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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

Continue reading

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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Why are tasador valuations always wide of the mark?

Valuation- Survey SpainThey are the bane of the estate agent’s and developer’s lives, and also, of course, the confused buyer who finds that he/she can’t get the mortgage they expected because of a low Tasador valuation and only Tasadores valuations are accepted by the Banks, Registrars and Courts in Spain.

The latest check of our RICS valuations has shown that, on average, our valuations over a four-year period are approximately 98.5% of known actual purchase prices supplied by client buyers. Over the years we’ve had various ‘discussions’ with Spanish valuers regarding mortgage valuations that have been substantially different from Survey Spain’s fully researched current market values. We’ve known various reasons for this difference, but I thought that it would be useful to provide you with a summary explanation, resulting from a detailed conversation and explanation with a co-operative Spanish valuer with whom we have been jointly valuing two apartments in Marbella.

As you may be aware, Spanish mortgage valuers have to value according to strict regulations and methodology laid down by the Bank of Spain. At times, it’s been suggested that amendments to these regulations have been more aimed at financial control of the Spanish economy, than seeking to improve the accuracy and consistency of values.

As a result of this conversation, a number of principal reasons were ‘discovered’ relating to these particular valuations, but which will also apply in general. Continue reading

Exchange Rates Impact on Property Budgets

Survey Spain - Bank Lending Upside DownThe current market value of a property is just that: it’s what someone will pay for the property at that particular moment. In addition to the normal vagaries market, of increasing and decreasing supply and demand and changes locally, we are increasingly finding that there can be radical changes ‘overnight’, as exchange rates fluctuate significantly.

Looking at the UK market, the loss in value of the pound and the parallel apparent increase in euro economies, have combined to reduce the exchange rate significantly, with it being above 1.40 euros to one pound within the last two years, whilst now it’s down at 1.09 Euro to one pound, a loss of almost a quarter. Despite previous concerns about the long-term survival of the euro, forecasts are that there should be parity soon with the pound, perhaps going even more and the euro becoming the strongest currency. Looking at currencies of other buyers in Spain, the fluctuations of the Nordic countries have been smaller, whilst of course, others such as Russians have seen the value of their home currency half compared with the euro. All this uncertainty will be having a profound effect upon the property market.

British expats who depend upon sterling income from pensions or the like will be finding that life is becoming increasingly expensive here and may well be considering that they have to go back to the UK to survive financially. However, to balance that, the value of their property here in the Eurozone is increasing relative to sterling. With property values appearing to have peaked in the UK, the sale of their euro property will move them up to a higher price bracket back in the UK where they will be able to live in the same currency as their income. Perhaps they will consider renting in the UK and keeping and renting out their property in Spain in the hope of value is continuing to rise here. Continue reading

Are you Ready? – First Rain of the Autumn

How to protect your house from the rain in SpainThe forecast is that summer is to end early and the Costa del Sol is to see rain and lightning storms on Monday to Wednesday this week (28th to 30th August). Normally, it has the decency to wait until all are back at school and the office, but this year it’s different.

Damp is the most common fault we see in our building surveys and much of it can be avoided with a little preparation.

Start at the top. Are all the terrace drains clear of weeds and debris and water able to flow down them and away easily? Remember that when it rains here, it can really come down in large amounts so every millimetre of pipe width is important. Otherwise the rainwater ponds and finds its way under the tiles and through into the areas below, or around the patio doors and into the house that way. It’s too late to install new gutters and downpipes, but make sure if you have them that they too are clear and the end of the downpipe directs water away from the building, ideally into a drainage system. Where is the water going from the terrace? We see spouts pouring onto terraces below, with a fierceness to wash away the grout from around the tiles there. Once water gets under tiling, it can flow to the walls and cause damp internally for many years. So, ensure that any water falling from above is caught, even in an empty flowerpot and allowed to overflow from there, which will avoid the damage to the surrounds of the tiles. Continue reading

How to inspect an off-plan property overseas

The Sunday Times

Q My off-plan property in Malaga is due to be completed in the next few months, and I will be inspecting the property soon. What should I look out for, and what are my rights if I find any defects? J Harrison, by email

A Before making the final payment to a developer or builder — usually the remaining 70% at this stage — you need to ensure your home is finished to the required specification. When the builder contacts you to arrange an inspection, commission a chartered surveyor’s report to UK standards, which starts at about €400 (£350). Try the Rics-governed Survey Spain (surveyspain.com).

Your snagging list should include any damp patches or mould growths; the state of the plasterwork and paintwork, which should be well finished, with no cracking; whether all the appliances you have paid for have been installed; and whether doors and windows open and close properly. Check that the taps and loos run and flush, that electric, phone and internet points are as specified, and that amenities are as promised.

Off-plan buyers are covered by various construction-defect guarantees under Spanish law, but negotiations on flaws must take place before completion, so you have leverage.

Raymundo L Nesbitt, director of Larrain Nesbitt Lawyers; http://www.es.larrainnesbittabogados.com

View original article here: https://www.thetimes.co.uk/edition/home/how-to-inspect-an-off-plan-property-overseas-qdmccglft