It's a Buyer's Market

Published on 09/01/2007 in Buying Process

I had an email from someone the other day, let’s call her Ruth for the purpose of this article, which made me realise that there are still many people that don’t understand some of the “usual” tactics used by estate agents in Spain.  I’ll come back to Ruth in a minute.

I have also been reading various articles on other Spanish property websites which talk about the doom and gloom of the Spanish property market.  Whilst some of it is true it really depends on how you look at things, what’s one person’s loss is another person’s gain.  Is the glass half full or half empty?

OK, so what am I getting at here?  Let’s get back to Ruth’s email.  She’d seen the details of a development on an agents’ website and upon enquiring as to availability the agent told her there was just one property left….and she better hurry as it won’t be on the market for long.   Really?  How many times have we heard that!?  Yet Ruth, getting all excited about buying her dream home in Spain got totally sucked in and emailed me asking if I knew about this new development and could I be quick as there was only one property left…she was just about to put her deposit down!

I respond politely (as I always try to) and informed her that there is no such thing as “just one left”.  There are always resales available on any new development.  In fact, there are resales anywhere and everywhere. As she hadn’t even been out to view the development I advised her not to part with any money until she’s spent some time really researching properties, locations, facilities, agents, etc.  In fact, I can’t even understand how anyone would consider buying a property abroad without even viewing the area first.

This leads me on to the “doom and gloom” articles.  I don’t want to mention which websites have published these articles (but I know why they have done so) but the people who write them live in Spain themselves and it’s the real estate industry that earns them their money.  In fact, without the “doom and gloom” they wouldn’t have a business.

Now, I am by no means a property expert.  I don’t invest in property myself but I have spent the last year researching and viewing properties in my area for personal reasons.  I also read ALL the Eye on Spain forums every day and talk to many agents on a regular basis.  Therefore, this is my take on the state of the real estate market in Spain today…

If you’re a new buyer then you’re laughing.  If you’re a seller…well that’s a different story.  It really is a buyer’s market at the moment.  There are just so many properties on the market at the moment that you can literally be fussy, take your time and haggle.  Nobody needs to be rushed into anything…not even Ruth.  There also seems to be a huge discrepancy in prices, especially with some people selling off plans for less than the developer’s current prices.

Buyers also have more information at hand available to them than ever before so that they can truly understand what’s involved and not make the same mistakes as those that went before them.  If you’re looking to buy off plan, which less people are these days, you can check what’s being said about that development on Eye on Spain.  If it doesn’t sound good walk away.  You can check up on individual developers on forums, read articles on just about anything to do with buying in Spain and read stories from people who have already done it.  I don’t think these days anybody should say “I didn’t know about that”.  There is information overload on the Internet and it’s all free advice.

For any buyer the main piece of advice I would give is to do your own market research.  Make sure what you’re going to pay is reasonable for that property.  Check on various websites to see what resales are available on a particular development or area.  There are so many properties available in any area that you have to make sure you don’t pay over the odds for one.

I was talking to a friend the other day who’s an estate agent and last month, which is normally the quietest month for real estate agents, he told me that he was really busy!  Busy listing properties for sale.  There are just so many.  Have a drive around and look at the number of “se vende” signs you see.  But why are there so many?

Investors.  Two to three years ago when the market was really buoyant many investors bought handfuls of properties hoping to sell for huge profits now.  But too many developments and too many investors have saturated the market today, particularly two bedroom two bathroom apartments.  If you want a bargain then look for these “distressed sales” where investors are desperate to sell.  There’s loads out there.  Ruth, take note.

So for those looking for property things couldn’t be better.  What if you’re a seller?

If you’re a seller the market’s tough, very tough indeed.  Talking to agents they always tell me the same thing, “anything sells at the right price”.  Probably true but many people are still reluctant to walk away without making any money, or even a loss.  Yet they’re stuck with properties at unrealistic prices.  At the end of the day buying a property as an investment is just that…an investment.  You take a risk, sometimes you gain and sometimes you lose.  It may sound a bit harsh but I don’t invest in anything myself which I couldn’t afford to lose.  An investment property is no different.

Now for the compassionate part…

My heart truly goes out to all the honest and “everday” people who have used their hard-earned cash as a deposit for an off plan property only to have their dream ruined because developers cannot for some reason just build on approved land.  Spain is a huge country, why the need to build on protected land?  Why build without the proper licences in place?  There is surely only one answer to this…greed.  Greedy developers and greedy mayors (many of you will already know I don’t like mayors very much).

