Blog Post

The Euro Crisis: Spanish Property Under Threat

Tips on key points to decide whether to buy or not to buy in Spain?
The financial crisis has reached a new peak after the bail-out of Ireland. The pressure is now on Spain (and Portugal). The Spanish financial problem differs from the Irish one, but it is still bringing a debate as to whether Spain needs a cash injection from the EU as has happened in Ireland. Whether it does or it doesn’t, the Spanish financial situation is still complex and has significant implications for the property market in many ways.
It makes sense to ask yourself ″Am I going to slip up?″ when buying in Spain.
To buy or not to buy in Spain? It is a difficult question. Let us be honest. The right answer “depends of your strategy”. I would pay attention to the following key points of all the financial mess affecting property market:

  • Unemployment & Purchasing Power Influencing Housing Demand and Affordability.This is probably the most difficult factor when deciding whether to invest. Affordable rent is also a big challenge for the charming Spanish people. Unemployment is high (20−22%) and certainly it will be higher in 2011 with the new cuts that changes in economic policy are going to bring.
    Even the Prime Minister has accepted that.It is going to get tough for you to base your investment strategy on the local rental demand unless you work with the right professionals in the market you want to focus on. We are of the same position with wages: they will drop because of market competitiveness.
    Civil servants already have a wage cut from the Government, so it is expected that salaries in the private sector will also be slashed. Further cuts in other sectors may happen and we hope that there will not be civil servants jobs cut like as is planned in Ireland. It will affect purchasing power in the rental market dramatically.

  • BuyToLet. We strongly believe that Buy−To−Let is the best investment that you could make in Spain in the coming years. The problem is that with official unemployment rising, inflation and higher taxation, the black market will become more prevalent and it will be difficult to acquire track records of potential tenants if you are buying to let. Again, get a good property management company to find reliable tenants and secure payment guarantees. Buy to Let is an excellent option now in Spain (probably the best).

  • Prices. The most attractive part of the current market is the prices. Prices will drop more in 2011 but it should not seriously affect properties in good locations and of good quality. The paradoxical point is that inflation is going up yet property prices are going down.

  • Market Supply. The market supply is Spain will be greater in 2011 in terms of quantity, but not quality. There is a shortage of good quality properties, whose prices will not be dramatically affected. A challenge for property buyers is to find new developments in strategic locations (good off-plan investments)

  • Mortgage. In Spain, the availability of credit is very restricted. If you secure your own finance through a UK bank or broker, it will be better and also you will probably have better interest rate.  Otherwise, go to a Bank featuring a promotion, put down the right deposit and secure the property and mortgage from the Bank.

  • Currency. If you are a UK buyer with pounds, you have an advantage. The exchange rate has slightly improved and may get better. However, it will go in your favor to pay the deposit from the UK.

  • Nevertheless, if you are a high end buyer, you do not care much about what is going on in terms of your investment performance since we presume that you play in the Premiership.

  • Advice: do not buy yet unless you really need to invest your cash or find a good bargain. Do not rush! Prices will improve in 2011. Keep an eye on our next features to follow up how the market is moving!
    Articles related to this post

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  • What’s really happening on the Spanish property scene?
  • Some Q&A about the Spanish Property market today (2012)
  • The mortgage strategy of the Banks
  • Are Spanish Banks a junk box of properties?

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