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Insanity: doing the same thing over and over again and expecting different results

Construction on the Costa del SolSuddenly, 50 years ago, a whole urbanisation was built beside the main coast road, with homes being bought by foreigners and locals enjoying the late 1960’s boom. ‘Pop’ went that market in the recession of the early 70’s, but as the decade moved on, wealth and jet planes brought more vacationers, so the builders moved in again and created a few simple urbanisations by the sea. Another oil crisis and recession stopped that, with buyers and builders losing all, but the bricks and mortar lived on. As the wealth and confidence in the future grew again in the 80’s more urbanisations were built, with landowners with influence persuading the rudimentary planning authorities that their plot was better than the one next door, even though the building appeared just to have been dropped in the campo and didn’t even have tarmac roads from the coastal highway. 

Guess what? Yes, another recession at the beginning of the 90’s, jobs and businesses lost and more empty homes. But the demand is still there when the money or credit starts to flow again, so the 90’s and the new millennium saw increasingly fast development; as one was completed and profits were ploughed into the next two and so it multiplied. Everyone had credit, from individuals signing up for three or four apartments intending to sell the extra ones on at a profit and so have theirs for free; to builders, promotors and banks borrowing from those further up the line ‘creating’ assets to lend.

Surprise! The recession to end all recessions in 2007, with whole countries wealth wiped out. Nobody had money for anything, though all could see the opportunities for more. In recent years they’ve been able to reach out for those with gradually easing credit so cheap as to be no cost at all. After all, with countries creating ‘wealth’ with quantitative easing, there is such a weight of money out there, that must be put to use. All down the line, the pressure is on for borrowers to lend and make the money work, so that now we could be seeing some ‘optimistic’ short-term decisions being made just to ensure that the money goes out and the lending manager’s bonus is paid.

Is it to be different this time round, with us all having learned? Well, maybe tomorrow, but Municipalities and those who run them have debts to repay and the quickest way to do that is to issue building licences. And so in the 1,000 Ha area described before (see Home-building boom on the Costa del Sol, but is it sustainable?), the 26+ developments crack on with their marketing and building. The results are very promising indeed, with 40, 50 and 60% pre-sold, “only a few apartments/villas left”, “the sales office isn’t manned as we’ve sold everything”. There is interest from all of Northern Europe, but really can there be that many individuals and families wanting to live or holiday in this area? “Ah, well, many of the buyers are investors looking to sell on as the market rises or rent out to the strong holiday demand”. “Excuse me, but haven’t I heard this before, perhaps in 2005, 2006 and even, oh no, 2007!” 

As far back as 2015 there have been predictions of another recession in or around 2020. Are we being prudent and limiting development to a sustainable amount? How that can be as we run helter-skelter along the same path as has been done in the decades before. Yes, the banks have passed their crisis tests and are stricter on mortgages to individuals. But there is so much money now available through giant investment funds and they are the ones lending to the building promotors or even doing so themselves. They don’t have the same supervision and controls, but if they go down, the effects upon countries wealth could be just the same as before – and the countries and increasingly indebted populations no longer have the wealth to ‘rescue’ them. So as before, advice to the promotors is to build fast, complete and then study the world before ploughing the profits back into more speculative development. Indeed, we live in interesting times.

Market Report – 1st Quarter 2018

This is our 17th Quarterly Report. We have kept it brief and specifically relevant to the locations where the clients of the Survey Spain Network are most active. As part of the research, we have identified a number of wider and national property comments.

independent property valuations spain

The Overall Market – Increasing optimism with the first quarter being better than last year’s.

