Currency dilemma

we have been looking to buy in spain for the last two years with prices dropping and the ex-rate being so bad have put all my cash in a fixed bond (done in august) at 5.75%.

have already booked my spainish holiday for next year and wouldnt go any where else.i am hoping that i can afford to get their in the end as its where i want to be,have just turned 41 already have my house paid for and a flat which returns £500 a month before x's.I think the pound will bounce back in the middle of next year to around 1.15 once the rest of the zone settles down.But the spainish market will take abit longer as its the reputation of the industry that has taken the biggest knock.

           Happy new year to all

                                               Tony

Dear All,

TNS -  good to hear, you are clearly no body's fool and are well positioned to invest. Apart from the British let and an outright purchase where would future income be from, all from investment? Surely not retiring at 41?

This is so much better than buying into instant negative equity with one or more large euro mortgages.

As to your currency prediction - why?

Suemac - good to hear, sounds great, one could easily wallow in that.

Is it possible that Xmas is treated in Spain as in France - less important than New Year? Was the establishment family run or just one that doesn't give a fig for European working time directives? It doesn't sound as if anyone was being paid double time plus a day off in lieu. Were you actually paying 50% more than last year in £'s?

Lastly where can I buy "Dulce vino" if it is an alternative to Sauternes?

Noddy - the sun is shining here but it is freezing, I am well wrapped up, the heating will soon be on and my home-made soup is bubbling on the stove, but half the country seems to be down with flu. Does that answer your question?

As to your predicament in buying an "affordable home" on a large euro mortgage, I think you are correct in changing your mind on the euro and are thinking on the right lines re. repayment. If GB does, as has been threatened, bring the bank rate down to 0% I would personally jump in onto the best tracker available and wipe out the euro mortgage. Nevertheless I believe you are still in serious negative equity and will be for many years, if that bothers you at all.

Best of luck with whatever you decide.

Regards

Norman

Norman,

You wanted to hear from an expert:

www.eyeonspain.com/blogs/realestate/1054/spanish-economy-to-begin-comeback-in-h2-2009.aspx

Think that says it all from my point of view, especially the comment that has been left by an expert. 

Norman

You are correct in saying that Christmas Day isn't the same as in the UK, however many Spanish families like to go out on Christmas Day, which is why the restaurant was full.  It is family run, though some of the staff may not have been family members, however the owner was certainly very busy serving us and others in the restaurant, as was the co-owner who runs the bar.  Last year we spent Christmas in Barcelona, so obviously that was a bit more expensive, but still cheaper than in London!  The Three Kings is the Spanish equivalent of Christmas so more comparable and the most expensive, highly-rated restaurant here is doing a special dinner for 34 euros, including wine etc.

The dulce vino we had is a red Monastrell from Jumilla where we live, and they also do a white version.  Bodegas Silvano Garcia produce the one we had, plus a white Moscatel.  Well worth trying out to see if you like them as they are very reasonably priced!  We're not really into sweet wine, but do enjoy these with our dessert course.

Regards.

Sue

Norman, what exactly are you expecting to gain from this thread - indeed, this forum?  From what I've read of your posts, you have lost a deal of money maybe "speculating" in spanish property, but then one shouldn't speculate in any commodity unless it is with money they are prepared to lose.  If one is investing for the long term, to enjoy the material worth of their purchase, then there are millions of people who have bought in Spain who are content with their purchase (or you would like to call it "investment").  But, because you have lost out doesn't make you qualified to mock those who have successfully bought in Spain and are enjoying their Spanish lifestyle and/or vacations!

To quote you:

"Was the establishment family run or just one that doesn't give a fig for European working time directives? It doesn't sound as if anyone was being paid double time plus a day off in lieu."

What information in Sue's post gave you the impression that any labour laws/regulations were being disregarded by the restaurant?

"Nevertheless I believe you are still in serious negative equity and will be for many years, if that bothers you at all."

Why is it that anyone with a euro mortgage is in negative equity?  Do you know their individual financial circumstances?

Currencies fluctuate, fact.  That doesn't mean one can't plan for that event - but then were you advised by your agent that you could "sell it for a huge profit before completion and if you want to complete then you could rent it out for 800 euros a day year round?  No problem!!"

