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Spanish Real Estate - The Future

In my previous article I said -

"Spanish real estate agents are predicting a "soft landing" and, as far as they are concerned, that is probably what will happen.
Spanish real estate long-term has been a solid, enjoyable investment. Right now "long-term" is the only logical what to look at it."

ARTICLE HIGHLIGHTS

  Historical view of Spanish
     Real Estate Values

 
 What about the Future?
 
 Good advice for potential
      buyers.

Historical View of Spanish Real Estate Values -

Real estate development first really got underway in the '70, simultaneously in Costa del Sol and Costa Blanca. I have been involved in Costa Blanca since the beginning and for very approximate relative values values I have tracked two properties since then -

North Finchley, London N12: End of terrace, 3 beds, 1 bath with detached garage and largish garden, built 1934. This was the last property I owned in the UK and was sold in 1972 for 8,500.
5 - 10 minutes walk from London Underground and Railway stations, good local bus services.
Views - neighbours gardens.
A middle-of-the-road property for a MoR sort of guy!
The current value is 349,000, refurbished in good condition.

Club Moraira, Moraira, Costa Blanca: Detached 3 beds/2 baths, 800 M2 plot with private swimming pool and lean-to carport, built in 1971. 10 minutes walk from Moraira, the beach and supermarkets (20 minutes walk back uphill - but then everyone has a car).
Cost new was 5,500, currently 7,350 Euros.
Views - surrounding hillsides, covered with villas!
Not the best location but about average.
The current value is 350,000 Euros, refurbished in good condition.

The significant thing is that the London property has appreciated in value at an average 11.2% annually and the Moraira property by 11.4%.
Also please note that the valuation is current (July 2007), in 2004 it was perhaps worth 390,000 Euros.

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Now we are looking at average appreciation and Moraira property has had its ups and downs - the same as London and not a bad investment in either case.
Potential rental income has to be taken into account and that is 5% gross for the London property but only 3% for Moraira.

The real bonus for the Spanish property owner is the sheer satisfaction of owning a home in the sun and a lifetime of wonderful holidays.

An interesting point is that Moraira property values started to fall in 2004 but this was caused by by competition from new developing Spanish resorts. I would imagine that the trend was the same in other established resorts.
See
Property Values and Tourist Rental Income, which I wrote in 2004.

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What about the Future?

In the short term there is little that can be done.
The developers who cannot wait it out or reduce prices will face foreclosure but the banks will protect their assets by continuing with the developments and re-market them at realistic prices.
Buyers who have bank guarantees need not worry as long as they can tolerate a delay.

The resale market is already recovering is certain areas.
In the more sought after areas sellers have been adjusting prices for sometime already.
My personal view is that estate agents have a professional duty to advise sellers of proper values and current market trends.
Sometimes it is not a simple matter to persuade them that their beautiful holiday home is not worth what they thought and, even though it creates extra work, they should be prepared to continually canvass sellers in order to revise listed prices.

Perhaps I am biased but there is not really any other popular choice for northern and western Europeans.
Good accessibility is obviously important as well as climate. There will always be a limited demand for France and Italy and Bulgaria is currently popular but these areas mostly don't have the same winter climate as the Spanish Mediterranean.

The glut of new and resale properties has to be sold off and that will take some time. As soon as buyers realise that prices have fallen then the market will start to pick up. Once they realise that Spain is not so corrupt the improvement will quickly get under way.
That won't happen overnight because the leopard needs a gene alteration to change its spots. Perhaps "inter-breeding" local councillors with immigrant Europeans will do the trick! 

It will take much longer in newly developed areas.
North Costa Blanca, Almeria and Costa del Sol (for example) are long-established popular resorts with a strong resale market and relatively few new developments. There is probably nothing more negative for potential buyers than the sight of redundant tower cranes, half-completed properties and weedy vacant building plots.

The Spanish Tourism Crisis also has to be considered as this was also caused by over-supply.

After the 90's crash, both construction and tourism took around 5 years to start recovery. My bet is that the timescale will be similar - as long as the UK economy holds up.

Positive elements to consider -

Immigration is creating a demand for housing. Meanwhile there are between 3 and 4 million unoccupied properties, mainly in the cities. The Spanish government is already addressing the problem of making affordable properties available, both to buy or rent, to satisfy the demand for cheaper housing.

During the 90's there was an influx of package-tourists from eastern Europe, which may well happen again. This will help fill the cheaper accommodation and provide rental income.

The Spanish authorities are already taking steps to slow down new development by restricting land for new projects.

