Local and International Economics - Which way will values go?

24/09/09

All our lives are affected by other peoples' economics. National economies have their troubles, with Ireland and the UK, traditionally providing the majority of foreign buyers on Costa del Sol, being weaker than most. It is likely to mean that there will not be so much optimism around and therefore people are more likely to save than to invest in holiday homes. On the other hand, Scandinavia, Germany and France are reportedly coming out of recession so optimism may be rising there. Also despite a country's overall economic performance, there are always individuals who are making significant amounts of money, such as those still receiving substantial salaries and bonuses, who will have surplus funds available to buy down here. Lower down the market, inheritance and divorce can also provide a steady supply of potential buyers at the right value.

Spain's economy, by all reports, is in serious trouble. The level of unemployment is still increasing, with that in Andalucía and especially Malaga being particularly hard hit. This all moves money out of the working economy and again reduces confidence. However, as with other countries, there will still be people making substantial sums in Madrid and Bilbao, who will be looking at buying a place in the (warm) sun. The other advantage of Spain's economy being low is that the cost of living here could well drop as businesses try to capture a larger share of the diminished market. Golf and hotels are leading in that as they find that there is not a limitless supply of clients, as these now have significant competition from other competing holiday resorts, often in countries where the cost of holidaying is substantially less than in Spain.

So we might see a return to the days when Spain was a relatively cheap place to be, which is good as long as one's income is not directly raised from the local Spanish economy. House valuations too have dropped substantially and still may have some way to go. The banks still have their huge supply of property, all of which is building debt from regular costs such as community, IBI, etc. As these unpaid costs build, we may see Communities having serious problems in maintaining gardens and other common areas, which results in a further downward spiral of valuations. This is all eating into the banks' liquidity and they must release many of these properties soon at whatever value they can get. It is probable that we will see a rush of cheaper property prior to the end of the financial year as banks and other companies that are holding properties try to 'liquidate' them to make their year-end company asset valuations and accounts look better. In addition, owners who've been hanging on in the hope of buyers are now becoming more desperate and realising that, whatever the bank has valued the property at in the past, it's the property with the lowest price that is sold. The few buyers that there are, are achieving some spectacular bargains with already reduced prices being further discounted. With their success, other friends and acquaintances are encouraged to become potential buyers.

So we believe that there will be a continuing drift down of values until the end of the year, but that hopefully from then on prices will stabilise and move forward as the economies gradually rise out of the recession. As has been pointed out by others, we are coming to the end of the supply of off-plan, pre-sold properties being completed and thus the number of recorded sales is likely to tumble in the short term, reaching a steady level which has been it's true base for some time. Despite the statistics that will show a statistical fall in the number of transactions, those wanting to buy now can be reassured that, unless there is a substantial collapse of the Euro economy, a well negotiated purchase now is unlikely to see a significant drop in value and could well be identified as having been bought at or close to the bottom of the market. Once it starts rising, sellers will become aware and be less likely to negotiate. Costa del Sol is indeed fortunate in sourcing clients from all over Europe as possibly the most established infrastructure for living in the best year-round climate.

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