PROPERTIES IN SPAIN.

July 2007 - My reasoned Opinion BASED ON FACTS AND LOCAL NEWS.

The forecast is that 3.000 estate agencies will close down this year on the Costa Del Sol.  For some time now, property sales (and renting) has been in the doldrums.  Why?  Reasons include:

Update July 2007. 

The local Press advises that three out of four estate agencies will probably be closing down within the next 12 months.   The reasons ARE:

• Too much property on sale.   Building homes has never been a a job that can be planned and completed in a year so plans made two years ago are in some cases still being completed as bricks and mortar.  The result is that the old sales pitch that you can buy and rent out to cover your costs/mortgages no longer applies in most cases as there is now a glut of empty properties.

• The publicity surrounding the corruption and fraud by local authorities has caused many potential buyers to be very cautious.  Many local Spanish officials are serving jail time or awaiting trials.  Thousands of houses previously approved are subject to possible destruction as they have been built on the wrong type of land or in the wrong areas.

• The "land grab" scandal has hurt Spain very hard as many who have legally bought homes have either lost them or lost a lot of money due to the controversial and badly written law where existing owners can have their property seized, not only with no compensation being paid, but also be expected to pay sometimes many tens or hundreds of thousands of Euros to finance new local infrastructure.   The action has affected thousands of expats and is now subject to a Court case before the European Court of Justice.  Many retired people have lost their life savings.

• Many people especially in the UK are in serious debt limiting funds for not only a holiday home investment, but also holidays abroad.  The recent UK interest rate rises with more expected has not helped.

• The EU is planning "carbon taxes" with supplements being paid on air and sea travel.  This will also cause potential buyers to think again.

Since the introduction of the Euro, prices of just about everything have rocketed.  The once inexpensive costas are now not so cheap, especially for the retirees on limited incomes.

It is said that property finds its own price levels, but with the enormous numbers of estate agents that have spring up along the coasts (many off-shoots of UK estate agents who are investing their profits here to avoid taxes in the UK, nothing illegal about that), all promoting the many dwellings at ever increasing costs, many would-be buyers especially for investment purposes, are going elsewhere such as the new eastern European EU States where property prices are at the same levels as Spain's were in the early 1990s - very low.  Even an hour or so drive away from the coast, many small pueblos (villages) seem to have their own little estate agent's shop, often with a foreigner who has settled in the place, offering properties at prices 4 to 5 times what they were worth 10 years ago.  Many need extensive work to make them acceptable to the more sophisticated buyers from northern Europe, or from the age of them, cost very little to build originally as they can be very old.  They are often in the middle of the villages and need a lot of money to make them suitable for those used to modern buildings.

In many coastal areas, local government corruption has resulted in controversy over homes where developers (some of whom were the local mayors, etc) that were given building licences that are now in doubt as the land has been discovered to be declared as rural or in a national nature park, etc and therefore the building of a new home was not allowed by Law.  In Marbella on the Costa Del Sol, where most of the old council members are either on bail or in jail for corruption, there are reported to be about 2.000 homes where the owners are awaiting legal decisions on whether they are to be flattened so the land can be returned to its natural state. Many will probably be legalised but what stress waiting for the decision!   In Valencia, hundreds of new home owners are awaiting possible restitution due to the wrong application by Spanish developers and local authorities that have resulted in these owners having their properties partially confiscated with sometimes bills for hundreds of thousands of Euros for development by money grabbing developers whom are "distorting" a badly written and unjust Law.

In the UK, where house prices are still going through the roof due to terrible shortages and a buy to let culture by people who have lost their trust in the shares market, especially younger people have saddled themselves with debts to buy their first home, and spare cash for investment in Spain is just not available unless a permanent move is planned. 

Many others have been "living the consumer dream" and have saddled themselves with debts that, when the inevitable interest rate rises occur to control inflation, will cause literally hundreds of thousands to be declared bankrupt.  Also we read of sub-prime or special discounts for two years on the mortgage repayments are due to end for many, and this will cause extreme hardship with many losing their homes and money.

