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Justin's Life

Welcome to my new blog. I plan to write about all sorts of things here, my life in Spain, ineresting things and ideas I've come across, places I've visited and so much more. Hope you enjoy it and please leave comments as your input is always appreciated.

The Bargain Spanish Property Myth
23 March 2012 @ 20:13

Over recent months we keep hearing more and more about how cheap property in Spain is becoming.  A real case of supply outstripping demand.
 
Has there ever been such a great time to buy?  If you believe everything in the press then this has to be a great time to jump in.  Low prices, 100% mortgages, 50% IVA discount on new properties, etc.
 
Most of us who bought in the “glory days” are feeling a little nauseous at the moment as prices continue to tumble, but for those looking to buy today, surely the press must be right and now is the time to benefit from such a depressed market…not to mention depressed property sellers!

But are there real bargains to be had?

There’s only one way to answer that question and that’s by getting out there and checking it out first hand.
 
What better way to waste an estate agent’s time than to make him show you loads of properties  when in actual fact you have no intention of buying anything (this is a typical client these days…I’m told!).
 
But luckily the agent in question is a good friend; Andrew Hamilton from Hamilton Homes so he wasn’t too upset that I wasted his day, I think.

The brand new apartments

As I suspected, if you want to buy a brand new two bedroom apartment then you are spoiled for choice.  110,000 Euros gets you a good quality apartment on a nice complex and the bank will happily give you 100% finance, possibly a little more too if you ask nicely.
 
They may not be in the best locations but they are more than 50% less than they were when initially marketed during those glory days.  I feel for the other owners there who paid the higher prices and now see these properties advertised for so much less.   But hey, most of us are in the same boat.
 
Then there are other properties in much better locations, such as on the seafront of which some have been reduced by an astonishing 75%.  But to me these were severely overpriced to begin with, so I don’t think that drop in value is quite what it seems.  Still, some people there will have paid those outrageous initial prices.
 
So where new apartments are concerned, yes, they have come down a lot and they are available much of the time fully financed.
 
Will they continue to come down in price?  No one can say for certain but they are definitely selling going by Andrew’s excel spreadsheet.  So it’s only a matter of time before the remaining ones are sold.
 
But once these quality properties are sold, that’s going to leave the, let’s call them “less desirable properties” available on the market and these will be the last to go over the next few years.  These will get progressively cheaper as the banks that own them come under increasing pressure to get them sold.  This is just my guess but by going off the current reduced prices for quality apartments, I wouldn’t be surprised if in two or three years we’ll be seeing the “less desirable properties” coming onto the market at around the 40 - 50,000 Euro mark.  I can’t see any other way other than those low price levels to get them shifted.

The brand new townhouses

It’s a fact that developers built many more apartments than townhouses during the glory days.  Searching for a decent new townhouse to buy I assumed that they should in theory be more difficult and probably not with the level of discounting I saw with the apartments.
 
But I was wrong.
 
I looked at some beautiful, great quality, large townhouses which had been reduced from 495,000 Euros to….wait for it…209,000 Euros.  These are large good quality properties but the location isn’t great, which probably explains the price drop.  Finance on these was at 80% and they were selling.  There were other people looking at them, one had just been removed from the list of available properties and there were only a few left.
 
Great townhouses at the right price seem to sell.
 
I was then taken to see some other brand new townhouses which again, weren’t in the best of locations but they too had been reduced by some silly figure and they were now on the market at 199,000 Euros with 100% finance.
 
And what a difference.  These were truly awful.  The poor build quality, low quality fittings, tiny rooms, low ceilings, etc.  You name it these townhouses had everything you wouldn’t want in a property.  The bank literally can’t give these away and I suspect prices of these types of properties will have to fall and the banks may have to finance over 100% to get them sold.  Who would want them?
 
These reminded me of the fact that many developers assumed that if they built them people would buy them.  These properties belong to a different era.  Yes they have come down in price, they are fully financed but they are also crap.  That’s why I was the only muppet checking them out!

Is the bargain property myth busted?

Well yes and no.  There are bargains to be had but there are good and bad bargains.  The last thing you would want to do today is buy a lemon of a property.  That would be inexcusable.
 
From what I saw on my day out with Andrew, the great properties are selling (slowly), even if they aren’t in the absolute best locations, whilst the inferior properties still have some way to go and they will get cheaper; they have to.
 
So at the end of the day it depends on what you want.  It seems that the properties being sold at the moment for low prices are the better properties, and then in two or three years time it’s those less desirable ones that are going to be left.  Most agents are now only pushing those new properties which they know are good and will probably sell at the current price levels.
 
