Wednesday, July 27, 2005

Property in Spain

Average house prices there have risen 89% in the last four years to £119,519, according to the foreign exchange group, Moneycorp.However, the average price in Malaga has shot up 144% to £147,291, and in Alicante by 119% to £136,619. Prices in Seville have risen by 114%.

Only France has had comparable hot spots, with average prices in Montpellier also rising 144% to £147,291 and La Rochelle rising 126% to £132,619. Properties around Bergerac rose 157%."The property market here is very mixed at present," warns Campbell Ferguson, vice-president of the Royal Institute of Surveyors (RICS) in Spain.

In fact, there is evidence of a sharp slowdown in the holiday property market, with some buyers suffering badly. "There is far too much supply in some areas on the coast and in some price brackets," adds Ferguson.Just two to three years ago Brits were buying "off plan", paying large deposits on unbuilt and incomplete properties, then selling these on at fat profits before final completion. Some took options on multiple properties in one development.

The aim was to collect a sufficient capital gain to complete the purchase of one of these properties in their own name. All that they could lose were the initial deposits, and this did not happen. Better still, the resale of these options avoided local property taxes."Now there may not be anyone to sell on to," said Ferguson. "Either the whole cost of purchase must be met or deposits are lost in full."Estate agents selling Spanish property in the UK confirm this picture. "I would throw out a caution to investors buying new to re-sell in the short term," concedes Martin Bets, managing director of Simply Overseas Property.

Second-hand property, which requires more research and legal due diligence than buying new, is also offering real bargain basement prices. Sprawling, badly planned developments dating from the 70s and 80s now offer buyers the opportunity to own easily rentable properties close to the coast, ideal for groups of young tourists looking for cheap beer and beaches."You might not want to retire to these, but they can yield 10% or more at the cheaper end of the rental market," adds Bets.

Costa Blanca resorts like Benidorm and, further north, Javea, offer just such opportunities.The best way to find them? You can take a working holiday, or contact one of a growing number of auction companies selling mid to low-price properties.The hard statistics on Spanish property should also give British buyers pause for thought. According to the RICS, a whopping 47% of all new-build Spanish properties last year were on the tourist coast.

Last year Ireland built 14.1 properties per 1000, Spain 13.8 and Cyprus 7.8. No other EU country exceeded four per thousand. And since 1992, tourist coast properties have in each year accounted for at least 42% of all new-build Spanish properties.

The best and latest information on the whole Spanish residential market comes free from the Investment Property Databank.It shows a total return of 12.3% from residential property in 2001, 15% in 2002, 13.4% in 2003, and 14.7% in 2004.Of this, more than 10% in each year was accountable to capital gain, with the balance to rental yields. "The problem is that, as in the UK, investors are having to pay more and more for a property on which the rental yields may well be static or declining," adds Ferguson.

If you do decide to buy it has never been easier. UK and Spanish banks are falling over themselves to lend. Spanish euro-denominated mortgages used to be rigidly structured and required very high initial deposits. They had maximum terms of 15 years and fixed rates of repayment.Not today. Deposits have been reduced from at least 30% to as little as 10% of the purchase price. Better still, maximum mortgage terms have been increased in line with UK practice to 30 or 35 years.
Euro mortgage rates of as little as 2.75% and three-year fixed rates of 3.95% may look very tempting by comparison to UK mortgage rates. And not just Spanish but the local branches of UK banks offer these loans."These can be good value, but you should be sure of being able to meet any shortfall in rental income from your own pocket," warns Ferguson.

Harder to justify is borrowing against your main UK home to get a deposit for Spain, then relying on rental income to pay your Spanish mortgage. This practice has been encouraged by some UK mortgage brokers, but if UK and Spanish property values fall together it could leave the incautious in a very uncomfortable position.Among the places more vulnerable to a slowdown, or even a fall, are those dependent on only one budget airline.

In May the European Central Bank warned about high property prices in several of the eurozone countries, with Spain and France marked out for having markets where house prices had risen substantially.The RICS, though, recorded rises in France, Spain and Ireland of between 10% and 15%, with Portugal, Italy, Sweden, Denmark, Finland and Belgium rising between 5% and 8%.


Post a Comment

<< Home