Over the last few weeks and months I have heard and read literally hundreds of negative stories about the property market in Spain. Wasn’t it strange then that I was actually paying far more attention to the property magazines and for sale sections of the local Spanish newspapers, if the market was that bad with major estate agents like Viva Estates and Ocean Estates along with a reported 40,000 others closing down or in serious danger of going out of business, why am I so interested in potentially purchasing my first Spanish property now?
The reason I am looking is that there are bargains to be had in Spain at this time and although this is clearly not a good sign for the market in the short term, there seems little doubt that the Spanish market is expected to become strong again as there is quite simply a staggering number of people looking to live in the area or own a holiday home in Spain for short breaks. UNWTO (United Nations World Tourism Organization) still has Spain as the being the second most popular destination in the World above China, the US and the UK.
A report in the popular Marbella Essential Magazine from well know estate agent Engle and Volkers, says that the current negativity is only limited to certain aspects of the market, namely certain locations and property below the €500,000 level. Engle and Volkers believe this is ultimately due to a huge glut in property in these areas and at the lower price points.
The market does however, offer opportunities to another subset of potential buyers. Traditionally in Spain during the boom period buyers would need to pay 30% initially on a new property in the form of a deposit and then an additional 10-12% in tax and other closing costs, which means that to buy a modest €200,000 apartment the buyer would require savings of €80,000. Not many young people living in Spain or wishing to live in Spain were in a position to purchase under these terms and so a large rental culture was created. In the current climate, with people desperate to sell and prices slipping, coupled with inflated bank valuations, it is relatively easy to purchase a property in Spain with zero outlay.
Young people with modest yet secure monthly incomes but with little or no substantial savings can borrow 80% of the inflated property valuation covering 100% of the purchase price, and sometimes substantially more, allowing them to cover all closing costs. It is true that at this time the cost of borrowing has increased but there are opportunities that were not available previously for mid term investors with low investment capital that didn’t previously exist.
The market in Spain tends to perform in cycles, but never boom and bust. It is true to say we are on a downturn at this time, but with visitor numbers of the like Spain can attract year on year, its time will come again! The question is; will you have regrets, or will you be sitting pretty?By Gareth Milton