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Good Advice for Potential Buyers -

Decide or the geographical location, even before you start your research.

Inland properties are generally cheaper. If you are not the type to integrate yourself into small village society and learn the language you may well find yourself bored to tears after a few weeks.

Life in some costal resorts is not much different from home, except for the sunshine, but you might not take to that either.

If you are not sure then have a holiday there before you even think about buying!

Research as many properties as you can.

The Internet is the best medium. Use your favourite search engine to search "property for sale (town)".

Plan your search properly and start as you intend to proceed. A good tip is to use "Favourites" to establish a short list.

Check out all the estate agents in the area. Just because they are No.1 on Google does not mean that they are honest and reliable - but they certainly have good SEO!
If they are honest and straightforward they will provide a company name and you have the web address as well.
Do a search on these to see what the Internet community thinks.

Buying a Property in Spain?
10 Points You Should Consider
By Cristina Sanchez

"If you want to purchase property in Spain in an easy and hassle free way, then take a look at the 10 points below . . ."

"1. How much money do you wish to spend? . . . "

"2. Mortgages in Spain . . . "

"3. Costs for Property Purchase . . ."

 "4. What kind of a property do you want? . . ."
"5. What do you want the property for? . . ."

"6. Where do you want the property to be? . . ."

"7. What legal requirements are necessary for foreigners? . . ."

8. Taxes and Insurance? . . ."

9. What else is important? . . ."

10. Buy a home that includes Comprehensive Title Insurance . . ."

Cristina Sanchez is a specialist in Spanish real estate. She is the Customer Relations Manager of 1Casa.com, a real estate agency that helps clients buy property.
 

Generate a "short list" of properties, select just 2 or 3 estate agents in the area to visit and establish your credibility as a serious buyer.

For what it is worth I can say that there are 2 categories of buyer -

  1. Those who go from one shop widow to another comparing prices (like buying second-hand cars!).
  2. There are the serious buyers, who come by appointment, and get much better attention.

Make contact even before you travel to the resort. Correspond with them about your requirements. Get to know them.

Make it clear that you will be there for x-days and will be making appointments with other estate agents.

Don't accept an inspection flight offer if you are tied to just one company - never, not ever! Lots of estate agents will assist with your travel arrangements. If they are prepared to include car hire then that is a sign of their good intentions.

Make sure that you don't pay over the odds.

Obviously property prices are falling but they have almost bottomed out - especially resale properties in sort-after areas, these have been falling for 3 years already read Property Values and Tourist Rental Income - 2004

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Research prices for the area. The Keyro House-Price Index is a good guide except that it only lists average offer prices i.e. not the selling prices.

I don't know why more estate agents don't publish movers and shakers lists which show properties reduced and sold - perhaps they don't want the buyers to know!

Always make an offer and expect the estate agent to convey the same to the seller - that is his job.

Arrange you finance before you start. Convince the seller that you are not messing around and can complete in (say) two months and your offer is more likely to be accepted.

If you are looking for a quick profit then forget it - Spanish property is not for you. The best that you can expect, long term, is 5% - 7%. Legal fees and capital gains tax will wipe this out for the short term.

Think of it as though you were buying a home in your own country. You would pay a little more for the right place because it would be your intention to live there for many years.

If you are buying to let don't trust your own judgement, get an opinion from a rental agent and don't listen to the estate agent. Every town has areas that are more popular for tourists than others.

There is a lot more advice that I should be offering to buyers of Spanish property, especially concerning legal issues, but that is not within the scope of this article.

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Mike King July 2007

ABOUT THE AUTHOR: Mike King has lived and worked in the Moraira Area since 1971. Currently he manages Villa Holiday Services of Moraira, a rental agency that specialise in Villa Holidays in Moraira and Property Sales in the Moraira Area.
Mike is also responsible for a popular advertising and information website about the Moraira area.

 
Links to other articles about Spanish real estate and renting.

1. Spanish Real Estate - A Crash or some Adjustments?

2. Spanish Real Estate - The Future.

3. Spanish Real Estate Survey - The Most Popular Areas could be the Best Investment.

4. UK Tax Amnesty for Owners of Holiday Homes

5. Tourist Rental Income 2007 - What's gone wrong? Overview of the situation.

6. What will happen next? Spanish tourist renting during the next 10 years.

7. How the Spanish authorities could react to the tourism crisis.

8. Making the best of it - advice for Spanish property owners who rent!

9. Property Values and Tourist Rental Income - Written in 2004. A very long article which foresees the present economic depression.

10. Spanish Young Persons Rental Subsidies.