Spanish Property – What to Buy

If you’re cash rich and looking to buy property in Spain, you’ve arrived at probably the best time. Most analysts agree that market conditions this year to buy a home in Spanish are optimum.

But with a market literally awash with properties for sale – and lets not forget that we’re talking hundreds of thousands here – the buyer can understandably feel at sea. Quantity is, after all, not always a good thing.

To help sift through the vast stockpile of properties in Spain, this blog post gives a few pointers to help whittle the many options down to a manageable list. Here are some dos on what sort of Spanish property to buy. Where to buy them will come later.

New Property in Spain

Upwards of 750,000 new builds mean you’re spoilt for choice, but once again, more doesn’t necessarily mean better.

Do –

• Choose a new build in a finished complex or at least in the completed phase of a complex. Give half-built developments a wide berth.
• Make sure the new build comes with all its specifications. If it doesn’t, ask for a big discount or walk away.
• Check the new build has its first occupation licence. If it hasn’t, walk away.
• Find out what discounts the developer is prepared to offer. Insist on this one as your efforts could be worthwhile.
• Allow for around 13 per cent extra in taxes and costs (including 10 per cent VAT).

Resale Homes in Spain

While there aren’t as many resale homes on the Spanish property market as new builds, the buyer still has plenty to choose from.

Do –

Choose an agent with a good reputation. Ask around for recommendations and do a quick Google search on the agent.

• Get a survey. This will alert you to any hidden defects.
• Check the title deeds description matches the property.
• Find out what the building regulations are in the area in case you want to extend or make changes to the property.
• Make a realistic offer. On Spanish properties priced to sell, don’t expect the seller to accept more than 10 per cent below the asking price.

Spanish Property Predictions 2013 Part 2

In Part 1 of this post, I looked at the main obstacle facing a recovery in the Spanish property market: excess supply. Here, in Part 2, I examine other factors likely to affect sales of property in Spain during this coming year.

End to Tax Breaks

Buyers of Spanish property in 2012 enjoyed two fat tax breaks: VAT on new builds was halved to come in at 4 per cent instead of 8 per cent; and Capital Gains Tax (CGT) was also reduced by 50 per cent for purchases. These two savings undoubtedly attracted more buyers to the Spanish property market and went some of the way towards fulfilling the government objective of boosting the sales of homes in Spain.

But in 2013, government authorities have renewed neither of the measures despite calls from the industry and experts to maintain them. Buyers in 2013 find their liability for CGT when they come to sell their home at its usual rate and in the case of VAT, the original 8 per cent on new homes has risen to 10 per cent.

It’s difficult to predict to what extent the removal of tax breaks will affect sales, but a big incentive to buy property in Spain has certainly been removed.

Buy Spanish Property and Get a Residence Visa

Non-EU citizens who buy property in Spain priced at over €160,000 will be eligible for a residence visa as from this year. The measure has been brought in to attract the lucrative Russian and Chinese markets to the thousands of Spanish properties and is clearly a bid by the government to attempt to shift unsold stock.

Spanish real estate agents unanimously welcomed the move, particularly agents based in Spain’s top coastal areas such as Marbella and Mallorca. These two locations are especially popular with Russians, who were behind the increase in sales of Costa del Sol property last year.

While there’s little doubt that the measure will attract foreigners to the property market, it may not be enough to provide a real boost. And will the buyers be attracted to the hundreds of thousands of new builds crowding the Spanish property portfolios? Or will they, like their European counterparts, go for the best properties in the best locations?

Spanish Mortgages

Once a buoyant industry, the Spanish mortgage market has practically dried up and loans for property are at an all-time low. Even affluent buyers are finding the door to credit on their planned home in Spain well and truly closed.

Banks are keen to lend on their own unsold stock, but rarely prepared to provide a mortgage on a property that isn’t on their books. Unsurprisingly, cash is (as always) king and those buyers whose purchasing power allows them to pay in cash really do have the Spanish property market are their feet.

Even with the €40 billion injection of funds from Europe into Spanish banks, it seems unlikely that 2013 will see an improvement in credit conditions. Analysts generally don’t expect to see a rise in mortgage lending, even though the Euribor interest rate sits at rock bottom.

What about Prices?