And Norman, we didn't "lose out badly when buying a holiday home in Spain" because we plan to keep it indefinitely and enjoy our apartment when we can.  We got  exactly what we had contracted to purchase for exactly the price we had contracted to pay!  Just because I mentioned that we, in the UAE, had had it bad with the exchange rate due to the dirham being linked to the dollar, doesn't mean we lost out badly - it means we planned and did our homework!!

By the way, I'm a woman, normansands, not a man - although I'm sure alot of men would like Tweetie Bird signing their signatures for them!! 

Norman, I don't think you're getting anywhere with your comments and you're just starting to agitate people.  Please try and just give advice instead of just being rude to everyone.

Thanks

Justin

Well said!

For Suemac-can you help me - I had a lovely white wine made in Jumilla (here in the UK) think it might have been via the Times wine club sadly i leave all ordering etc to the boss and just participate in the consumption bit!

I know i should have kept the bottle etc but didnt-do you have full names etc of all/any white wines made in Jumilla but sold in the UK please?

norman my prediction is based on the fact we are facing such bad ex rates because our government has lowered the intrest rate to help our companies be able to export better and to stop them going to the wall.i believe the rest of europe still has more to come.spain has only just admitted being in recession.how many of our major building companies had gone to the wall 6months before the recession? I may be out on the amount it will bounce back but i believe it will recover some ground as the true state of the european economy comes to light.

Dear All,

Sorry everyone, did not know I had actually been rude to anyone, not even the lady who keeps showing her bottom and advertising her rental with every post.

However if I have, then  sorry, sorry and sorry again.

How's that Justin, but I really thought I was only telling it like it is, without bias of any kind.

As to the currency situation, if it was just a case of the lowest interest rate then why is the £ losing out against the dollar????

It has been suggested that the euro's march will continue and it will eclipse the dollar as the currency that the world's lifeblood will be measured in.

To my mind, 0.3 + 1.5 x 0.7 = 0.3 + 1.05 = 1.35 seems to me to be negative equity if the 1.05 is on mortgage.

If you then add to this the downturn of say 0.5 because of current factors plus the bank's repossession of 128 unsold apartments on the same development then surely the negative equity is very serious, or has the simpleton got it wrong again???

If you then move this scenario to a less successful development with none of the promised facilities etc. then surely the situation is even worse, or has the simpleton lost his marbles altogether????

By the way, as an old codger who is used to not receiving anything free from a restaurant except tap water, my £3.45 carvery gets me a few measured slices of gammon, turkey and beef in any selection plus an unlimited supply of veg and sauces including excellent roast spuds and parsnips etc. This from a national chain. Another chain also close by gives a free salad bar starter with every main course bought. There is a wide variety on the bar and the quantities are unlimited for the hungry. Additionally they give a third discount if you sit down before 6 pm which very many families and pensioners do.

This is just to restore the balance and does not mean that I do not enjoy my meals and free olives at the local venta when in Spain. I almost became addicted to the morning coffee with garlic cloves rubbed onto toast and olives there.

Followed the thread, did not like the expert spin I am afraid, would not choose either as my expert, thanks.

Best regards and happy new year to all, please do not let this or any of my other ramblings agitate you, support Ruth and let us all hope that changes can be made in the New Year.

Regards

Norman

Normansands,

I am allowed, as per forum rules to put my web links in my signature - do you have a problem with that???

I don't know why you mentioned me in particular, as I have never accused you of being rude - only negative!

If you are referring to Duquesa Village, as the development that had 128 apartments repossessed, then you are incorrect.  An investment bank bought 129 apartments - and, in fact, there are still some left for sale, should you be interested!  Shame you didn't get tne answer you  hoped for on our development forum.

And, what may be a disappointing revelation for you Norman, but it's not my bum!  It's Bart's!!!   

Happy New Year everyone!!  Enjoy 2009!

More bad news, at least in the short term, it looks like the Bank of England will be cutting interest rates again which should weaken the pound more, espcially considering that the EBC has been unwilling to cut interest rates as quickly.

BTW any idea were TJ222 went to, I figured he'd be all over a discussion like this but we haven't heard nada from him in quite a while, forget that just saw a thread were he posted

One last thing on 2008 in order to put this thread back on track!

