Market Values April 2007
In the mid-1990's, Spain's property market was 'Oh so slowly' recovering from the worldwide recession, with the Costa's having been very hard hit as the market had depended upon 2nd home purchases. However, the inherent natural assets were still there - sun, natural beauty, lifestyle and being the closest in a direct line south to most of colder Northern Europe and the inland mountain towns of Spain. The next decade, as world economies recovered, saw an exceptional list of circumstances boost the Costa's property market to great heights
External Demand
- Cheap scheduled flights permitting 'commuting' from 'home' to 'holiday' location;
- Computers, the internet and mobile phones enabling business management and other office work to be carried out from any location without loss of efficiency;
- Exceptional culture changes in Northern European countries encouraging emigration from them. Due to the above two points, permanent living on the Costas became possible whilst being able to still keep in touch with 'home' based family, business and social contacts.
- Increasing prosperity creating substantial amounts of wealth 'surplus' to normal living requirements and available to be invested in property.
- Poor performance of stock markets, pension funds, etc. resulting in loss of confidence in them as a place to save, with investment in property being a common alternative chosen.
- A low value base providing examples of exceptional capital growth, with that then being projected on straight-line graphs to encourage substantial speculative short-term investment.
Spanish Demand
- All the same to a greater or lesser extent as the External Demand.
- Spanish banks offering mortgages for the first time on increasingly easy terms with regard to length, loan-to-value and loan-to-income.
- Very low interest rates reducing the monthly payments.
- Substantial equity being available in Spain in existing property due to few prior mortgages and a tradition of home ownership.
- Cultural changes encouraging women to work and thus two incomes being available. Also 'relaxation' of traditional moral censure on unmarried couples living together and women living on their own.
- Releasing of pent-up demand due to younger generations being able to leave the parental home and own a house.
- Huge amounts of EU investment in modernising Spain.
- Substantially improved internal road, rail and flight infrastructure enabling Spaniards to realistically have a weekend property on the coast.
- The coming of the Euro and increasingly strong fiscal and money-laundering pressures 'encouraging' the legitimisation of substantial undeclared wealth through property development and ownership.
- The Spanish bank's having substantial ownership and/or control of development and construction companies, estate agencies and valuation companies, thus enabling them to 'seamlessly' transfer lending for the initial land purchase and construction on to the wider risk of the debtor base of mortgages to individual house buyers.
- The 'weight' of money and resultant pressures on bank employees to lend it out, creating circumstances where pressure on tasadores to over-value ensures the loans go through, but creating immediate negative equity for the borrower. However, the bank is secure as they effectively have security over all the borrower's assets and if these should fail it will be seen to be the tasador's fault for over-valuing.
- The borrower's confidence that property prices will rise to redress any imbalance.
- The construction sector being so dominant in the jobs market that there is no alternative for many employees. Thus they have to keep the development 'bandwagon' rolling to the next and the next developments, even if they 'know' that it doesn't make financial sense as there aren't buyers out there and the appraisals are overly optimistic.
Over the last two years, there has been an increasing awareness of the flaws in many of the above parameters and the weight of buying money has slowed back down to only those who want to own and occupy a property. That demand has been the steady core that will always be present. However, it's not nearly enough to take up all the properties currently available and under construction. Thus, in order to make their property comparatively attractive, sellers have to reduce their price below that of the others that are also being sold on the urbanisation by other failed speculators! So the market value falls and, once the financiers react to the lower values in their appraisals, the new developments will stop. Those owners and developers unable to sell and without capital to support holding the property for a longer term will 'collapse', with more property being offered at 'forced-sale' prices, which again will reduce the market value and so the spiral down with continue until all the property is bought by long-term owner/occupiers or 'recovery' investors. Those properties that are exceptional due to the popularity of location and/or attractiveness of specification will always be the least affected as their attraction to purchasers does not depend only on price.
In the long-term, property on the Costas will prove to be a steady investment as the natural assets will always be here, but like all other markets it depends upon timing of buying and selling. If selling, now is a time to face up to the fact that you've missed the high point, with a need to price realistically and sell quickly if you can. For the buyer, it's a good time to be cash rich, enabling strong negotiation and purchase at below 'market value'. However, remember that you are making the market and tomorrow the value will be the price that you paid!