On the Costas, many homes on average are officially declared now as taking as long as 2 to 2-1/2 years to sell.  Many new developments are standing empty or only partially occupied and will remain so until either prices drop to reasonable and affordable levels or the financial crisis that is approaching ends.

November 2006

Property sales have slowed down in Spain to the extent that the official figures are that it takes an average of 30 months (that is 2-1/2 years) to sell a property now unless it is a special property that will sell relatively quickly to a specific buyer type.  The days of buyers "purchasing" a property off-plan and selling it some 12 to 18 months later at as much as a 30% profit are over.  There are obvious reasons why this occurred. 

Developers needed cash to build and were pleased to accept payments before the first concrete was laid, even where the buyer never had the intention of taking transfer on completion.

Buyers were sold, quite rightly at the time based on history, on making an excellent profit, especially after the stock-market crashes proved that investment in shares is often fraught with danger.  Many have bought with the idea of renting to help pay any mortgage but there are literally thousands of properties form apartments to large villas for rent and most are standing empty now.  Those that have sold are often bought at as much as 25 to 30% below the asking price.

Another problem is the debt mountain is getting bigger in the UK where an increase in the prime rate of borrowing will see thousands in financial trouble where they have bought over-priced homes in a seller's market, plus they may have credit payments to make.

The unfortunate but obvious side effect is that people who have bought, in the short to medium term, paid more than the properties are now worth.  For the the long term, we will have to wait and see, but most of the young are now unable to get onto the property ladder to the extent that the Junta de Andalucia is proposing the building of what used to be called in the UK, council housing", except it will be offered for sale to the young Spanish couples.  The fact that the combination of the building-boom being effectively over with the thousands of empty properties standing, although many are owned as second homes, means that it is a buyer's market, and many owners are in a cash flow situation where they have to sell, especially if the interest rates rise.

So if you are looking, do not pay what is being asked.  Remember that some properties are being sold for as much as 20 to 30 % less than the asking prices, and the method is to find out the history of the property, what was it bought for and when, especially the newer properties, and base your offer on the results.     New properties near where we live had an asking price of €550.000, and some are selling for €375.000, complete with furniture and even being within 100 metres from the beach in a quiet area, with central heating and air-conditioning, full security with TV on the entrance gates, underground garages and store-rooms for 1 to 3 cars, sea views, and an up-market location, etc.

In Torrequebrada, near Benalmadena, residents are having street demonstrations about the masses of "boxes" being built by developers.  The area is becoming one massive "Lego-land".

There is a good reason why many estate agencies are going out of business every week.

INLAND and Rentals.

Even inland, the foreign developers and estate-agents have caused an inflation of prices for homes, many of which would previously only be considered by an active retiring builder because of the run-down condition.    It is not uncommon to find a small foreign-owned estate agent's office, with a shop front in pueblos (villages) some 1 to 2 hours from the coast, where previously any property would have been sold through a "network" starting in the local Bar. 

The buy-to-let has hit problems as there are now many empty properties on the market for rent.    Before, owners wanted to rent "long-let" from October to June, and then let them by the week for the summer where they could charge as much per week as they could per month out of season.   The local papers show that this has changed and not only are there many times more properties to rent, owners are quite happy to rent them by the year.    Previously there would be only 1/2 page in the SURinENglish news paper for long term: now there are over 8 pages.

To encourage owners to rent out homes for especially Spanish families who are finding it very difficult to get onto the first "owned home" ladder and consequently are having to rent at inflated prices, the Junta de Andalucia is offering up to €6.000 to pay for damage if caused to long term rented properties, to encourage owners to lower their rents to affordable levels.

