The number of sales in certain areas has actually increased
significantly in the first 8 weeks of 2008 compared with the monthly average
for 2007, in spite of the diminished value of £sterling. The actual details.
Strange, but there is a logical reason for this.
However, in order to understand this properly, the existence of a completely
different set of real estate values in these areas has to be considered. The
Spanish Real Estate "Sub Economy".
For some buyers the falling value of £sterling is a real
Take for example a vendor who is asking 350,000 Euros and has
had the property for sale for a while.
In June 2007 this would have produced £236,486 at 1.48.
Let us assume that the vendor had fixed on this and the buyer
offers this exact amount by means of a certified cheque drawn on a UK bank
(a perfectly legal transaction in Spain).
If the offer was accepted then the buyer would actually pay 307,432 Euros
(£236,486 at 1.30) - over 12% less in just 9 months.
Now we have to consider the second, and most important, part
of the operation.
Even if the buyer has the cash sitting on deposit, it is vital that as much
as possible is borrowed from a Spanish Bank without a redemption penalty in
Then, when £sterling recovers, the Spanish mortgage is redeemed and the
£sterling price falls.
Assuming that the bank is prepared to lend 60% (i.e. 210,000) then the
equivalent at 1.3 is £165,439.
When, and obviously if, the £ exchange returns to 1.48 the mortgage only
costs £141,892 to redeem.
This obviously only applies to resale properties (not new
developments) and only in cases where the sellers intends to repatriate the
proceeds of the sale to the UK.
Other than that it is a question of getting the vendor to accept the
£sterling amount that was expected several months ago - not much doubt that!
The vendor might even accept less!
A Spanish Real Estate "Sub-Economy"?
Generally speaking the Global Property Market is experiencing
a period of readjustment and this is mainly to do with the US sub-prime
issue and a general global economic slowdown.
Looking at the UK economy it is easy to see the complex
juggling game that is being played between inflation and recession and the
Bank of England has been raising and lowering interest rates now for around
4 years in an attempt to keep house prices within safe parameters.
Also to be remembered that the UK has a housing shortage.
The situation in Spain is similar in respect to the prime
cause (global recession) but has the added complication that Spain is not
completely in control of it's own economy because interest rates are
controlled by .This lack of control is due to the fact that interest rates
are controlled by the Central European Bank.
The real difference is that Spain currently has a critical housing
The building boom, which started around 2003 was fuelled by
cheap mortgages and the possibility of short term profits (off-plan). New
buildings were started at an unsustainable rate and average property prices
increase by 180% in 5 years.
The situation in areas traditionally popular with foreign
investors, such as the Costa Blanca North is a completely different issue.
I has to be understood that the population is predominantly (60%)
non-Spanish and the property owners are mainly non-Spainish as well, mainly
Curiously a sub-economy has developed and it is important for potential
buyers to study what is happening only within this sub-economy and 4
important facts have to be considered -
1. Property values rose here generally, without set-back,
until 2004 and then began to DECLINE. This obviously due to the fierce
competition from developing areas.
Property on offer here is mainly re-sale and handled by a small number of
well-established estate agents. You never see Moraira property advertised on
UK TV - only those agents in developing areas can afford the expense!
2. The have been relatively few new developments recently.
Basically this is due to the fact that this was where it all started in the
1970's and the building land was quickly used up.
3. Most of the property for sale is privately owned by
British people and the majority of buyers are British - hence the sub-ecopnomy.
4. Those who purchased in the area generally did so because
that was where they wanted to live or to own a holiday home. That is to say
that their principle objective was not short-term gain but the satisfaction
and enjoyment of owning the property.
Any property recession has to end eventually and this is the
"psycological" moment when buying starts again. Prices have already fallen
in the area and are running at around 70% of 2004
Enquiries are as prolific as ever and sales during January
and February have matched the monthly 2007 averages.(You could link to my
"Movers and Shakers" page at this point.
Finally the recent fall in the value of £sterling against the
Euro has to be carefully considered as many British sellers intend to
repatriate the funds and for another British buyer the equation has
to be understood because some unique opportunities have arisn.
Take for example sellers who are asking 350,000 Euros and had
property for sale for around 1 year.
In June 2007 this would have produced £236,486 at 1.48. Let
us assume that they have fixed in their minds on this Euro amount and the
buyer offers this exact amount by means of a certified cheque drawn on a UK
bank (a perfectly legal transaction in Spain).
If the offer was accepted then the buyer would actually pay 307,432 Euros -
12.1% less in just 9 months.
Bearing in mind the foregoing about the sub-economy, this
fall in £sterling value could be the not so well-understood factor which has
caused the curiously high number of sales in the area whilst they are