Spanish Property Market Overview - January 2012

Buyers looking to re-locate on a permanent basis require a different sort of property with more space for both living and storage. Properties that meet this criteria are usually detached and in shorter supply than the typical holiday home. The Germans have returned to the market and along with the Dutch, Belgiums and Scandinavians are currently buying up many of the prime location properties at bargain prices. But the market is still slow with many bargains still available. For a better lifestyle and investment it is important to take the time to choose a good location.

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

Prices for Spanish properties have fallen in real terms to the levels of 2003/4 which is great for buyers as prices are now pre-boom levels and so represent good medium to long term investment bargains. During the boom the IMF and The Economist had argued that Spanish property prices were 20-30% over-valued. So the the fall over the ñast 3 years means that prices have now been corrected.  There is still a good choice of both resale and new key ready properties available but great care should be taken to buy in only the best locations which have now stopped dropping in price.

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 as some are making very low unrealistic offers for properties that have already been reduced to the bone.  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 few 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 3 or 4 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. But nobody now 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.

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 as many of these are not the bargains they are claimed to be. The banks are offering up to 100% mortgages which can disguise a higher than market price,

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 €150,000 in good locations with amenities within walking distance, apartments from €60,000 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 about, so 2012 will possibly be the best time to buy a Spanish property at a price well below the real value.

Several other factors are having an effect:   The British Pound is growing stronger against the Euro -- 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.

There are still plenty of exisiting re-sale properties available and some excellent "key-ready" new property bargains on fully completed developments with all facilities in place and a 10 year guarantee.

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 bought your property for €200,000, when the exchange rate was 1.45 euros to the pound, then it cost you 137,931 sterling pounds (@ 1.45). Now  with an exchange rate at 1.20 you can afford to drop your selling price by around 17% and still buy the same number of pounds (137,931 pds) and so be no worse off financially but with a better chance of selling. If you bought your Spanish property when the exchange rate was more than 1.45 then you can afford to drop accordingley and not be out of pocket.

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. Now is a very 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 around 10% against  the euro you can buy more for your money.

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 and yet is only a short and cheap flight to visit friends and family.

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 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)