What is particularly worrying is that the level of not-so-good properties is much higher than the good ones, so I still think it’s going to take many years to shift all of these.  Like I said before, many belong to a different era where anything sold but that’s not today’s or tomorrow’s market.
 
So that’s my roundup of one day looking at new properties for sale.  Every area will be different but that’s what I saw and found out for myself.  If I had some cash to spare I would be seriously tempted to snap up one of those 100% mortgage quality apartments, they were that good.
 
How very tempting.
 
Anyway, this is what I found in the area of Manilva/Duquesa, how are things looking in your area?  Leave a comment below and let me know.
 
P.S.  Thanks to Andrew Hamilton for his time showing me round.


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35 Comments


John Vincent said:
24 March 2012 @ 07:57

Justin,

Found your blog the best description of the state of the Spanish property market from the point of view of sellers abd buyers.

I am trying hard to retire by selling our Spanish property which we have established as a Casa Rural with owner accommodation and 3 rentals units and 2 more ready to enter the rental pool. I am also running a bit scared of Spanish Inheritance Tax

Fortunately or otherwise the original rustico property has been reclassified as commercial which gives us a few choices.

1. Try and sell (or give away!)the entire property and let the new owner take advanrage of the new planning.
2. Horizontally subdivide into 2 with asking price of around €2K and €3K
3 Horizontally subdivide into 7 with apartments and cottages, with communal pool, from €89,000 as a rural holiday home with established rental income

I am favouring option 3 but once committed to the first sale I have to be in for the duration which might see a possible increase in value of future sales, a diminishing but continuing rental income and option of keeping one or two units. The small units are much more affordable and so should attract greater interest and the chances of selling at somewhere near the asking price. The proceeds of the first sale would go into an IT iron chest!

Extranjeros mayores, holiday home owners must be aware of the implications of Inheritance tax. There are a number of websites that have an IT calculation tool and I strongly recommend that fellow expats use them





George said:
24 March 2012 @ 08:05

Justin Aldridge is pretty much spot on iro property prices and as a Manilva resident myself agree with most of what he says. However there are some stupendous bargains available OCCASIONALLY and I have just bought another apartment from a bank for E110.000. A penthouse with magnificant views of three golf courses, 2 klms from Casares beach, 125 sq mtrs built, 2 underground parkings, huge store room, most superior finishes, and brand new. As advice to resellers of second hand properties, my strong advice is if you get any offer-take it and run.


John C said:
24 March 2012 @ 09:11

I have recently bought a 1st line beach apartment at 60% off current asking prices offered by other residents, the owner wanted a UK house deposit for a daughter.

It seems to me there are two kinds of buyer and the bargains they want are different. I'm looking for investment properties and I want the pips to squeak or I'll keep my money, very interested in Don Pedro Estepona at the moment.

But if I was a happily married man coming up to retirement and looking for a place in the sun, and if we found the dream house for the next 15 or 20 years, then making the pips squeak would be far less important; just seeing the prices were lower would almost certainly be enough.

I think it's worth remembering that most people still have jobs, pensions, and a good life. Might not be to the excesses of old, but 80% are doing OK, just being careful. Making investment in Spain more attractive would surely be a useful effort by Andalucia.


Carole said:
24 March 2012 @ 09:11

And what about apartments in the Marbella area, specifically Elviria ? New or 'used'. Any idea?


Don Lochnagar said:
24 March 2012 @ 09:21

Prices in Spain were well overpriced. I can't believe what some agents who have their windows stuffed with properties, want to sell them for. Down here in Murcia, it is possible to buy a 2 bed terraced house for €27.000 in a really nice area.


SwinglesCasas said:
24 March 2012 @ 09:31

If its real bargains you are after, Check out the Price Reduced Property that we have at Swingles Casas


midasgold said:
24 March 2012 @ 09:41

You will not get a 100% loan (or 100% plus ) unless the property
is 'BANK OWNED.'


Grumpy said:
24 March 2012 @ 10:06

Here in Lebrija (Sevilla) prices for the locals have not really changed. Foreigners are just expected to pay twice what the locals pay. f course when you sell you only get the local rate. I have to accept being ripped off because I was naive but I find it difficult to accept the shoddy building standards. Maintenance on my house in the UK over 4 years has cost zero. Here it has cost 20,000. Constant painting, anti damp, replacing expensive fittings that lack quality. It goes on and on. I can give it away but need money to buy one of the bargains so I am stuck, But, hey ho,the sun shines most days.