  • Generally, the agents we’ve talked to have been upbeat regarding sales and the future market. They all report that new properties are selling well, but that older, ‘classical’ properties are struggling, and prices continue to drop for those, except in the best locations. 
  • We have recently been asked to value a property on the beach side of Marbella’s Golden Mile. The purchasers intend to demolish the nearly 1,000 sq m property and build a new style, which illustrates the premium that can be gained for new. However, given that new build licences in Marbella are taking up to 2 years to be granted, due to the continuing planning hiatus, extensive remodelling would appear to be the better course as licences for that are understood to be available within 3 to 6 months.
  • As stated in the last few Reports, despite the comments above, we are still concerned at the amount of new construction being carried out, all along the Costa del Sol, with the probability of much of it coming onto the market at approximately the same time. 
  • There is still a considerable gap in price between the equivalent new and resale properties, which means that most purchasers of new property are going to be finding themselves in immediate negative equity. However, it appears that the presence of new materials and design is sufficient to encourage buyers to succumb to the superior marketing and elect for the new property. They are also being encouraged to view these properties by incentive furniture and other packages and agents encouraged to bring their clients by higher than standard agency fees.
  • Along the Costa del Sol, several agents report that they are finding that many older properties are coming onto the market due to families growing and spreading, leaving largely unused the increasingly elderly parents’ holiday or retirement home. The elderly owners prefer to have the money available to live on and are either going back to their countries of origin or renting smaller, ideally single floor homes and thus joining the already crowded rental market.
  • The market for inland properties is reported to be beginning to pick up at last. Again, the properties must be exceptionally located and to have no planning or building problems. In addition, increasing relaxation of the Regularisation (DAFO) possibilities for properties built illegally, is making it possible for all the paperwork to be brought up to date and owners able to live or sell with confidence that there will be no further fines or demolitions. 
  • Two agents have stressed the importance of having all the paperwork up to date, no matter how legal the property is. One agent instanced the situation where the historic title documents gave a size less than one-third of the actual size. It took 6 months and some costs to correct the situation, even though it wasn’t contentious and only the administrative bureaucracy had to be gone through. By that time the potential buyer was long gone and the property was being shunned as a ‘troublesome’ property by agents showing properties in the area. Unfortunately, this is a situation that we have found when valuing a number of mortgaged properties and could delay debt recovery and make it costlier in the event of a bank requiring to liquidate the security.
  • Brexit is now less than a year away at 29th March 2019. The reality of the change that is coming and the dashing of hopes of a change of mind by the UK will be increasingly concentrated into this short period.  Agents report that whilst there has been a slow down by some UK buyers, there has also been an increase in those wanting to make the move before the transition period starts.
  • Any slacking of demand by UK buyers has been ably taken up by other Northern European nationalities, with Estepona town alone seeing the opening of 4 or 5 specialist Nordic estate agencies to cater for demand from those countries.
  • The Spanish demand continues to recover, with many buying investment properties and the traditional town nucleus continuing to expand and new suburban areas created. As the local economies expand, so new buyers and especially tenants arrive to fill the employment opportunities created.

Pending legal changes that could affect property values?

This will be included when appropriate. However, we stress that we are not lawyers and thus can only comment to the best of our knowledge.

We are not aware of any new legislation directly affecting the properties. However, as local legislation can be created by the various government authorities in which the properties lie, there may be relevant legislation of which we are unaware.

Analysis of Statistics

  • Survey Spain is recording prices and valuations throughout our Network. Due to the limited number of properties and the even fewer number of reliable sale figures, we are only able to provide a meaningful analysis of prices and values for some Municipalities this quarter. However, as before, we have commented on the majority of the areas, with the opinion sourced from our valuers, agents and other sources in the areas.
  • Where we have insufficient information, we have combined information into larger areas.
  • As requested and also as this is the area with most activity, we have been able to provide more information on the Costa del Sol market.
  • Note that the rates per square metre may be averaged from a small number of properties in some cases. We have continued to supply these as we believe that they will show a trend over a number of quarters, whilst the variation between one quarter and the next may be ‘out of step’ with the perceived trend 
  • It should be borne in mind that we have few valuations of new property, with the majority being resales.

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The Importance of RICS Regulation

RICS logoWhen employing a Surveyor, a firm ‘Regulated by RICS is reassuring as you then know that as well as providing the service you need, it is also regulated by an internationally renowned and respected professional body. In a world where people, governments, banks and organisations demand greater transparency and certainty of professional standards and values, attaining RICS ‘regulated’ status is the recognised mark of property professionalism.

Survey Spain’s surveyors have all trained to graduate level and met the RICS entry standards that ensure all applicants and all new entrants into the profession meet high levels of technical ability. Thereafter, RICS members have to demonstrate that they have experience and maintain the highest standards of the profession. Similarly, Survey Spain has carefully selected the RICS members of their Network to ensure that they have wide experience and are living and working in Spain.  Continue reading

House Price Index Tracker Analysis

spanish house prices january 2018

Spanish Property Insight’s house price data graph above is a fascinating study of the vagaries of statistics. Of little use to individual homebuyers in specific locations, each index provides a general indication of where the compiler’s data shows the market has been and based on that, others make interpretations of where it’s likely to be in the future. Let’s look at these indices in turn.