The lack of tax breaks and poor credit conditions will do nothing to boost properties for sale in Spain and there’s little to stimulate prices. With 680,000 new builds plus thousands of resale homes on the market, there’s every possibility that prices will continue to fall during 2013.

There may be exceptions to this. Properties in the right places will probably keep their market value. And those in highly sought-after locations may even see their price tags increase on the back of increased demand from affluent foreigners keen to obtain a residency permit.

So where are these properties? Prime city centre locations in Barcelona and Madrid, and the Balearic Islands of Mallorca and Ibiza. On the Costa del Sol, you’re looking at Benahavís, Marbella and east end of Estepona, and on the Costa Blanca, the most exclusive areas in Denia and Jávea. It wouldn’t be a surprise to find higher prices in these areas at the end of 2013.

12 Grapes for 2013 – April – The Top Reason to Choose to Live in Marbella

This is grape four and still early on in the New Year’s Eve grape stuff-in. So, like March, the chances are that you managed to swallow this one in plenty of chimes as well. Grape four means April, that sunny rainy month when spring comes properly into play.

The Spanish proverb en abril aguas mil – literally, ‘in April, water in thousands’ (what happened to the rhyme there?) – is frequently quoted in this usually pretty wet month. This proverb led me to thinking about how much the weather on the Costa del Sol influences daily life. And more importantly, how much it affects decisions to move here permanently.

320+ Days of Sunshine a Year

The year-round sunshine is undoubtedly the top reason for relocating to the Costa del Sol. And with an average of 320 days of sun a year, it’s hardly surprising that the climate features so high on the list.

Day after day of natural rays and warmth are great for your health and optimism – it’s difficult not to feel good when the sun’s beaming at you yet again. Practically guaranteed sunshine mean events are rarely rained off so you can set your outdoor calendar pretty much in stone. The Costa del Sol is a place where sports and outdoor activities come into their own.

Year-round sun makes for hot summers and mild winters so your wardrobe can forget about bulky coats, hats and scarves. Some people (interestingly, always foreigners) wear flipflops and shorts all year, but most hardy residents will admit to wearing a coat in the evenings in December and January. Even so, winter wardrobes are more extra layers than a different set of clothes.

Is the Sunshine Enough?

If you’re a Northern European and visit the Costa del Sol, particularly in winter, it must be hard not to go wide-eyed at the heat and sunshine (the weather during last Christmas was warm and sunny every day). And it must be difficult not to consider making the lovely climate part of your daily life. And from there, it’s probably an easy step to seriously thinking of moving here.

But is the amazing weather a good reason to upsticks and relocate? Does it count for enough after you’ve arrived, got over the initial euphoria and started a daily routine? How does your rationale for relocation get on when it’s raining (and it can really pour on the Costa del Sol)?

For me personally, I don’t think the climate would be a big enough stand-along factor to keep me on the Costa del Sol come what may, but then I’m here for entirely different reasons. However, judging by the number of expats who still choose the Costa del Sol as their preferred place to live and the popularity of the Costa del Sol as a place to buy Spanish property, I’m obviously in a minority.

How much did your local climate affect your decision to live where you do?

This blog post is 1 of 12 posts, one for each month of the year, that I will be posting during the month of January. I got the idea for 12 month posts from the Spanish tradition of eating 12 grapes on the 12 chimes of midnight heralding the start of the new year.

Spanish Property Predictions for 2013

On paper, sales of Spanish property improved last year. Foreign buyers were up on 2011 (some agents report as much as 25%) with many foreigners taking advantage of the VAT and capital gains tax breaks. The new buyers were also attracted to further price drops throughout the market as many properties in Spain came with ‘50% off’ price tags. If you were buying Spanish property in 2012, the world was your oyster and you probably bought a real bargain, particularly if you purchased in cash.

On the other side of the front door, however, 2012 painted a different story. If you were selling your property in Spain last year, the market remained stagnant and unless you dropped your asking price to rock bottom, you probably had few viewings and most likely didn’t sell. If you were trying to sell a two-bedroom apartment on one of the Costas, you possibly didn’t have any interest at all.

So, what does 2013 have in store for the buyer and seller of property in Spain? Lets take a look at the state of the Spanish property market at the moment and assess how much this is likely to change over the next 12 months.