Manxmonkey said:
24 March 2012 @ 10:38

I spent a month (December) in 2010 looking at properties and as it was constantly raining on the Costa del Sol I found most places thoroughly wet through! The build quality in Spain is in general what you get when totally un-qualified, untrained monkeys build houses. And of course I had to compare the value compared to everywhere else in the world and it came up short. I must state here I was looking for a villa; 4 or 5 bedrooms for family holidays and maybe a bit of rental income as a bonus. Yes there were apartments in places which were being offered for a few thousand Euros but really they should just be bulldozed to help bring up the value of the rest of the housing stock in the area. As an investment I can only see them as being forever cheap and the community charges may not even be covered by rental income. Now I just returned for a one week intensive. I pre-booked viewings with just one agent who then appeared to have only 1 of the 9 properties on his books and the others were either. "That's rubbish, I wouldn't waste your time looking at it" or, "Oh that just sold" or, "We just can't get hold of the keys". Luckily I managed to contact two very professional agents who then showed me some genuine properties but to be honest I was just disappointed in everything. The whole of the Costa del Sol is full of poured concrete skeletons and the nicest properties I saw were out in the country but too far from Marbella to appeal to my kids and grand-kids. I study the International markets and own property in Australia and the States as well as here in Guernsey where I live and really the best thing for me to do other than putting the money into a corporate bond is buy somewhere in Berlin or Birmingham and use the rental income to spend as I wish on renting a Villa occasionally. But next week I'm over to The Dordogne to look at a small Chateau for sale for the price of a 4 bed estate house in Solihull....you never know!


Leonardo Jose said:
24 March 2012 @ 11:01

I am beginning my property search in the Granada area. Agents are not taking me seriously even when I call them from the States for more information prior to my trip. I'm trying to find properties that are ready to view and ready for purchase so once I am in country my time is not wasted waiting for access or sitting in an office thumbing through listings. I tell them it's a cash sale, no financing but they insist on bank financing at 80%, why?


Grumpy said:
24 March 2012 @ 11:44

Estate agents the world over have bad reputations but here in spain they are at the pinnacle of their 'profession'.

They want large commissions and even larger commissions on the mortgages yet they cannot be bothered to get off their backsides.




Foxilady said:
24 March 2012 @ 12:20

Thanx Justin from what I have seen when coming over to Spain I believe you are quite accurate in you observations. And yes I think Spain property prices will drop even further over the next few years. I am with Manxmonkey on his assertions also ie poor build quality and loads should be bulldozed, and such a lot of concrete skeletons all along the costas. Eventually I can see a situation where people on complexes are unable to pay their service charges and what then? It also seems that many Brazilian banks are taking over Spanish mortgage debts and thus increasing mortgage payments in the interim, nightmare situation for some. We decided back in 2005 not to buy in Spain as we had just managed to sell a new build in Ireland and could see history repeating itself in Spain, ie over building and eventually the Spanish bubble would burst as it had already done in Ireland. Instead, as retirees we now go wherever we want for 1 to 6 months a year in UK winter, sometimes its Spain, but this year it's Goa. This gives us a great feeling of freedom and excitement. We own a central London pied a terre which generates an enormous rent and its value is rising monthly, all down to demand. Thus our money is safe and we have a wonderful lifestyle to boot. We don't get much right in life, but I am pleased in this area we managed to act wisely. That said, the sun is out today in leafy Surrey and life is wonderful.


zorra said:
24 March 2012 @ 13:04

If you buy you shouldn't forget taxes and fees (like IBI, wealth taxes water, waste, electricity etc. ). They did go up by over 124 % in the last year and they will rise more.


zorra said:
24 March 2012 @ 13:05

If you buy you shouldn't forget taxes and fees (like IBI, wealth taxes water, waste, electricity etc. ). They did go up by over 124 % in the last year and they will rise more.


Leonardo said:
24 March 2012 @ 14:38

I'd like to ask those who are either now in Spain or have recently been to Spain to answer this question. Those who have not been to Spain for a few years, have no idea as to what the situation is today.
My query is what about the value of those properly built and well located properties that are now being offered at a low price? Will their price remain the same in two or three or five years time, or will they increase in value and price?
My assumption is if the writer is correct that the best went first, then these will always maintain their value. And, they will be the first to increase in value...regardless, of what bargain are available to those which were poorly built and are badly located.
What says you who have real knowledge of this real estate market?


