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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

Quarterly Market Report – Spring 2017

q-reportThis is our 14th Quarterly Report. As part of our research we have identified a number of wider and national property comments.

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

  • As reported last quarter, building activity is undoubtedly continuing and increasing, and the concern is that we may be heading for another ‘bubble’. Yes, there is demand, but there is also a substantial amount of existing property on the market. As always, developers have the selling advantage of larger marketing budgets to bring in the buyers, but we are seeing signs of some discovering that all is not as fast as they expected, with ‘free’ cars being offered to buyers and 10+% commission offered to agents. See the article “Are we heading for another Bubble” in https://www.surveyspain.com/blog/are-we-heading-for-another-bubble
  • As before, Brexit, and its effects upon the UK buyer and existing British residents, is still an unsettling force, with other EU nationalities becoming increasingly frustrated at the disruption it is causing. However, there are still many UK buyers.
  • The EU and UK have now put forward their proposals for the other’s residents in their countries. Whilst there is a general agreement in principle, there are many details still to be clarified, especially for what happens with expatriates who arrive after the as yet unspecified ‘Specified Date’. See the article “Is the future becoming a little clearer”. https://www.surveyspain.com/blog/is-the-future-becoming-a-little-clearer
    • In that I state that it is my opinion that those residents here before the Specified Date, assumed to be March 2019, will have special rights of residence, but others arriving after that date will be treated in the same way as all those of other non-EU nationality.
  • The reduction in UK buyers is adequately being replaced by those of other countries, with Nordic, German, French and others being active in the market.
  • As stated before, the market dependent upon Gibraltar, both due to proximity and business, is undoubtedly the most nervous of all. We are seeing prices and values dropping in this area, counter to most of the Costa del Sol.
  • Tourism is still very strong, with record numbers being expected over the summer. Hopefully, there will be enough water freshwater for them all!
  • The requirement for licences to legitimately offer individual properties to let, is likely to reduce the number of buyers who are depending upon rental income to afford the running and finance costs of their purchase. This will especially be the case should there be publicity of draconian fines to people discovered to be acting illegally.
  • In the background, there is the thought that if interest rates should rise, many owners may find that they cannot afford their second property in the sun and that there could be a significant increase in properties being offered for sale.

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Is the Future becoming a Little Clearer?

Brexit2-300x250With Brexit, we are all in the same boat. Writers based in Spain have the same concerns as readers, but with a slight advantage in that we focus on its effect upon our specialities. Mine are pre-acquisition building surveys and valuations, the latter being principally as an expert witness for UK and other countries’ courts regarding divorce, tax, inheritance, and other disputes relating to the value of properties in Spain.

When the Brexit result was announced, everyone, including many Leave supporters, were in shock. “What have we done?” and “How will it affect me?” For a year, we haven’t had an answer to either of those questions. Now, the UK government has put forward how they will treat EU nationals within the UK, assuming that similar arrangements will be made for UK nationals in Europe.  Continue reading

Building confidence in Spain

Despite the recovery of the market, there are still some huge differences between what was loaned in the good times and the market value of the property now.

220px-nordiske-flagBuilding activity is increasing. Many new individual villas, though the financial rationale of those is uncertain as there are still so many available for sale, with those having had the choice of the best sites in the past.

New flatted developments are also being created with the developers presumably been reassured by the appropriate percentage of reservations off plan.

Older ‘skeleton’ developments that were not completed during the last boom are being acquired and completed by new developers.

‘No sign of housing market overheating’, says Bank of Spain. Generally, that is probably the case. However, in certain popular areas there must be a risk that everything is proceeding along a very similar course to before the last crisis. Continue reading

Brexit Divorce – What does it mean for us?

Brexit2-300x250Divorce has featured much in the last few days. No, it’s OK, my wife and I are still ‘two halves of the orange’ as the Spanish say, but we’ve had an increase in the number of Expert Witness instructions, where we provide current market valuations of disputed Spanish assets for the UK and other Courts. As RICS Registered Valuers, trained in UK and with many years of Spanish living and working experience, our expertise is appreciated. Especially so, as our reports are all by English language native speakers and we value to the current market without regulated variations. Our Court work also includes valuing for inheritance and tax disputes and even for the National Crime Agency where they seize the ‘ill-gotten gains’ of convicted criminals.  But the big ‘divorce’ that’s occupied our minds most this week, is Brexit. Continue reading

Quarterly Property Market Report – Autumn 2016 – January 2017

q-reportAs part of the research we have identified a number of wider and national property comments.

The Overall Market – Increasing divergence of markets.