The problem is that it’s always the “ordinary” person that loses out here.  We get hundreds of emails from desperate buyers every month.  Some have put in over 30,000 Euros only to find that their development has been stopped because it’s being built on green land.  Will they get their money back?  They should do but they’ll probably have to fight for it and they’ll probably lose money in the process.

One of the worst stories we heard about was a development in Mijas where even the bank guarantees were fake.  When the developer went bust those that had put their deposits down lost it all. 

It’s these ordinary people that I really feel for.  These are the people that we want to help as Eye on Spain and we have some ideas on it for this year…more about that coming soon!

At the end of the day most people actually have no problems at all with the purchase of a property in Spain.  In fact a survey that we carried out recently showed that 75% of people were more than happy with the whole buying process.  The “happy” people rarely contribute to forums telling everyone how well their purchase has gone.  You generally only hear about the bad things that happen and bad experiences.

So, doom and gloom?  If you’re a seller then perhaps yes.  You’ll need to be realistic about the true value of your property if you really want to sell it.

If you’re a buyer then be happy.  This is your year.  Doom and gloom?  No way.  There’s never been so much choice.  There are some great properties around at some great prices.  Ruth, take your time, look around, do your research, there really is no rush.  There are some good agents in Spain it’s just that some spoil it for the rest of them.  It’s a buyer’s market out there….go get it!

Written by: Justin Aldridge

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Comments:

julirams said:
19 January 2007 @ 19:48

Still in quandary! To get onto the Spanish property ladder we invested in a 2bed 1st floor property at Duquesa Village, phase 2 nearly 4years ago, with view to renting out until our retirement in 7years time, completion is imminent. After the long wait, we are now not sure whether to try to sell before/after completion or hang on to it. Does anyone know the renting potential in this area?


Gordon Whattam said:
16 January 2007 @ 19:40

Your E-Mail was very helpfull who are the best estate agents on Costa Del Sol Thank You


jaldridge said:
11 January 2007 @ 15:15

Hi Roger

The price really depends on the competition. If the developer has any properties left nearing comletion then it means that the demand for properties there is low. You also need to have a look around (agents and websites such as www.kyero.com) to see what other resales are going for. The reason people can sell below developer prices is that developers sometimes put prices up after the intital ones are sold. Therefore, if you bought early then your buying price may already be less than what the developer is currently selling at. Therefore, if you can sell at your original price you may undercut the developer. But it really depends on your particular circumstances. Justin



Roger Davis said:
11 January 2007 @ 12:57

A great unbiased and independant piece , Justin.I do have a question re selling but not sure if you will be able to answer it.You mention that some people are trying to sell off-plans at less than developers prices and also that sellers need to set realistic prices.When we originally arranged to purchase our off-plan property we fully intended to retire there but due to a series of delays , which now run to 18 months after the projected completion date , we have lost our enthusiasm for our plans and we are now thinking of selling -on after completion -- this is at Sierra Golf in Murcia.However , after completion,when we go out to organise the final legal requirements,it is possible that we will fall in love with the idea once again.
But,assuming we do decide to sell,we have no idea at what price .Realistically,in order to obtain a reasonably quick sale,what percentage below the developer's current price would we need to set our price? Any thoughts and guidance from you or other members would be greatly appreciated.
Regards



jaldridge said:
10 January 2007 @ 08:47

lytton, I personally like what Polaris have done and are doing. They have some good properties at some great prices and they (most of the time) have really thought about their projects really well. As with any development it really depends on the level of investors who are buying on it. If 50% of the buyers are investors wanting to sell before completion then this will obviously make it harder for all the properties to sell. I suppose you come under this group yourself as you are hoping to sell one before completion.

If you're buying for personal use it's not a problem. As an investment, selling before completion is not always easy but there is always a strong short and long term rental market there should you be unable to sell the property.

Justin



lytton said:
09 January 2007 @ 20:50

Justin

After reading the latest comments on the staet of the market in Spain, I'm still left confused on my decision to buy. You see, I am one of many who is in the process of buying on the new Polaris World site of Jardines de Alhamba in Murcia. Your initial report and interview with the guy at Sunseekers suggested that this development was one to "buck the trend" but ever since I have read mixed feelings about it. I will probably still go ahead with my purchases(I have deposits on two) but sell one before completion and keep the other. The main reason to keep one is that I have always wanted to own my own place in Spain and these prices allow me to do that. If prices rise above that of what I would get if my cash was in the bank, a bit of a bonus but I'm learning to be realistic over the next few years over the costs in general. Since your initial favourable comments about Polaris World, have you changed any of your thoughts on these developments particularly the new Jardines in Murcia? Your comments as a "neutral" expert would be appreciated, along with other peoples to either think I'm doing the right thing or not.



