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“More Britons flee for a life in the Sun” screamed the headline in the
Daily Express (29.03.06). The UK daily was reporting that many highly
qualified professionals, numbering at least 100,000 per year, are
leaving the UK for Spain.
They are leaving to join the already 1,000,000 plus Brit homeowners who
have already relocated to Spain. This sum is estimated to rise
dramatically, with predictions that by 2008 over 3.2m Britons will be
foreign homeowners. Last year, a Barclays Bank’s survey, suggested that
a further 660,000 British people planned to buy in Spain.
Why? What is prompting this exodus? The reasons seem to be
many; not least that Spain is a great place to live. The primary causes
appear a little grittier, a general disenchantment with the UK’s
“crumbling health service”, “soaring council tax and “poor education”.
Recent purchasers in Spain are discovering that, as we reported earlier
in the year, the local property market appears to be becoming more of a
“buyers market”. Vendors seem to have clued up and realised that their
unrealistic expectations will not sell an over valued property. If you
want to make a sale simple economics are dictating that the best advice
may be to drop the price – the demand is there so match it!
Expatica.com recently ran a piece reporting that experts were
predicting that property prices in Spain would “cool” by up to 10% this
year. However, this is against a background of over 120% increase since
1998 – so not such a big hit.
Whilst this may be great news for would be “lifestyle” relocators,
there appears to be growing interest in Spain from the UK, Irish and
Scandinavian investment communities. We have seen several examples of
distressed purchases where, for example, an investment syndicate has
purchased tens of apartments “off plan” up to three plus years ago and
are now finding themselves squeezed to make the final payments. There
are also examples of over stretched individual purchasers to whom this
equally applies. Inevitably one man’s misery is another man’s gain and
opportunities are being snapped up as they emerge.
Eye on Spain.com recently ran a piece by a Spanish resident,
Susan Pedalino, in which she concluded “Having researched similar
territories further afield for many hardened investors it (Spain) feels
like coming home.“
The mortgage market is fast maturing. Although we have seen
increases in the base “Euribor” rate the variety of mortgage products
available from Spanish and other European lenders are still very
appealing to those buying in Spain, particularly those who hail from
higher servicing cost regions, such as the UK.
With an excellent infrastructure, roads, hospital - recently
voted the 4th best in the World - and the airports - with new termini
being announced frequently to cope with the growing traffic - it was
only a matter of time before Spain’s property entrepreneurs, prompted
by the fierce competition for expat investment, would deliver
compelling ways of re-presenting Spain.
We have property sales colleagues who feature new properties in
Spain that command “Bulgarian” type prices. They include off plan two
bed/one bath apartments starting from €90,000 and so-called “quad
houses” again with two bedrooms from €120,000. They thereby provide for
many an affordable step onto the Spanish property ladder.
Others have been marketing so-called “fractional ownership”
models. This is where a number of friends, family or completely
unknowns buy an apartment or villa collectively, agree an acceptable
timetable for their own use and have, unlike the timeshare model, the
opportunity over the coming years of making some real capital growth.
This method is proving to be perhaps the very best option for those
“toe in the water” purchasers looking to establish a relationship with
Spain prior to a wholesale relocation. It is also a very good solution
for the older resident looking to “winter” somewhere warmer.
In late March 06, Chancellor Gordon Brown, in acknowledgement
that he may have over stepped the mark last December whilst attempting
to scupper the purchase by a SIPP or SSAS pension fund of a holiday
home for an investor’s own use, has relented somewhat. A complicated
piece of draft legislation due to be in force from summer 06, broadly
allows a proper investment in an overseas property by a SIPP/SSAS. We
need to see how the investment market will react to this opportunity
but it is a clear recognition that such a purchase may be an
appropriate investment in a mix with other classes of investment.
Many who arrive in Spain will not be immediate house purchasers
- but they are likely to be at some point in the near future. Some will
choose to rent for three to six months whilst they find their feet. Our
view is that the demand from this sector may well fuel a growth in the
long-term rentals market - an experience already being noted by our contacts in the Spanish rental market.
Whereas the short-term “summer“ or holiday rental market appears stable
there has been a noticeable increase in demand for the three-month plus
arrangements. Whether this is the “grey” or over 55 retired market
temporarily relocating for the Northern European winter months or a
more concerted influx of “new” long-term residents we’ll see.
Whoever the core client may be the experience of property owners is
clear. Long term rentals deliver yield. With many properties on the
Spanish Costas approaching the completion of their “off plan” phase, a
new purchaser who may have already seen some capital growth, is likely
to be most interested in rental yield to offset the costs incurred in
servicing mortgage borrowings used to complete the purchase. Whilst
higher rentals have been achieved from short term rentals, making them
very attractive on paper, a long term tenancy paying a lower per
monthly rental should deliver an acceptable yield.
As the Spanish legal system is pro tenant, Landlords should seek
specific advice as to the precise tenancies that they should be
offering. By way of a general rule, it seems that a property should be
let fully furnished and for a limited duration licence, which should
not exceed 11 months before renewal.
Whilst many cite the exposure of corruption in local politics
as a reason to avoid Spain, evidence shows that this is not happening –
quite the reverse. My view is that this is a country experiencing the
teething troubles of its own development. It has come a long way in a
very short time and whilst it still has some way to go the impetus for
change is there.
© Mark FR Wilkins – The Rights Group SL 2006 (Marbella)
mark@therightsgroup.com
www.therightsgroup.com
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