Rats will leave one sinking ship for another and another and so on.

In other words, the 'Credit Crunch' affected the US 1st, then the UK and now as we are about to enter 2009, it is about to hit the EU HARD!

Once the 'truth' about the EU economies hits home then  we will see a different state of play, which I believe I have already mentioned in previous posts in this thread and in others.

Spain, the 4th largest EU Economy has now followed other EU countries and admitted the big 'R' and as soon as the 'other' large EU economies do ... HMM! Wonder what will happen with regards to the ex-rate!!!!!

The Euro is hiding behind the ECB and the Euro Zone as a 'Global Economy' and as soon as this becomes as transparent as it is .... look out!

Dear All,

I really don't think I have been rude to anyone and certainly not negative, I am sure there is much worse to come.

If you want an expert, forget the spinners and try this :-

02 Jul 2008 2:04 PM TJ222 Adosado I've made 226 posts Send private message to TJ222

I feel for you, but want to offer some realistic advice. I think things will get much much worse over the next few years and there will be no recovery for the best part of a decade. The problem in Spain is not just that houses were overvalued dramatically, but also that there is too much supply and much much too little demand. Also Spain is heading with the rest of the world into a major recession. Things are going to get as bad as they can get. I understand that this might be depressing news, but it is also the truth. Armed with a realistic evaluation of the situation you can then plan what to do for the best. Don't beleive the people that tell you, you will get your money back in two years it aint going to happen. banks would have to go back to ultra easy lending, they are not. People would have to forget about this developing crisis and all the ensueing pain, they are not, that will take decades. Finaly droves of foreign buyers are going to have to return to the market in their hundreds of thousands, not in teh next decade if ever. A realistic way to value your property is to take a long term rent and then mutiply it by 12 to get a yearly figure and then mutiply that by 10 again. So say the monthly rent is 750 euros, the value of your property is around 90K euros. So if a reduced selling price for your property is say 180K currently, then bite off someones arm for the money. Its not the markets fault that you paid too much. Historically it should cost you slightly less to buy a property than to pay rent on it. This is to reflect the fact that as a renter you are not responsible for the cost of furnishing and upkeep. The fact that it currently costs twice as much to buy a property as to rent it is just a reflection of the overvaluation of the market. It won't stay that way. The last ten years are not reflective of history or prices of property. You don't quote any figures as to how much the loss is that you would be taking. My advice would be to take the loss if you can and chalk it up to experience. In a years time you might be faced with a much lower valuation and having paid the finance as well. If you go the rental route, get really serious about it. Spend some time and money to make the property especially attractive to stand out. Put in a big flat screen tv, buy an X box for the kids. Get some flattering professional photograpy and an internal video thingy. Then get it marketed everywhere you can. make posters and put them up at work etc - get imaginative. You need to do more than your competitors, look at the money and time as an investment rather than more money spent. Anyway good luck = perhaps it would help idf you could give us some figures of short tern rents being achieved, for how many months, long term rents and what you paid for it and what theya re now selling for. This message was last edited by TJ222 on 7/2/2008. _______________________

and note the date.

This is the true value of the forum in my view.

Thanks Justin, I only wish I had the information earlier.

Regards

as always

Norman

Norman.

The rental yield on a property is certainly a sound basis to ascertain the true objective marketable value.

But the valuation model of July is somewhat out of date.   So here is a much more optimistic view taking into consideration todays low interest rates.

Today I had a letter from a financial insitution that advised, due to the Band of Englands recent change in base rates,  the interest rate on my savings  account is now below 2%.   Such low rates of return now prevail in the current market.

So the value of a property with a net rental yield of  say 8000 Euro's a year could  be   (8000 divided by 2%) =  400,000 Euros.

Now with Stirling /Euro parity this equates to £400,000.    If one purchased at  £180,000 that's a paper profit of £220,000.

Of course this is an over simplification but it does have an underlying  sound basis.  The model needs adjusting for:

a) transaction costs of buying and selling. 

b) liquidity in the market.    Not many investors exist with £400,000 in the bank and properties are in over supply.

c) risk premium -  risk of fall in rental incomes in particular and a risk of non-occupancy due to there being too many properties.

d) cost of furnishings and depreciation

e) additional taxation costs (wealth tax etc)

In the spring of April 2008 I considered UK buy to let using a complex model that considered all of the above plus gearing factors.

