Only sometimes in life can you take real pride in the feeling that you have got it right!
Moving to Spain four years ago our aim was to raise the quality of our family’s lifestyle.
We enjoy working hard to achieve it and occasionally indulge ourselves
with a self congratulatory pat on the back when we hear that Spain
remains the number one destination for Britons buying property
overseas.
For the many thousands of Northern Europeans who annually contemplate
such a move, whether it’s a permanent leap, a move into retirement or
to plant some roots in a favourite holiday destination, the choices of
potential destinations are endless. Although some seem keen to buy in
the US or Australia, the majority soon realise that there are no real
language or cultural barriers in a move to Spain and are voting with
their feet.
A recent report commissioned by Barclays Bank from the well respected
University of Navarra Business School, observed that 65% of Brits would
choose Spain as their number one overseas property destination whilst
for over 38% it would be the only possible choice. Additionally,
complementing facts to statistics, the report also noted that by early
2005, Spanish town halls had registered 29% more British residents than
in the previous year.
The results of this report are even more startling given the negative
media reports that the Spanish property market has received over the
last 18 months. I am keen to tell it how it is. My aim is to help
those, like me, who “get” Spain but may have reservations about
entering this market.
The scandals in the Town Halls of Manilva and Marbella are now out in
the open. In the latter case, the Committee appointed by the Regional
Government to “clean up”, has made many friends and some enemies as it
goes about its task with obvious efficiency. I am convinced that the
commitment from central and local government to change will ultimately
be good for the region. However, such understanding in no way
denigrates the risk of hardship that may be suffered in the interim.
Some illegally constructed property is still under threat of demolition
or, at best, the developers will face heavy fines for planning abuse.
When the dust settles, with new Marbella Town Hall elections scheduled
for Spring 2007, I believe it will usher in a new era of well managed
and sustainable development which makes sense commercially,
aesthetically and environmentally.
Officials at the European Courts seem to be taking appropriate
corrective action over the worst excesses of the Ley Reguladora de
Actividad Urbanistica – LRAU - the so-called “Land Grab” Laws. The
results of such action should cause the Spanish authorities,
particularly on the Costa Blanca where the more severe cases of abuse
of LRAU have been seen, to more carefully control the ambitions of
developers and local Town Halls. The aim being to achieve a sustainable
level of development whilst ensuring that the interests of new
purchasers and existing owners alike are properly protected.
We are very aware that there are some that have found themselves
embroiled in certain disastrous off plan purchases. These purchasers
have usually optioned properties that turn out to be subject to
planning irregularities, some of which may be insoluble. In seeking to
recover sums paid by way of a deposit, if a settlement cannot be
negotiated with the developer, the Court system in Spain, which is slow
compared to the English Courts, may provide an enforceable judgement to
the complainant’s satisfaction.
At the risk of teaching my Grandmother to suck eggs, there has never
been a better time to ensure that comprehensive and wholly independent
professional advice is sought and received in relation to your
potential purchase. For reasons, including the above, such legal advice
must be totally independent of the seller, the developer of the
property or their sales agent.
It would be wrong to think that the woes being experienced in the fast
maturing Spanish property market are in some way unique to Spain.
For those who are tempted to look elsewhere, reports are starting to
surface from the so- called “emerging markets”; warning buyers against
misleading promises of guaranteed returns and unrealistic rental
yields. Bulgaria's coastal resorts have received particular attention.
The Sunday Times article entitled 'Bulgaria? Beware' (16.07.06),
claimed that the promises of high capital growth, rental income to
cover mortgage payments, and high tenant demand in long summer seasons
were undeliverable.
The Sunday Times also made the point that many of the buyers questioned
"were not worried about rents in Bulgaria as they had bought primarily
for capital growth". As a matter of simple economics capital growth may
well suffer if rental income cannot be achieved. Significant capital
growth is also less likely in a market that has an immature financial
services community with limited access to high loan to value mortgages.
Few people, particularly “investors” are willing to use their own cash
resources to make an overseas purchase.
The loss of the 2014 Winter Olympic Games, with a commensurate decrease
in rental demand, may also cause some to question whether a purchase in
the Bulgarian Winter Sports regions is worth the investment risk.