Fomento – (Ministry responsible for planning and implementing Govt policy on Public Works and Transport) – presumably they will get their statistics from the other government agencies, being principally the tax authorities who are fed the information from the Registrars and Notaries. Thus, their statistics should follow these two. Their graph looks pretty constant with fewer fluctuations so perhaps it’s their statistical technique that is levelling it out.

INE – the National Institute of Statistics states on their website that one of their objectives is to provide an element of comparison between EU member states. The stated source is Notary information, so it should mirror the Notaries’ graph. Unfortunately, it does not. Perhaps, once again, there is a levelling out due to statistical methods and possibly also lagging information being received from the Notaries.

Title Registrars – this will record the actual price stated on the Escritura’s (title deeds) that are recorded in the local Registry. Unfortunately, this will not record the undeclared payments that are reputed to occur in many transactions. As I’ve stated in earlier articles, as the money-laundering regulations bite, there is less undeclared, which would give the impression of house prices rising even if it was a steady market. The Registrars graph still shows a gradual and steady pattern, though significantly different from the first two above.

Notaries – Now we are getting closer to the frontline of the property market. One would expect their graph to be very similar to the Registrars as the Registrar only receives the information via the Notary. Perhaps there will be a time lag due to some Notaries working faster at transferring information than others or their being complications requiring confirmation of unrelated matters, which again may delay the passing on of the information to Registrar. This could also be due to timing of titles being put forward to be registered, perhaps linked to tax dates and the like, and not even those of only Spain as the buyers and sellers come from all over the world. However, comparing the two graphs, they are wildly different, with the Registrars’ much more steady record being at considerable variance to that of the wildly fluctuating Notaries’.

Idealista – (resale asking prices) – this is a commercial multi-listing organisation. Private vendors can place details of their properties on the website for free, whilst estate agents have to pay for their bulk entries. They state that they have more than 1.5 million properties for sale or rent, but there appears to be no effective control to avoid duplication and encourage accuracy. Working as we do with estate agents’ online details, we know that one property can be entered three or four times, all with the same photographs, but with widely different floor areas, accommodation, description and prices. Some of the properties will have been on the website for many years, showing historic prices, whilst others will be short-term and regularly updated. As one would expect, this graph fluctuates, but not quite so much as the Registrars’ and Notaries’. There are significant dips and rises that are not reflected in any other graph, which may be is a result of them concentrating on resale prices and not new build.

Tinsa – this is one of the largest firms of mortgage valuers (tasadores), regulated by the Bank of Spain, and working on behalf of many commercial banks and lenders. To have a mortgage registered it is essential to have a Tasador valuation linked to the document. The tasadores obtain their information from the market, through multi-listing sites such as Idealista, Fotocasa and the like, but principally from their own statistical records, being previous valuations in the area. Whilst helpful for maintaining consistency in values, it does mean if there is any error that it will tend to spread through the valuations in that locality. In addition, as it’s much easier to access lists of valuations within one’s own organisation than to carry out searches through estate agent and lawyer contacts, and general Internet searches, there is probably a bias towards using their own figures, sometimes without checking with the market. In addition, the tasadores are obliged to put forward their value net of all selling costs, which can be 10 to 15% of the registered sale price, and this can be the reason for so much frustration and disappointment when buyers are seeking maximum mortgage finance depending upon a generous valuation for the property. Tinsa’s graph shows variation, but not nearly as marked as the Notaries or, interestingly, Idealista’s from whom they will get some of their market knowledge.

Making sense of it all

So how do statisticians employed by banks, governments, EU, IMF, etc provide accurate analysis of the property market in Spain? A graph line combining all the ones above, would undoubtedly show that there is a marginal upward trend from the depths of 2014 to today. That’s really all that one can ascertain from it. For homebuyers and sellers wanting to know what the current market value of an individual property in the local market is, the graphs are of little use. Yes, some of these organisations provide local statistics, which will be more helpful, but again they will be subject to all the vagaries mentioned above. The only way to really know on any particular day is to check what is actually on the market and have sufficient expertise and individual knowledge to be able to compare one unique property to another. That’s why property valuation is described as part art and part science, with valuers having to be psychologists ascertaining the mood of individual buyers and that which is ‘created’ by the particular property and its immediate environment.

