The New Year brings a good panorama for property buyers and investors who are keeping an eye on the distressed Spanish property market. Better prices; higher stock; promising margins to negotiate; stronger rental market; the will of authorities to deliver security to foreign investors; are, in short, some of the key points for investors and homebuyers in Spain in 2011 – and maybe in 2012 as well.
1. Better prices for buyers in 2011. Property prices and land prices have dropped in 2010, an average of 5% to 10% in cities; whereas the fall was between 30% and 50% in coastal and second residences. Furthermore, the Government, banks and property agents claim there will be a further drop in 2011 in order to reduce the property stock, which should be around 1 million units by now. It is a general desire that the market needs lower prices in the New Year.
2. The market has started touching rock bottom. 2010 started as the year in which the market showed signs of recovery but the year has finally ended up with unexpected negative statistics on sales. In 3Q/2010, property transactions have sunk by 48.3% compared to 2Q/2010, according to the always controversial official statistics. Such a percentage related to 2Q/2009 is 26.3% lower. This means the lowest property transactions since 2004.
3. Banks’ mortgage conditions are susceptible to negotiation… for once! Given the need for banks to reduce their property stock, they have already advertised mortgages (for buyers of bank assets) free arrangement fees and even zero notary fees (the bank pays the notary bill). This gives you an idea of how far you could negotiate with the bank. We recommend getting rid of the classical 0.5% arrangement fee. Also, let us think: will it be worthwhile asking for a fixed rate rather than a variable one if the Euribor keeps rising again?
4. More security guarantees for foreign buyers. The Government is ready to launch, in January 2011, a Cabinet formed by Real Estate and banks to re-strengthen the legal framework for foreign investors, in an attempt to attract buyers by delivering confidence and legal security. Personally, I am not sure how it will work but, just in case, you should still have a reputable lawyer to help you… do not go on your own!
5. Buy-To-Let as the short-term strategy. Unless you are a high-end investor with your clients’ portfolio, the economic situation in Spain does not give hope for reselling in the short- and mid-terms. Not only will it be difficult to find a buyer but also the prices will not pick up enough to grow a profitable yield in just a few years, by the time a buyer appears. Buy-To-Let is the short-term option for investors. Soft legislation may play against landlords but there are proper ways in which to tackle the consequences of having ‘bad tenants’. In 2010, the rental market rose by 23% whereas properties to be rented increased by 41%. Our experience in the rental market is good. We recommend you go for it.
6. As usual: location, location, location …. + property specifications. Avoid subprime properties. Subprime tends to be easy to identify. Subprime properties in Spain are in poor locations and are bad-quality properties: poor building specifications, no lifts and frequently they need expensive refurbishment.
7. The best opportunities will come from those in need to sell. If a bank’s portfolio is the largest in the country, it should be because its stock is difficult to sell. Indeed, generally banks have the worst properties in Spain because the owners could not sell or rent in order to repay the mortgage. Spanish local estate agents are giving you the opportunity to find private sellers who need cash and want to sell a good flat or house. If you have the time and ability to work locally, you have a higher possibility of succeeding in the Spanish market.
8. It is openly recognised that nobody relied on statistics in 2010. Forget them and think locally in 2011. Being honest, statistics are not reliable and Spanish professionals know it and also made it public in forums and social networks in 2010. Ignore the big figures and stay local in order to have your micro-market analysed. Again, local estate agents will help you to be accurate and inform you of the local average price of the location in which you want to buy.
9. Banks will still be driving the market in 2011. Banks are not only holding the largest property portfolios but also they are also using their financial strength to tip the balance towards their own business. Estate agents have reported that banks only finance their own banks’ investments. Despite the fact that banks’ portfolios do not seem to be good, generally, they are ready to lend money to reduce their stock as long as the buyer has some payment guarantees. Banks are the easiest option.
10. Expect local tenants wanting to pay in cash. To open and run a small professional business in Spain is very expensive. Black economy in Spain is the most popular way to avoid tax and, unfortunately, we could say that it is common; especially in these times of crisis. According to Europa Visa, black economy in Spain represents 20% of the GDP. A declared business is three times more expensive than a non-declared one. Therefore, professionals in recession do not have many more options than to operate business in the black market. It is difficult to trace, but bear in mind that professionals in active are capable of paying the rent in full but in cash.
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