complete within 3 months, the group must request to be declared Insolvent within the next month. In this case, the judge would have to appoint a Court administration to creditors, within 15 days, and report the debts that the company has wi th them.

Last June, Polaris World was negotiating its debt with its major creditors, Bancaja, CAM, Banco Popular, Banco de Valencia and Cajamurcia. It is thought that this amounts to a total 900 million euros, which was used to finance the construction of several of its resorts in the Murcia region.

Hot Properties in Spain S.L.    -  Our Record of Professional & Ethical Advice

It gives us no pleasure at all to say "we told you so"   However as the following item (which was posted on our website in 2005) shows, we have never believed in the business model of Polaris World and we have advised our clients accordingley of the risks of buying this sort of property. 

The long delivery period of 2 to 3 years allowed time for prices to be increased every 3 months or so, in order to show a record of capital growth. We believe many property sales agents encouraged people to buy on these type of golf resorts based on an ongoing capital growth and a promised rental income that was totally unrealistic. In our opinion these sort of "golf resorts" were nothing more than overpriced housing estates in the middle of nowhere with little or no amenities.

Furthermore with so many similar "resorts" being built there was a complete saturation to the extent that there are probably more "golf resort" beds to let than there are golfers in the UK!
 

                                                                                                                                                                                                           
                                                                                     

                                                                                                      Golf Resort Property - Is it a good investment? (posted in 2005) 

Is it easy to be seduced by the magazine and TV advertisments for golf developments with their manicured greens and 5 star hotels and featuring famous golf and sports personalities. But wait! Not all is as it is presented.

There are currently almost 30 new golf courses completed or under construction on the Costa Blanca and Costa Calida areas, each with hundreds and sometimes thousands of properties being built. Most of these properties have a premium price tag because they are on a golf course and perhaps have a view of a fairway. Also someone has to pay for the expensive marketing costs with advertising using big name golfers and sports stars.

The properties are being sold with the promise that you will be easily able to rent out the property to golfers for the majority of the year and that the rental income will more than pay the mortgage. They also are promising a high capital growth.

In principal this all sounds fine. However you should consider the following inportant points:

Advantages of buying/renting on a golf course:
(1) Nice location some properties with views of the fairways.

(2) Handy for golfers that only want to play one course. However as most golfers want to play several courses during their holiday this is a dubious advantage.

(3) Reduced rates for green fees for property owners. Will this still be an advantage after you add in the high community and maintenance charges?

Disadvantages of buying(and renting)on a golf course:
(1) You have to pay a premium to buy a property on a golf course. For the cost of an apartment on a golf course you can normally buy a town house or even a detached on a small development within walking distance of good facilities and the same golf course just a short drive away.

(2) A property owner will be charged 1000 to 3000 euros p.a. community charge on most golf courses as against 300 or 400 euros p.a. in the nearby village/town.

(3) The rental charges for a property on a golf course will have to be higher because of the higher buying and running costs and will only appeal to golfers. Therefore you will limit your potental rental income because of price and miss out on rental income from families who prefer to be near the beach and amenities. 

(4) Risky short term capital gain. Many golf properties are sold to investors in order to make a quick capital gain and so in practice a large number of properties hit the market for re-sale at the completion stage ie. at the same time. Because of this and the fact that there is a narrower market for a golf property it has the effect of depressing the market both on that particular course and for golf properties in general.

Many of the courses under construction have a high density of properties which will mean concrete views from the fairways and greens. One of the largest golf resort promotors who heavily promotes in the UK has had to start selling new low priced properties that undercut their own clients re-sale properties.

We believe there are much better investments in some of the smaller new developments close by the golf courses. These more unique little developments appeal not just to golfers but for family holidays as well so the potential rental income is greater. Some also achieve very good bank valuations which mean you can is some cases get 100% mortgages.

The smaller sites are usually a mixture between residential, holiday home and rentals and are often walking distance to the local amenities.They also have the added bonus of being able to drink your Gin and Tonic on the terrace without a golf ball landing in it! Therefore a small development near a golf course not only gives the golfer more choice as to the course that they play from where they are situated, but also a better property investment as, on smaller sites there are less houses the same to be sold or rented. Also they are within a short distance of the SAME facilities as well as many more. In short you have all the benefits of the golf facility and many more, without the disadvantages.

However if you still want a golf resort property then speak to us first because some resorts are much better than others who talk the talk! and in the current market there are some excellent re-sale properties available at bargain prices and in the best locations.  (posted in 2005) 


                                                                                                                                                               
                                                                                                        
Copyright © Hot Properties in Spain.com 2010 Show map Web design by 7Soft.co.uk