Property developers and investors and, indeed, local authority infrastructure planning officials have an even more difficult time making sense of things due to the considerable time lag between initial conception of a project and it being supplied on the market. The former don’t know what is being planned by others in the same physical market area as their own proposed development, and thus there can be wild excesses of supply, such as can be seen to be happening now in some areas on Costa del Sol. The infrastructure planners know the applications that are being made but have no control over what will arrive the next day and only limited powers to control the market. Local and national politicians, who create the regulations, do have these powers, but they are also responsible for the finances of the government, which, in many local, provincial and regional areas are principally dependent upon construction licenses. Some, such as in the Balearic Islands, have been able to regulate construction and thus control the market, but this has been largely perceived as due to political dogma rather than a desire to genuinely provide a logical market serving everyone.

First published on Spanish Property Insight, https://www.spanishpropertyinsight.com/2018/02/13/house-price-index-tracker-analysis/

Quarterly Market Report – Autumn 2017 – 10th January 2018

q-report

This is our 16th Quarterly Report. As requested, we have kept it brief and specifically relevant to the locations where our Network is most active.

As part of the research we have a number of wider and national property comments.

The Overall Market – Concern as to the amount of new construction.

  • As stated in the last two Reports, we are concerned at the amount of new construction being carried out, all along the Costa del Sol. We carried out research in an area of 1,000 ha close to our office and the result edited slightly, was published https://www.spanishpropertyinsight.com/2017/12/21/home-building-booming-costa-del-sol-sustainable/
  • As before, agents confirm that there is continuing demand, but we have difficulty in believing that there will be sufficient long-term interest to absorb all the new property in addition to the many resale properties that are available.
  • There is still a considerable gap in price between the equivalent new and resale properties, which means that most purchasers of new property are going to be finding themselves in immediate negative equity.
  • As indicated previously, there is evidence that certainly lower value developments are struggling to find occupiers, with promoters offering full furniture packages as an incentive to buyers. Only this morning, we received notice from a developer indicating that commission to agents had been increased from 5% to 7% of the purchase price, again indicating that properties were not selling.
  • Against that concern, some agents report that they are having successes and are looking forward to 2018 being as good as the latter half of 2017. They tend to be specialist agents, either in a particular property value or restricted ‘always popular’ location. In addition, the number of agencies working on the coasts continues to increase and so any grumbling that there might be may just be a reflection of a larger cake being sliced more thinly to provide for more mouths to feed.
  • An example of this is an agent involved in La Zagaleta, arguably the prime location certainly on Costa del Sol, indicated that he has sold four villas, each in the region of 4 million €, within the last year. He then stated that if the 100 or so princes in Saudi Arabia who have been arrested, were banished from that country, it would create a boom in high-value properties and he was sure that the Costa del Sol, and La Zagaleta in particular, would benefit from that! Perhaps an outside bet, but stranger things have happened.
  • Brexit has still not taken full effect, with the actual date at the end of March 2019. Our opinion is that over the next 3 to 6 months, which will be during the time that businesses and individuals have to make decisions for the normal planning period of a year to 2 years ahead, the effects will become more obvious. Tax will be one of the long-term ones as is summarised below.
    • Tax that has to be paid due to just owning the property – the Non-Resident Income Tax. For owner/occupiers, it is calculated on 2% of the cadastral value of the property and the general rate for non-residents is currently 19% for EU residents and 24% for the rest of the world.
    • If the property is leased, the Non-Resident Income Tax, is –
      • EU resident: 19% of the net income obtained (rent received minus deductible expenses, which are in general are all those inherent to the property, including interest if there is a mortgage, and amortization).
      • Non-EU resident: 24% of gross rent (that is, without deduction of expenses).
  • That’s a 25% tax increase for all those holding holiday homes and if you rent out, it is substantially more than that. It’s going to be a great windfall for Spanish tax authorities, but make it much less attractive for UK residents to own a second property in Spain.
  • The Spanish market, in general, appears to be recovering as can be interpreted, perhaps, from this graph. It does show the unreliability of ‘official’ statistic and the need to take a balanced view of them all.
  • As has been mentioned in the past, fast Internet access is increasingly important to buyers. They will be pleased to hear, though perhaps not be overly trusting, in that Spanish President Rajoy has said that he intends to give a definite push to plans to extend fast connections to all towns, cities and villages in Spain if possible, or at least leaving no more than 15% of the country’s inhabitants without access.