It showed very poor ROI with or without DCF factoring. 

Another point to consider is what is your starting position?

If you've already purchased and furnished a property then ignore the cost of purchasing and furnishing.  Sunk cost are in the past.  What is the best option looking forward? Should one sell or just rent out?

The financial decision needs to compare rental yield compared to net sale proceeds.   If  you have no mortgage and could sell at say 210,000 with disposal costs of say 10,000  is this better than renting out for say  7,000  a year?

7,000/200,000 x 100 = 3.5%.  Not bad compared to many alternative investments.

What complicates matters further in any decision making is that any Euribor mortgage costs are still much higer than our savings rates.  If you have a Euribor mortgage at 70% of purchase prince  it will result in the negative cash flow after deducting rental income.

e.g..   A 70%  mortgage of 15 years on a 220,000 property is 1250 Euros a month of which around half  is interest payments.  Still at least this interest cost can be offset against the rental.

Finally there is another dimension.   The value of one's own use of the property.   What is the value of having one's own clean, tastefully decorated, lavishly furnished and unspoilt personal Spanish home available for use   X weeks a year?   If you persoanally assess to be higher than the alternatives  then you'll just carry on enjoying the use of it.

Paul

** EDITED - Please respect terms of posting **

--

A rental yield of 8,000??? Wow, who is your letting agent?

I think it has been discussed so many times in the past about the rental market and am probably going way off topic again, but reading throught the threads just made me think of the warnings that have been given many many times before on the forum about the buy to let and the dangers of relying on rental to subsidise mortgage payments. Sorry went off on a tangent again carry on

Dear All,

once again I have been bad and censored, exactly what is it I have I done??????????

I have been edited out, my whole post was removed, I must have been truly awful.

What could it have been?

I made absolutely no reference to any ladies bare bottoms, charming as they be to see.

I simply pointed out that if one was to follow the equation posted that rental divided by bank rate = valuation.

Then when GB reduces bank rate to zero as promised, the valuation = infinity.

I may have hinted that in my view that is taking positivity an infinite number of steps too far, but it was only a hint, what is wrong with that?

So what was wrong Justin?????????????????

Regards

Norman

Norman,

(Edit)  Ha Ha.  Zero percent would never apply in that formula when you consider all factors I listed. You would surely not assume that savings rates will remain at 0% for infinity and also you need to add your risk premium which would certainly not be zero given the risk of falling rental rates and a risk of a low level of occupancy.

Also whilst a BoE base rate of 0% is not to be ruled out,  few would expect it to remain at zero for too long and even then we would hope for at least 0.25% on our savings accounts.

In effect one considers anticipated interest rates over a long time scale depending on one's personal time horizons e.g. 10 years.

Back to the currency dilemma.  One point I touched on is that if you can realise capital now then it's not a dilemma.  Those who funded with UK £ mortgages and transferred deposits at £1.45 can still clear a profit selling at a discount - if they find a buyer.

But I would be quick about it.  European banks have been pulling significant funds out of the UK in the last quarter of 2008 to rectify their balance sheets.  As that flow stops and maybe even reverses (who knows) then the pound should come back.  One report I read suggested 1.30 Euro per pound is about right based purchasing power but it may over correct to say 1.35 for a while   Now there's some bright and hopeful news for the start of 2009. 

Paul

Dear All,

sorry again, this simpleton, (meaning and referring only to myself Justin please note) doesn't even understand the language.

As I have already posted (had it been allowed) I think I am too old perhaps.

Positivity, or positive spin is OK perhaps, if it is based on realism, otherwise it is just spin and plain deception, even when that deception includes a large element of self-deception.

Once again, as a simple engineer, I cannot accept basic nonsense being put forward as fact, no matter how you attempt to modify it with other factors.

Nonsense is nonsense and cannot be painted any other colour, though I will acknowledge that as the City has proved, it can fool even the most august and senior Lords of our current world financial system.

The other weakness posted, politely pointed out by Candyfloss, was the nett rental yield. That just seems magical, just like that which the sales agent promised, (70% occupancy and rising - truth 7% and falling) and needs some explanation I think.

Positive regards to all.

Norman