Campbell said:
24 March 2012 @ 15:13

Excellent article Justin. Leonardo's is right. When property falls the value all goes back to the core areas. Buy the best you can, but be aware that your buying and selling costs will be about 20% so it's got to rise that amount to break even. Also if you buy bank property withh 100+% mortgage, still make sure that the price is competitive. Be aware that if you have to sell quickly due to a change of circumstances you will have to drop the price as there will not be 100% mortgage available.


Foxilady said:
24 March 2012 @ 17:11

Perhaps you are correct Leonardo, but all the indicators show that property prices in Europe and probably the rest of the western world will not rise within the next decade. The days of investment are over, and we are back to "living" in properties like the good ole days. Also remember its all about location, location, location - a simple and meaningful proverb.


Justin said:
24 March 2012 @ 20:23

I too can't see any price increases for many years and even buying up the better properties today, they will probably still lose some value over the next few years.

No one is going to making any money out of Spanish property in the short term, that's for sure.

But if you can buy with the long term in mind, well, that's a different story.


Foxilady said:
24 March 2012 @ 22:05

Perhaps you are correct Leonardo, but all the indicators show that property prices in Europe and probably the rest of the western world will not rise within the next decade. The days of investment are over, and we are back to "living" in properties like the good ole days. Also remember its all about location, location, location - a simple and meaningful proverb.


Foxilady said:
24 March 2012 @ 22:09

oops sorry, i didn't post twice - not sure what happened lol


Carol Perrett said:
24 March 2012 @ 22:19

Don't forget.....it you get a bargain property.....The tax office will give their value (usually a year to the day after you bought it)....and you can guarantee it will be a lot more than you paid for it. They will then demand 7% of the difference in price from what YOU paid to what THEY say it is worth!!! Believe me this is happening. We bought for 135,000 in Feb 2008 and in Feb 2009, they said the property was worth 175,000 (bearing in mind property prices were on the way down the toilet at the time)....They sent us a bill for 7% of 40,000 Euros difference.....nearly 3,000Euros payable NOW. No chance to argue/appeal etc....just pay or they embargo your bank account......No money in bank???? Then they embargo your house. So sorry to burst the bubble of your dream bargain.....It does not exist.


Megan said:
24 March 2012 @ 22:48

Hi Carole, you are so right and in our case, we sold a small plot of land 240m2, in a rural area in the north of Tenerife for 10,000e,
4 yrs later they sent us a letter saying, as far as they were concerned it was worth 34,000 and we had not declared this value,
so we owed them the extra tax, interest as well as a fine !!
Nothing we could do, or they would embargo our account. Charming people !! Cost us over 1000 e, and I am still waiting for the fine of 150e.


Ros said:
24 March 2012 @ 22:58

Hi Leonardo. We've got two lovely houses for sale - we used to live in the one and have built the other one, because we had a piece of land to sell and no-one wants to buy just land today, so we've done the hard work and built it. Both houses are in their own grounds with private pools and fabulous views - located in a great village (no estate agent fees, because they're both ours). One is 275,000 euros and the other is 225,000. If you're interested you can email us on serendafydd@yahoo.co.uk. In any case, good luck with your search - you're sure to get something good.


Foxilady said:
25 March 2012 @ 00:31

oops sorry, i didn't post twice - not sure what happened lol


sanjosespain said:
25 March 2012 @ 11:46

The property market is not dead, properties are still selling. There are those sellers still hanging out for the prices they expected 3 or 4 years ago, and they will continue to wait. However, in the last two years we have seem some interesting example of properties that have been priced to sell (as opposed to priced to "test the market") and they have been sold, no problem. We have a couple of really good properties available, the owners really want to sell, the prices are realistic for today's market.


Foxilady said:
25 March 2012 @ 13:17

oops sorry, i didn't post twice - not sure what happened lol


Foxilady said:
25 March 2012 @ 17:56

oops sorry, i didn't post twice - not sure what happened lol


Happy said:
25 March 2012 @ 22:38

I must disagree with Grumpy of Lebrija (24th March @ 11:44); we didn't pay twice the local price. The properties weren't cheap, but they were being marketed in the UK in 2005/6 at the going rate. A shared pool was felt to be a necessity for that market at the time. But times have changed, & not many UK buyers were able to complete. Supply & demand has dictated that prices are lower now, & not just in Spain. The price of Grumpy's property & his neighbours' has gone down, like everywhere else, but not by half! No surprise that the Developer is now, after 6 years, discounting the few remaining properties by some 30%.


