Spain - The Emerging Market

Published on 15/11/2006 in Investing in Spanish Property

Please note that the information provided in this article is of a general interest nature and intended as a basic outline only. You are well advised to contact a professional for advice specific to your circumstances. Nothing contained in this article should be seen or taken as the writer or publisher providing legal or financial advice. Every attempt has been made to ensure that the information contained in this article is correct at the time of writing.

“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.

Written by: Mark FR Wilkins

About the author:The Rights Group SL
mark@therightsgroup.com
www.therightsgroup.com
0034 600 343 917

© The Rights Group SL 2007 (Marbella)




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