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Home-building boom on the Costa del Sol, but is it sustainable?

I’m waiting and waiting for a gap in the traffic so that I can pull out onto the A7 coastal highway that links up all the main towns and cities from Malaga to Sotogrande, including Marbella and Estepona. Where is all this traffic coming from and where is it all going? This is the end of November, for goodness sake. There shouldn’t be anybody here. They can’t all be golfers, though the courses are certainly full at present. No, there are far too many white vans, concrete delivery trucks, and containers around. This is business, principally construction business, and it looks like it’s going to be the new norm all year round, and not just in the warm tourist season. The Costa del Sol (Sunshine Coast) is increasingly becoming the Ciudad del Sol (Sunshine City).

On the skyline to East and West, cranes once again bristle above urbanisation and villa developments. The building consultants, professionals and tradesmen who were laid off 10 years ago are now flooding back and completing shell buildings that have been abandoned for years, or building anew on sites that developers who survived were able to hold onto or have acquired cheaply from the banks. Some of the banks, of course, are partnering with developers in these projects and, just as after previous recessions, their ‘prudence’ in holding onto ‘called in’ securities will be rewarded by profits on the new development. Conveniently, the crisis and bailout is fading from corporate memory.

Speculative or real demand?

Concerned that all this development might be speculative and always wondering, “are these places just being built speculatively or are ‘real’ people buying them?”, Survey Spain have carried out research on a 1,000-hectare area centred around La Resina on Estepona’s New Golden Mile.

The area stretches from the AP7 toll road to the sea and is bounded to the east excluding Cancelada and Los Flamingos, and to the west by the road up to Selwo Safari Park. Within and on the fringe of that area, our research identified at least 26 new developments, and that’s excluding private new build single villas. Is this the start of a second Nueva Andalucia? Travelling along the coast as we do, this is by no means exceptional, and even in Marbella, with its planning restrictions, there are many more cranes than there were a year ago. Continue reading

Dissolution of Joint Property Ownership

Survey Spain SurveyorsSome owners may be unaware there is a special legal procedure that can be followed in Spain to re-arrange property holdings which saves buyers a considerable amount in taxes. On buying resale property in Spain, a buyer is normally liable for Property Transfer Tax (ITP) (which ranges between 7% to 10% depending on the region in Spain where the property is located). However, on following what is known as a “Dissolution of Joint Property Ownership” (DJPO, for short) a buyer only attracts 1.5% Stamp Duty.

Signing a deed of Dissolution of Joint Property Ownership allows joint owners to re-arrange their share on a property in a tax-efficient manner as it enables the outgoing joint owner to transfer his share to an existing co-owner legally waiving the extreme Property Transfer Tax and paying in lieu 1.5% Stamp Duty on the full property value. This results in tax savings of up to 86%!

This service is suitable:

  • In a divorce or separation.
  • Re-arranging inheritances.
  • Re-arranging property holdings between family and friends.

DJPO Requirements

  • Both buyer and vendor need to be pre-existing owners of the property i.e. a married couple who own a property in joint names. One of them wishes to terminate the situation and sell his share to his ex-partner.
  • If there is an outstanding mortgage on the property, a lender’s permission may be required to release the outgoing borrower/owner from his commitment.

Associated Taxes and Fees

Buyer

  • Liable for 1.5% Stamp Duty on the full property value. Stamp Duty is paid on the full value of the property, not only on the outgoing share.
  • Lawyer’s fees.
  • Notary fees.
  • Land Registry fees.

Vendor

  • Liable for capital gains tax on the outgoing share.
  • Lawyer’s fees.

If the vendor is non-resident, a 3% retention is practiced on the outgoing share. The CGT payable would amount to 19% (for EU/EEA residents).

Example: On a property worth €300,000, jointly owned by a couple, the husband would only pay 1.5% on the full property value or €4,500 in lieu of 8% Property Transfer Tax. That amounts to a tax reduction of over 80%!