Roberto said:
09 January 2007 @ 19:05

Good article, as usual, Justin, and I agree with the comments from roncooper & martin_dubai. One thing I'm not entirely convinced about, however, is this so called "buyer's market". In my experience, there is never a shortage of choice; does this make it a buyer's market? 3 years ago we were looking for an apartment to buy in the centre of either Torremolinos or Fuengirola, and viewed about 70 apartments before buying one! On several occasions we offered the asking price for a property, only to find the seller then wanted more (unfortunately this tends to happen mostly, although not exclusively, when a Spanish seller discovers the interested party is foreign). A neighbour of mine, who has an expanding young family, tells me he is very keen to sell his apartment, and yet during the six months he has had it on the market, the asking price has steadily risen, as he looks at larger properties which he would like to move to, but naturally cost more. If this is a buyer's market, why in my experience will nobody ever accept offers or reduce their price? As for estate agents, I'm certainly no great fan of them either, although I do appreciate that like every one else, they're only trying to make a living, and again in my experience (from both buying and selling) frequently any discount obtained has come about by the agent reducing their commission in order to secure a sale. It's a competitve business, so whether you're buying and trying to get a bit of a discount, or selling and trying to get your price, remember to haggle with the agent! I'm talking mainly about resale (older) property here, although I think the same applies to new property. We bought off-plan last year and sold 11 months later making a respectable profit, although I haven't succeeded in finding another suitable investment yet, largely due to the over supply and high prices, which make quick resale almost impossible now. As for the disaster stories of people who bought on illegal developments, I have no experience of these types of developments. I have always preferred to stick to well established urban areas with existing infrastructure, where there is no doubt about whether the land is "green" or not. I'm constantly amazed that people buy in new places that don't even exist properly yet. If I was to invest in for example Bulgaria (which I wouldn't) I would only consider buying in Sofia (the capital) where your investment is pretty much guarenteed. Who in their right mind would buy in a "new" resort that hasn't been built yet?


roncooper said:
09 January 2007 @ 12:28

Nice piece Justin, I think you've got it just about right.
An investment is just that. Most ordinary people buy a place for themselves and in a slump there may be "negative equity" but it's not a real problem unless they are forced to sell. It's the same wherever you buy, not a Spanish problem. It's a market. Some would advise to buy big, now the market is down. But that's for investors not ordinary people.



martin_dubai said:
09 January 2007 @ 11:50

A very well presented and down to earth opinion and I wholeheartedly support Justin's comments.

I am actually one of the unfortunates who invested in an off-plan development 3 years ago - a matter of weeks before property prices levelled off. I was also informed by the real estate agent that it was “the last one available”. Furthermore, the purchase was purely an investment and I had every intention of selling before completion. The developer kept with tradition so the completion date was 18 months late. All a bit doom and gloom so far.

The real difference is that I went into the investment with a worse case scenario of ending up with a nice apartment in a nice part of the world. I also had excellent lawyers who negotiated with banks to secure a mortgage and I visited Spain last summer to collect the keys.

Yes, it is a tough market for sellers. I would be hard pushed to sell my apartment for what I bought it for 3 years ago but I have a nice property that I can rent out to cover the mortgage and my money is tied up in bricks and mortar. Who knows what will happen to property prices over the next 5 to 10 years? Perhaps my ‘investment’ will generate returns of 3%, maybe 7% which is better than stuffing cash under the mattress.

If you are looking to buy, my advice would be to thoroughly investigate the area you intend to purchase in, check out all the developments and, more importantly, check out the developer for reliability and integrity. I am not a great fan of lawyers but the company I used in Marbella were simply excellent and now I would not consider investing even a couple of thousand Euros without talking them. Real Estate agents in Spain are little better than second-hand salesmen and they will use every trick in the book to make a sale so wherever possible get referrals from friends or other people that have purchased property in the same area.

Finally, do not rush into anything. Prices are not rising rapidly and there will always be re-sales on completed developments, without any premiums. Don’t purchase on the basis of making a quick buck in 12-18 months (because you will be disappointed) and don’t buy something you can not afford to complete on. Go with the attitude that “I love the area, I love the life-style, I love the property”. If you happen to make a nice profit over a number of years then that is icing on the cake. If you are only in it for the money then may I humbly suggest you look elsewhere.


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