I received an e-mail very recently from a client I have been in touch with for a short period. This client has been looking at picking up a bargain in Spain and researching the purchase with some intensity. The e-mail expressed deep concerns regarding the wisdom of purchasing in Spain. The catalyst which brought about this U turn was a recent auction in Dublin where 100 Spanish properties were offered and only 1 sold. This event and it’s outcome made national evening TV news. The question it left my client asking was how realistic are the prices being asked in Spain at the moment?
My reply,
Good Afternoon Client A ,I have read your e-mail and reflected for a moment before replying. As you would expect it is now my duty to construct an e-mail re-enforcing strong reasons why you should still continue with your no doubt long laid plans to buy in this country my family and I now happily call home. I have outlined my thoughts below and would like to point out these are purely my opinions on where we are now and how we got here.
The desire for property in Spain and my area Los Gallardos Costa Almeria Spain has for many years fuelled the boom here and from recent reports published in the U.K. It is still top of British & Irish foreign property buyers list. Why? Well there are many obvious reasons, two and a half hour cheap flights from a good variety of airports. The very pleasant climate all year round and the option of skiing in the Sierra Nevada gives this country a huge advantage over many . Still a cheap standard of living compared to many other European countries.
The laid back culture and warm welcome has always been a major attraction. A well established and ever improving infrastructure of roads and travel. A wealth of tradition to enjoy including an endless stream of colourful fiestas and carnivals. A long and diverse Southern coastline taking in natural parks, bays and coves, long busy stretches like Benidorm and beautiful rugged coasts on the Costa Brava, very different but all have their own appeal. Then we have the food and wine which has put Spain on the map, many fish dishes, specialty lamb recipes and the unique traditional tapas. Wines such as Rioja and Tempranillo for example, the list goes on. So if the demand for Spain is still there what has happened to this property feeding frenzy now and why are we left in the media tagged vacuum of spiraling depression?
It is true to say that recent years have been the boom times for many. Politicians, farmers, builders, agents and in earlier year’s property owners all enjoyed huge pay days as the country cashed in on what seemed to a never ending demand for Spanish property. Everybody wanted a piece of the action and then as always the very people who were riding the band wagon set about its messy hault. Human greed started to damage the industry from every angle. Allegations of corruption from the powers that be were in a few cases proven to be true, creating massive problems for those that had purchased and shattering confidence in the whole product labeled ‘Spanish property’. The U.K. and Irish press fuelled by increasing alarmed governments picked up on the stories of ‘land grab’ and ‘houses being knocked down’ and started a propaganda against buying abroad. It is of course in the governments interests to stem the flow of UK and Irish people leaving their home lands to relocate taking their lifelong savings and pensions with them. It is now estimated that 44 million euro’s is being spent every year in Spain by expats from the U.K and Ireland.
Land owners were next asking totally unrealistic prices, builders then starting increasing prices on an almost monthly basis. The mad search for more land at a reasonable price became harder. Property was being thrown up and the quality of the location became less important. The bigger estate agents then whipped up a marketing frenzy with very clever advertising. Encouraging people to build huge property portfolios which will ‘pay for themselves’ the idea being that renting the property out enough weeks of the year will pay the Spanish mortgage. You should then go on to buy two, three or four perhaps and hey presto you will end up a millionaire. What these irresponsible agents were guilty of is falsely inflating the price new of property here by collaborating with most major builders and commanding commissions anywhere from 10-15% in return for bringing an endless supply of British and Irish clients over on 4 day inspection tours. These clients were wined & dined then bombarded with only new build products. Long chats were arranged with the manager, financial advisors and rental experts in an attempt to get that all important sale.
The banks were next to cash in with a long wave of irresponsible lending. By the week banks here were offering better terms in an attempt to attract the foreign buyer. Interest only mortgages were introduced by the financial advisors and agents to support the investor buying multiple units. Banks just did not seem to care whether the ability to repay a loan was there or not. The important issue was how much business each branch manager was turning over. It became a standing joke within the industry at the apparent ease three months wage slips could be downloaded from the internet.
The industry started slowing down as the buying public got wiser to areas, products and sales techniques. The ability to research what was going on in Spain got easier. The densely built up areas started to see less clients looking. The theory of buying two or three to rent out fell flat on its face as the weekly rent needing to be achieved was not there. There were too many units competing against each other to successfully pay their own mortgage and the banks saw more defaults on payments. The four day inspection tour began to die, clients wanted the choice to see other agents on the same trip and compare deals. Resale’s became more attractive and the bigger agents could not get their huge commission from a resale deal. Many smaller agents could offer properties much cheaper working on 3% commission.
Of course the straw that broke the camel’s back was the onslaught of the current credit crunch, the world wide recession. I understand fully what I have briefly outlined above is the normal cycle of peaks and troughs within the property market. It is however a little unique in as much that this concept of buying property abroad for the masses is a relatively new one. Also Spain is a fairly underdeveloped country in relation to the U.K. Mistakes have been made by a country that saw an explosion so quick it could not even dream of keeping up with it. Land was being granted permission to build on and the properties were built and sold before you could blink. The local town halls are at least 2 years behind with IBI (council tax). They will catch up but it will take time.
In true sales fashion I will now finish with positives, I firmly believe in experiencing the last few years Spain is now a better place. Lessons have been learnt and mistakes are being corrected. The corrupt politicians have been found out and punished. Maybe not all of them, I don’t know but the ones that have are being used as an example to others. The illegal builds so hotly reported are being addressed early this year and I can assure you that will not be reported as enthusiastically back there.
The builders are bringing prices down to all time lows in an attempt to move stock. The amount of off-plan developments around are dwindling dramatically, it is not worth builders starting anything until old stocks are sold. Banks now are really feeling the pinch, the back lash of earlier policies are now coming home haunt. There are now an awful lot of Spanish property repossessions that the banks have to get rid off and recoup their losses. With an influx of so many cheap properties on the market from all different sources competing for that elusive buyer it is in itself regulating prices. The major acid test now however has to be the bank valuations. A company called TINSA do the majority of all bank valuations here. This company has been instructed now to bring all valuations down to below realistic terms. The upshot is banks here like everywhere at the moment do not want to lend money. Any mortgage offered now is scrutinized as though it was the branch managers own money he was lending. You can be sure a TINSA valuation is a very accurate valuation and a fair reflection of how the market is at this moment in time.
My advice to you Client A on the wisdom of buying at this moment in time? It is a very good time to look for a bargain in Spain, when the Sunday Times say that “it’s a good time to pick up quality at the right price” then perhaps it is time to agree. This paper has been a constant doom and gloom merchant on the Spanish market. The country is still the same desirable Sunny Spain only now starting to correct the wrongs.
The house prices are rock bottom with mortgage repossessions and distressed sales unable to go any lower. The majority of larger unscrupulous agents have moved onto pastures new leaving Spain because the commissions are not profitable enough. There are a lot of good genuine agents here doing a good job for a fair commission and offering a comprehensive after sales service. I think any buyer now is a lot more informed and I can assure you there are still people over here looking to buy. Granted those numbers are nowhere near what they used to be but my point is that an auction is not a place I would expect a serious buyer to be looking. I think to be here physically looking at properties that may be of interest is what the majority of people are doing now.