This article was written by Raymundo Larraín Nesbitt of Larraín Nesbitt Abogados, Marbella. www.larrainnesbittabogados.com

Underinsurance and how to avoid it…

auto-and-home-insurance6The consequences of being underinsured are often a reduced payment from an insurer when you need it most. Research clearly shows that most homeowners greatly underestimate the value of their general contents and possessions, as the following case studies show:

Case Study 1                                     Case Study 2

Hall                                                    € 2,750                                                € 1,410

Study                                                 € 29,800                                             € 4,490

Lounge/dining room                           € 37,100                                             € 34,950

Conservatory                                     € 11,800                                              € 4,805

Kitchen                                               € 6,600                                               € 6,060

Master Bedroom                                € 23,940                                              € 15,110

Bedroom 2                                         € 9,000                                                € 2,100

Bedroom 3                                         € 7,780                                                n/a

Other items                                        € 30,050                                              € 32,085

Utility room                                         € 1,750                                                € 815

Outside & garage                               € 13,200                                              € 6,500

Client estimate of value                  € 100,000                                           € 60,000

Actual value                                     € 173,770                                           € 108,325

% Underinsured                               58%                                                   55%

In the examples shown a contents claim of €50,000 would have resulted in a claims settlement of €29,000 in Case study 1, and €25.000 in Case study 2. You can, therefore, see the grave danger that being underinsured presents at a time when you need your insurance policy to perform.

Underinsurance is the consequence of many factors, including:

• Accumulation – our possessions grow over time, and we tend to purchase more personal effects, such as jewellery, cameras, sports equipment, clothes, laptops etc.
• Prices change – generally speaking upwards, and in the case of art, antiques and jewellery, often at a significant pace.
• Our interests broaden – leading to collections of various types.
• Our leisure pursuits require the purchase of expensive equipment – golf clubs, skis, surfboards etc.
• Children happen – and with them comes a whole new variety of toys, gadgets etc.

The best way to ensure you are insured correctly is to systematically go through each room in your house and list what it would cost to replace each item – including clothes, curtains, linen etc.

Most claims are for partial losses, however, if you suffered a total loss could you replace your home and all your contents and possessions for the figure currently quoted in your policy?

Act now to ensure you are not a victim of underinsurance. If you are unsure whether your current level of insurance is adequate, please contact us on 952 882 273 or info@opdebeeck-worth.com and we will be happy to advise you.

This article was written by Op de Beeck & Worth Insurance Brokers, www.opdebeeck-worth.com

Inheritance Tax Andalucia 2018

PROPOSAL FOR NEW SIGNIFICANT EXEMPTION

euros_1693423bAfter almost 40 years of uninterrupted socialist government, the PSOE finally lost its majority in Andalucia in 2015, although it was able to hang on to power in coalition with Ciudadanos, the new centre-right party of Spain.

In return for approving the 2018 budget and propping up the minority government, Ciudadanos has just forced the PSOE to accept a substantial change in ISD.

The Impuesto sobre Sucesiones y Donaciones (ISD), Spain’s inheritance and gift tax, dates back to a 1987 law that replaced similar law of 1967. Since 1987, apart from some relatively insignificant tweaks, the law has remained largely untouched, including the tax rates and bands. Inflation has reduced the real value of money by 180% since 1987so, over the years, the real cost of ISD has doubled.

Because the authorities often assess tax on the theoretical value of a property and because properties have been difficult to sell in recent years, many families have simply had to give up inheritances because they can’t pay the tax.

In recent years the tax has been fully devolved to the Autonomous Communities (Andalucia, Cataluña, Madrid etc), which has seen this already unfair tax become ridiculous because regional variations are now extreme. For example: Madrid has virtually eliminated the tax by providing a 99% exemption for families but The PSOE in Andalucia, boasting its left-wing credentials, actually increased tax rates for the wealthy. They improved exemptions for modest inheritances between family members but the rules were so badly drafted that they caused even greater unfairness.

The press releases published on 20 September 2017 announce that the general exemption to ISD will be increased to 1€ million per person. The general exemption for inheritances between close family is currently only 15,956.87€.

It is important to know that ISD is payable by the beneficiaries of inheritances, not the estate of the deceased as happens in the UK and other countries. Consequently, in the case of Wills that are designed to spread assets among several family members, each family member will be entitled to their own 1€ million exemption.

The devil is in the detail and we must await the release of the text of the new exemption before celebrating too much. We have to make sure that there are no snags that the politicians sneak into the text to limit the exemption unfairly, as has happened in the past.