A marketing device that used to be a core feature of Spanish property
marketing is the rental guarantee. There are several examples of
genuine arrangements that deliver real returns primarily because the
sale organisation has existing rental demand, but the “guarantee” was
often achieved by simply inflating the price of a property by the level
of the required guarantee. This would then be paid back to the
purchaser over the agreed period. A 6% guaranteed yield is promised for
two years, so the price is hiked by 12% and placed in a “guaranteeing”
bank! Hogwash! Would even the most naïve “investor” purchaser be duped
into such an arrangement? It seems unlikely, but in Bulgaria, as also
observed by The Sunday Times, this ploy continues to be used.
Whilst Bulgaria may suffer from some eye opening bad press, our
colleagues at Overseas Property Professional Magazine have reported
that even mature markets, such as US are not free from criticism. They
interviewed Peter Stanhope, President of the Florida Brits Group, who
has in his sights “five Central Florida projects, maybe even seven,
which were being fiercely promoted on the UK market two years ago where
homes still do not exist.” The failure to deliver projects more than
two years after initial promises were given should give rise to grave
concerns for potential purchasers in this popular US destination.
In the US, it seems there are many 'investors' who have deposited
millions of dollars in purchaser/ developer held escrow accounts where
on-site construction has stood still for months. It seems that a lack
of planning permission for certain projects that are being actively
marketed may be the real answer when disgruntled purchasers are fobbed
off with environmental excuses.
Arriving by air into Nice Airport the deep ribbon of development – may
be ten kilometres deep in parts - of the Cote d’Azur is testament to
over a hundred years of commercialisation. The Spanish model is at
least sixty years behind the French and, whilst they wont want to admit
it, they have already learned from the French many of the more negative
lessons, particularly those relating to infrastructure. I am told, for
example, that in June, July and August it is almost impossible, due to
the sheer weight of traffic, to enjoy the main coastal road running
through Cannes.
In London we used to view Bath, a mythical hour and a half down the M4,
as the perfect weekend or holiday get away. I am told that on a sunny
Friday from midday getting from Hammersmith to Bath can take anything
up to four to five hours depending on the traffic. The concept of a
weekend home thus becomes a difficult reality.
Using a similar formula, and drawing a circle of 100 kms around the
airports in Malaga, Granada, Murcia Alicante or Jerez the open,
relative traffic and, often, toll free roads from these locations serve
the Costas as well as the vast tracts of rural land in between. These
include the familiar Costas del Sol and Blanca but also encompass the
emerging Costas Calida and de la Luz.
A boost for the property rental and sales markets of the South and
South West of Spain comes from the sometimes “frosty” waters of the
Straits of Gibraltar. Spain, Britain and Gibraltar have announced,
amongst other things, that they have come to an understanding over the
use of the Gibraltar airport originally built on disputed land. With
Britain and Spain sharing the use of Gib’s airport it greatly increases
the potential for low price carriers to deliver visitors into the
Western Costa del Sol and the Costa de la Luz.
A number of property purchasers who arrive at one of Spain's arterial
airport are increasingly seeking a more rural prospect. As an
alternative to the Coast they are equally enticed to turn inland.
Particular caution should be observed in relation to the purchase of
country property. Legal advice should always be obtained from a lawyer
that is based in the region where the purchase is to be made and who
has experience of purchases in the “Campo”. Country land does not
always benefit from a local authority denomination. The outer wall of a
ruined property may be the extent of permissible building line for a
“reformed” property. The title to the property may be divided as a
result of the death of the Registered owner. As a consequence, the
property may be held by many generations of the family adding further
complications such as unpaid inheritance taxes and the need to transfer
the title into the name of surviving owners before good title can be
passed.
It’s clear that popular confidence in Spain may have been a little
rattled in recent months but there remain many excellent opportunities
to find your place in the Sun. With a little research and advice the
process can be relatively stress free and the result should deliver
years of pleasure.
© The Rights Group SL 2006 (Marbella)
Mark FR Wilkins
mark@therightsgroup.com
www.therightsgroup.com
(under review)
+34 600 343 917