Current State of the Spanish Property Market

The biggest obstacle facing both the buyer and seller in the Spanish property market is the huge accumulation of unsold housing, most of it situated on the Mediterranean Costas and on the outskirts of big cities. It’s difficult to put an exact figure on the number of unsold units (mostly new builds), but analysts estimate it at around 680,000.

In 2011, this figure fell by a mere 7 per cent. Last year, it probably fell a little more due to the improvement in the number of buyers. But, as the number of finished new builds also increased, sales in 2012 probably made little difference to the final figure. In terms of property on the market, 2013 is unlikely to be any different to 2012. And 680,000 unsold units plus all the resale Spanish properties make for a very big market place.

Cookie-cut Apartments in Spain

So, buyers of Spanish homes find themselves pretty much in the same position as last year. A great one if you’re looking for volume, but not so great if you’re looking for choice. Chances are you won’t be attracted to the thousands of cookie-cut apartments and townhouses, situated off the main drag in uninspiring complexes. Even if they’re a bargain.

Prices for these Spanish properties will probably continue to drop further, particularly as most of these new builds are owned by Spanish banks or newly-created SAREB (the so-called ‘Bad Bank’). I think it’s safe to say that we can expect to see an influx of properties in Spain (especially two-bedroom apartments) priced within the €40,000 to €80,000 range. But will this encourage people to buy them?

Location (again)

Savvy buyers will be looking for a Spanish property at the right price and in the right location (even when the market is at its lowest it’s still all about location, location, location). And the right location will be near amenities and/or in a prime spot – think front-line beach or golf, panoramic views… For this reason, properties in Spain in the right places have kept their value or seen minimum price drops. Agents in Marbella and Mallorca even report a shortage of homes for sale ‘in the right places’.

Given that the criteria for location are unlikely to change during 2013, prices for Spanish properties for sale that tick all the ‘right place’ boxes probably won’t change much. Maybe we’ll see a scenario where demand from foreigners eligible for residence permits that will come with a property purchase increases to the point where prices for this sort of home will start to rise. Certainly not unthinkable in sought-after niche markets.

Part 2 of this post to follow.

Green Shoots in the Spanish Property Market?

The surfeit of property in Spain sits at the core of the economic and financial crisis. Hardly a day goes by without some aspect of Spanish property hitting the news: further price drops, evictions from properties with unpaid mortgages, phantom developments, etc.

It’s common knowledge that there are almost 700,000 unsold new properties in Spain, concentrated particularly on the Costa del Sol, Costa Blanca and around large cities. It’s also no secret that bargains are everywhere – Sur in English recently ran an ad for a new two-bedroom apartment in Elviria, Marbella for €60,000 (with 85% finance available!).

Yet, in spite of the bargains and the glut of supply, the Spanish property market appears to lie dormant. Talk to agents and they all tell the same story – there are sales, but often few and far between, and they only come through after hard negotiation on the price.

Foreigners make a difference

But a recent article in El País paints a different picture. Green Shoots on the Coasts looks at how the influx of foreign buyers on the Spanish costas has injected some life in the fading property market. Apparently, Scandinavians, Russians, Belgium and Dutch are big buyers and account for up to 90% of the market in places like Marbella and Alicante.

These foreigners are well-informed – the key to buying the best property in Spain – with cash in their pocket. Spanish property buyers needing a mortgage are a rare species in the market at the moment, although most bank repossessions come with appetising loan conditions.

The article reports that there were over 356,000 property sales in Spain last year and figures for this year look to mirror this. El País points out that they’re far below those registered in the boom years up to 2007 when over 850,000 properties changed hands every year, but this is still business not to be sniffed at.

Take the small village of Benahavís, just outside Marbella and a mecca for foodies. Here, sales have gone up 219% in a year. Or the Russians who now prefer property in Spain over Bulgaria, their traditional property investment haven.

A big enough difference?

But are these green shoots enough to raise the property market from rock bottom levels? Will they manage to kick-start a sector that accounts for a fat proportion of Spain’s GDP? Does Spain need to encourage more foreigners to buy property seeing as Spanish residents don’t have the funds?

And what difference will Europe’s largest estate agent make, the collection of properties worth €90 billion (yes, billion) that belong to Spanish banks and are about to make up the portfolio for the so-called ‘bad bank’ (banco malo)?

My next blog post will consider these questions.

To read my recent article on Spanish property for A Place in the Sun magazine August 2012 issue, click here.