An example of such political trickery is that Andalucia currently boasts an exemption for close family inheritances of up to 250,000€ when the beneficiary’s pre-existing wealth is less than 402,678.11€. However, exceeding either of these limits by just one Cent disqualifies the beneficiary and results in only 15,956.87€ being exempt.

Caution aside, this could turn out to be very good news indeed for people wanting to invest and live in Andalucia as ISD has always been a significant disincentive. There is also talk about getting rid of Wealth-tax, which would make Spain a truly attractive country for new residents.

This article was written by Spence Clarke & Co., Chartered Accountants, Marbella, Málaga

For a guide to the current ISD system see: https://www.spenceclarke.com/pdf/17.pdf

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Quarterly Market Report

q-reportThis is our 15th Quarterly Report. We have kept it brief and specifically relevant to the locations where we are instructed to carry out valuations and/or building condition surveys. 

As part of the research, we have identified a number of wider and national property comments.

The Overall Market – Concern as to the amount of new construction.

  • We repeat our caution as to the amount of new build alongside a possible surplus of existing property. As one agent said when asked, “The market is full of people who can’t spot value. They will overpay by 30-40% for a shiny white box with no community, no history, a poor location and a guaranteed instant loss of value.” There will be a number of disappointed investor buyers if they need to be sellers in the near future.
  • In addition, an agent active at the lower end of the market reported that “A number of new builds are not moving as fast as the developers anticipated. Clients are very cautious and want to make sure everything is correct before signing.” This is evidenced by developers offering ‘free’ furniture packages or cars with every sale within a certain time period. However, it does appear that caution does not include value research!
  • This attraction of buyers by intensive marketing by new construction has led other agents to declare that the resale market is very slow. Another reason for that slowness for individual agents is that there are many new agencies in the market, many being individuals who have survived the crisis, have achieved a good commission sale while working for another agency and decided they can live on that as an independent agent with the contacts they have built up. As a result, while the ‘cake’ may be larger as demand and supply grows, so the ‘slice’ for each agent is smaller.
  • However, there is also another side to the market, where established agents have worked on a locality and gained a good reputation for local knowledge and honesty. They mostly work in tightly controlled higher value areas, and one small agency, selling in the 600,000 to 1M€ euro range and stressing the work done to achieve optimal presentation of the property, reported that they had sold 4 properties in the last 2 weeks. They also said that they had a number of clients looking for 2-3M€ euro properties, but these had to be “super modern” and highest specification.
  • All agencies have reported that 2017 is better than last year. Whilst the British interest undoubtedly dropped, it is still a most significant source of new buyers. They are now competing with increased numbers of Nordic, Belgian, Dutch, German and Finnish buyers, many of whom tend towards the locations where there are similar language neighbours and facilities. This has resulted in a number of new agencies being created to serve these nationalities, and they report strong activity. There is an increase in the number of Irish buyers, who used to be numerous, as their home market improves. An increase in the number of French buyers was also reported, with the high prices of S of France reportedly driving them further south for better value for money and a longer season. Russia was not mentioned by any agent, indicating that demand from there is still significantly reduced.
  • With the improvement in the Spanish economy, there has also been an increase in the number of Spanish buyers. However, this may be halted by the Catalan crisis. The effect of that has not yet been noticed, but with the movement out of Cataluña of many firms, including Banks, due to their wish to avoid disruption and the importance of staying within the EU, there could be a significant increase in domestic demand in the relocation areas, which include Alicante, Valencia and Mallorca. This should be a warning of what could happen in the UK on a much larger scale with Brexit!
  • All the Costa areas of Spain have seen a very strong tourist season, with that season extending back towards Spring and still continuing now in mid-October. There is now an overlap of returning Northern Europeans, who may have spent the hot summer months in their ‘home’ countries, but like to spend the darker winter months in the light and warmth of Spain. This is bringing more wealth and employment to the area and encouraging businesses to continue and be created, all to the benefit of the economy of the area as a whole. However, for permanent residents, they still have the increased traffic and required restaurant reservations that usually disappear at the end of the season!
  • Another matter that will have to be taken into account by the market, is that the water supply is at a very low level. There are drought predictions and the probability of supply restrictions, and these will affect some areas more than others. For example, where an area depends upon well supplies if the water table falls too low these wells become dry, meaning that homes have to be supplied by expensive water trucks or desalination plants if close to the sea.

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