Rob In Madrid said:
25 March 2012 @ 22:41

Why not rent and skip the hassle of owning, particularly if your retired and only planning on living here for a few years, it keeps your capital free. Rents along he over built cost are cheap and if you get a bad poorly built unit you simply move.


Campbell D Ferguson said:
26 March 2012 @ 11:46

The extra tax payment shouldn't come as a surprise as your solicitor should have told you. Go back and ask him/her why she did not.
The minimum value tax authorities will accept for any property in Andalucia can be found at
http://www.juntadeandalucia.es/economiayhacienda/apl/surweb/consultas/bienesUrbanos/valUrbana.jsp You can appeal it, but there is only a short time and you really have to have proof that its wrong generally and not just your purchase.
Tax authorities have had to do this because of under declaration of sale prices by people paying 'B' money to avoid tax.


John Scott said:
28 March 2012 @ 12:59

Some of the comments posted here are accurate, many however are pointlessly negative, buying in Spain is unlikely to show a profit in the short term, but why is that a surprise? does every single buyer expect the same return as a professional investor? Are there too many TV programmes suggesting we can all become property develepers, with no formal training, and can "flip" properties and make substantial gains? Back to reality, Spain is still the best accessable sunny destination in Europe, prices are currently the lowest for years, I agree other prices have risen, (where havn't they) but this should not put people off buying, if you want a fabulous climate, good food, great wine, and a two hour flight home, often for next to no money, where else are you going to buy? There are many more important issues to buying in Spain, than whether you will make a profit in the short term or not.Come on guys (and girls) wake up and smell the coffee, there are tens of thousands of happy and contented property owners in Spain, and I'm one of them.


John Scott said:
28 March 2012 @ 23:50

Some of the comments posted here are accurate, many however are pointlessly negative, buying in Spain is unlikely to show a profit in the short term, but why is that a surprise? does every single buyer expect the same return as a professional investor? Are there too many TV programmes suggesting we can all become property develepers, with no formal training, and can "flip" properties and make substantial gains? Back to reality, Spain is still the best accessable sunny destination in Europe, prices are currently the lowest for years, I agree other prices have risen, (where havn't they) but this should not put people off buying, if you want a fabulous climate, good food, great wine, and a two hour flight home, often for next to no money, where else are you going to buy? There are many more important issues to buying in Spain, than whether you will make a profit in the short term or not.Come on guys (and girls) wake up and smell the coffee, there are tens of thousands of happy and contented property owners in Spain, and I'm one of them.


PAUL BAXTER said:
02 April 2012 @ 17:12

Hi Leonardo. i have a 2 bed, 2 bath property on Medina Elvira 10 minutes from the centre of Granada in lovely countryside which i am looking to sell. Paid €244,000 + iva tax but would accept €165,000 if interested?
Paul Baxter


PAUL BAXTER said:
02 April 2012 @ 17:14

Hi Leonardo. i have a 2 bed, 2 bath property on Medina Elvira 10 minutes from the centre of Granada in lovely countryside which i am looking to sell. Paid €244,000 + iva tax but would accept €165,000 if interested?
Paul Baxter
email paulbradgate@aol.com


Campbell D Ferguson said:
07 April 2012 @ 15:51

Regarding prices, its recently been announced that the banks in Spain are being forced to put all their property on the market to get their liquidity in order.
This is perhaps the start of the good news. At last we can see an end to the downward spiral, though it's some time away and we are not at the foot yet. Everyone has known, but it's never been formally acknowledged, that the Spanish banks have not valued the property to actual market level. Now they will be forced to do so, either by sale of the property or by having such a quantity of property marketed and sold at low prices that higher valuations cannot be maintained. If they had honestly declared the collapse of assets as it was, in the same way as those banks in Ireland and the UK, yes the short-term loss of face would have been substantial, but the long drawn out damage that is currently being done might not have occurred.
For private sellers, without the ability to offer mortgages to buyers, the prices will have to fall even more to be competitive. This, plus the costs of purchase and sale, will mean that any buyer of bank property will immediately be in negative equity of 20+ per cent. Only the best properties, by location and facilities, will be bought by occupiers who are not looking for instant capital gain, but are seeking an ideal home for themselves. The other buyers will be speculators who will negotiate with the banks to sell at even lower than their discount prices and be prepared to hold the property for a few years until the world economy drags Europe and Spain upwards and out of its present malaise. Keeping these properties in condition to occupy and paying off the community and local taxes, will be a cost that the speculators may not be prepared to cover until the property is sold, with the result of starving local communities and town halls of current income from these 'assets'.


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