The availability of good houses in the new EU countries bordering the warm Mediterranean waters such as Croatia and Bulgaria, etc. with prices that were common in Spain 10 to 15 years ago has also affected Spanish prices for those looking for a bargain.  

In Marbella area, many homes, and we are talking in the hundreds, are under threat of being demolished because the previous Marbella council, led by the late and disgraced mayor (Jesus Gil), approved illegally the construction by granting licences in contravention of the officially approved planning Laws.  At present there are 22 ex-councillors and officials in jail or awaiting trial for corruption, and Marbella town council is literally bankrupt.   Even the new home near ours for Antonio Banderas and Melanie Griffith is declared illegal.   And other towns and pueblos across the costas are reporting corruption by local officials.

The current mayor is in jail along with 20 other council officials, awaiting trial for theft and corruption on an enormous scale, the female mayor even being reported charged for having liposuction paid for by the taxpayers, and previous mayors and officials are already in jail.

In Spain, as in many countries, "TRUST NO ONE!"

There is more information, with especially the Costa Blanca in mind at www.livespainforlife.co.uk

The following gives descriptions of what is commonly available.

PLOTS OF LAND.

• Not many single plots of land for villas/town houses from Benalmádena to Manilva left now.  The government is getting worried that too much farmland is being illegally built on and not used for farming and has issued strict instructions that the Law will be upheld in that agricultural land must be used for that and not new homes, other than a "shack" for a worker to spend the night in.  In Cartama near Malaga Airport, 200 new houses, all approved illegally by the local authorities, are scheduled to be demolished.

• In especially Marbella, it has been reported this year that 2 000 properties under construction have been stopped due to the previous Mayor having been involved (he was convicted in a Court of law) in corruption and issuing permits which were not allowed by the overall planning authority.

• Rustic plots (land in the countryside, needing development and therefore cheaper) for fincas (smaller but nice houses), and haciendas, (larger luxury houses).   Check planning permission is available (use your own lawyer in Spain) before buying as just about all of them are not allowed to have larger houses on them.  The dwellings are designed for a couple of workers to save them travelling home each night, as in the old days of donkey travel.

• Large plots for hotels (often with subsidies from the government) for rural tourism.

• Plots for urbanisations (building developments for small/large townships, including residential and shops/businesses).

• Plots for golf courses.  There is a shortage of these on the Costa del Sol, but concern for potential water shortages are being mooted now.   At this time, it is stated in the local Press that there may be a problem this summer (2006).  Desalination plants, some built 10 years ago, are now in use with more planned, but they are expensive to run.

• Commercial plots for super-markets, shopping malls, petrol-stations, clinics, etc.

• First line beach plots.  Becoming very difficult to find now.   Environmentalists are rightly complaining about the beaches being blocked off by houses on the Costa del Sol, although private beaches are not allowed in Spain.  All are open to the public by law, as it should be.

BUILDINGS, COMPLETED OR YET TO BE BUILT.

These include villas (houses), apartments, townhouses, hotels, and business premises.

• New constructions direct from the builders.   Buy off plan, sell before taking transfer 12 to 18 months later with a 20 - 30% profit.   Now a very risky plan.

• Pre-owned properties.

• Businesses, e. g. petrol stations, hotels, farms, bars and restaurants, cafeterias and take-aways, etc.

• Three to five star HOTELS, some with casinos.   There are many on offer along the coast and some inland.  Older hotels need extensive re-modelling to make them acceptable to the modern tourists.

• Large villas converted to guest-houses.

NOTES.

PURCHASE CONSIDERATIONS.

You should always budget an additional 10% of the purchase price for legal and transfer costs, and taxes.   These may be built into the mortgage/bond.  

  If you wish to check the current rates of exchange, please click on the following link while on the internet.  This will take you to the Xenon Laboratories Currency Converter, giving current exchange rates (updated every 10 minutes) as a guide to costs in your (or any) currency.   

The Universal Currency Converter Service (Click)

A Description of Types of Properties.