You Can Profit From Spain’s Distressed Property Market

Published on 29/09/2008 in Investing in Spanish Property

Great buy real estateA plethora of “distressed” or BMV (below market value) prospects are being promoted by those real estate agents who are still active in the Spanish market.

Should you consider this as an opportunity or something to steer well clear of?

The reasons for this stock of properties becoming available are many, varied and entirely plausible. However, the situation is dire with daily increases in number of prospects coming onto the distressed market. The quality varies but the depth of the stock from individual villa properties to entire developments makes for a very dynamic market.

Demonstrating all the attributes of a “buyer’s market” the only thing lacking in Spain to support that description currently are the buyers of three to ten years ago.

Spain, let’s make no bones about it, is suffering as a result of various issues that are special to itself. In addition to the “credit crunch” in all its manifestations, Spain’s property market has seen:

  1. Developers collapsing
  2. Excess supply – as a result of misjudged property expansion
  3. Off plan purchasers being unable or refusing to complete
  4. Screwball valuations
  5. Mortgage defaults
  6. Dodgy Town Hall officials and 
  7. High Purchase costs.

But then again, looking for a reality check from the World’s Financial Institutions – I give you Northern Rock, Lehman Brothers, HBOS – the list, regrettably continues - the World’s Stock and Commodity Markets, the performance of Pensions, the UK base rate, the Euribor and Investment and Unit Trusts – could we really trust our so called Financial Professionals to park our car without scratching it! The party has been screwed up by greed and short-sightedness. It’s high time for us to question in whom we place our trust. We should be more hands on in terms of assessing risk for ourselves, seeking out opportunities and seizing those prospects that tick our boxes.

This is not the first time, and I suspect will not be the last, that Spain, or more likely various enterprising property investors, will see the glimmer of a ready profit from the current distress in Spain’s property market.

The recession of the early 1990’s allowed Northern European purchasers to hoover up Costa bargains that with the successive boom went on to be worth may times their original purchase price.

OK cards on the table – all else being equal as an investor in property what am I looking for.

• Security – an assurance that my property is not going to be repossessed or bulldozed.
• A fair wind to an exit route in a few years after bagging an appreciable capital gain.
• A bolt hole from the “English summer” – would be nice.
• Oh, and in the interim, some yield would be helpful.

Town Halls all over Andalucía are charged with the responsibility of cleaning up their act, assessing those developments that are legitimate – or which can be legitimised – and bringing certainty back to the market.

This will add substantially to the security that is uppermost in the minds of potential purchasers who have seen appalling pictures of bereft owners of properties in Almeria as their homes – often corruptly built on “green land” - are reduced to rubble.

Crystal balls aside, and at the risk of the lesson of history discussion, we are confident that over time a purchase of a well located, well constructed and consistently desirable property on Spain’s Costas should satisfy the capital gains aims of an investor purchaser.

Whilst this is simply not an exact science, it should be noted that certain market analysts, such as Morgan Stanley’s Bart Gysens, are forecasting that the Spanish residential market will stabilize by 2011.

Some rental activity – off the back of well run property and rental management - and some family use should contribute to delivering a yield that should have the effect of “wiping its face”.

Ideally the property should be located no more than an hour from a major arterial airport – which should be large enough in terms of its own planning to ensure that the carriers will continue to run a cheaper priced service when they have shut down under performing routes at regional airports.

Much talked about as a “lifestyle” purchase, I am convinced that there is none better. As if a barometer to this reality I have been asked three times over the last couple of weeks to contribute to up beat pieces being made by different major UK TV companies who clearly recognise that presenting “disaster” in the Sun pieces has reached the top of the boredom threshold of even the most virulent Hispanophobe.

Combining my experience in Spain over the last six years and my day to day knowledge of the expectations of investors and leisure purchasers in this market, I have just completed – to be published on Thursday 2 October 2008 at
 - a 14,500 word E-book entitled:” A TRG Handbook: Buying Distressed Property in Andalucía”.

In the TRG Handbook we explore the various ways of valuing property in Andalucía, the wide variety of sources of “distressed” property, the manner in which it can be bought and the pitfalls inherent in its purchase, the wary games that need to be played when dealing with the sellers of such property and the compelling arguments as to why it makes sense – but only if the price is right! 


Written by: Mark FR Wilkins

About the author:The Rights Group SL
0034 600 343 917

© The Rights Group SL 2007 (Marbella)

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Tom R said:
04 October 2008 @ 16:56

I would be interested to find out if property,s on the costa blanca are dropping as well. The article was very interesting to read.
Tom Robertson

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