  • “Where it is good, it is very, very good, but where it is bad it is horrid” (Adapted from Henry Longfellow)
  • In the prime locations in the main towns of the Costas, there is increasing demand for ‘the best’, with ripples out a short distance from those locations. Increasing numbers of construction cranes are seen to be working on individual and small groups of luxury villas and urbanisations of luxury apartments.
  • Elsewhere and especially in locations and buildings without any special selling features, lower prices are the only way any properties sell.
  • Banks, and especially the large investment companies that have acquired portfolios of properties and/or management companies from them, are carrying out renovation and completion of part completed shell buildings and taking up the planning licences where they have already been granted.
  • All this activity is good for the construction industry and for initial investors, but there is concern that it is perhaps being overdone, with the number of actual purchaser/occupiers being uncertain. Is another property bubble being inflated?
  • Undoubtedly, there are fewer British buyers, but since the beginning of the year, at Survey Spain we have seen a considerable increase in enquiries and instructions from UK and other northern European purchasers. This indicates to us that demand is still strong, with any reduction in interest from UK buyers and perhaps increasing interest in selling by UK owners in Spain, encouraging other nationalities, both Euro and independent currency based, to take up any ‘exceptional’ opportunities.
  • One other point of note, by both ourselves and reliable estate agents, is that buyers appear to be prepared to pay well over the market level for new property, when with a little research they could obtain equal or better second-hand properties at much lesser price. It appears that strong marketing, confidence in the builder and ease of acquisition are the prime reasons for this. Individual property sellers cannot compete with the marketing budgets and mortgage offers that developers/banks can provide.
  • As stated before, the apparent ‘exceptional’ drop in exchange rates gets the blame for much of the decrease in UK demand, but from recent research we have carried out at 1GBP = 1.17€ euro we are 13% above the lowest level in the last 10 years and only 3% below the average. After today’s speech by the UK Prime Minister, the pound has rallied from about 1.137 to 1.155€ euro. We are in for a rollercoaster two years, with formal declaration of leaving Europe expected before the end of March, plus President Trump, French, Dutch and German elections all to happen within 2017.
  • Within Spain the market is still difficult and extremely fractured. Similar to the Costas, the main cities are experiencing significant demand and rising prices, though much of that could be investment based, which can be fickle and could reverse quickly in the event of problems with the euro exchange rates and/or the EU. Mortgages for the average Spaniard are still at a relatively low percentage of valuation, with these valuations themselves being held significantly below actual market value due to the prevalence of MLV valuations. Accordingly, a substantial deposit has to be found by the individual purchaser and, with there still being so much individual debt, this situation is unlikely to change. Market predictions vary, with developers and estate agents anticipating an increase in value, whilst other pundits are indicating that there could be a drop during the year.
  • The high costs of acquisition and sale and the apparent increasing costs of holding property are bound to be influencing some potential purchasers/investors. The requirement for licensing of tourist property and the potential for restrictions of the numbers of those that may be granted in the future, will also affect values.
  • Many of the comments in previous reports are still current.

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Do exchange rates really affect demand?

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Since that indescribably foolish day in June, agents, property pundits and others, including myself, have been blaming any apparent drop in demand by British buyers, at least partially, on the variation in the exchange rate of Pound to Euro.  Yes, there has been a drop in the pound’s value, which makes property buying in the euro zone more expensive for sterling buyers.

But hold on a sec, haven’t we been at these levels before and the demand has continued? And has demand really fallen. Dealing with the latter, undoubtedly, Survey Spain has seen a drop in the number of pre-acquisition building surveys since the beginning of the year. I feel that this can be a guide to the number of buyers who are considering purchasing a property. It slowed over the couple of months before June, dropped to almost nothing during the week after the vote, but then picked up and has continued at a lower level over the last few months. Not everyone gets their property inspected, on which they can be spending millions, but then ‘easy come, easy go’! The prudent person knows that armed with a comprehensive report on the condition of the property they can get a substantial and justifiable discount in the price. It’s a no brainer in two ways. ‘No brainer’ not to do it and a buyer shouldn’t really have to use his/her brain to see the benefits of a survey. We have so many clients who have saved many times our fee in price reduction. You’ve only to look at our testimonials page on our website to see the truth of that.  Continue reading

Hard facts: The lack of systems and rules in Spain’s property game is ridiculous

It's all positive news this quarter.In most northern European countries, including Scotland, but sadly not England, all sellers of properties have to provide factually correct information packs – ‘Home Reports’ – to potential buyers.

In some countries, these are prepared by state registered inspectors, whilst in others the estate agent is legally responsible for any errors or omissions.

If the packs prove to be significantly erroneous or even fraudulent, the seller can withdraw from the sale, even after they have moved into the property.

Unfortunately, it’s a completely liberated system in Spain, where nobody takes responsibility for anything and even the buyer can renege, pleading ‘in good faith’ if they didn’t check anything themselves. Property descriptions by agents on the internet and in their details, can be at best ‘mistaken’, but sometimes, either through their or the seller’s ‘optimism’, appear to be deliberately misleading. Continue reading

Quarterly Market Report – Summer 2016 – 12th October 2016

q-reportIn September we celebrated our 3rd year of Survey Spain, helping with ‘All Property Matters’.

This is our 11th Quarterly Report. We shall be pleased to provide more information if requested. As part of the research we have identified a number of wider and national property matters.

The Overall Market – Currency Fluctuations are having a big effect.

  • Brexit and the continuing uncertainty and bemusement caused by it, both in the UK based market and throughout Europe, has undoubtedly been the greatest factor affecting the ‘international’ property market in which we largely operate.
  • The immediate factor has been the two significant drops in exchange rate, with the latest ‘storm’ perhaps having more psychological effect than previously. Buyers and sellers are realising that sterling is likely to drop further and is reaching a new base level and unlikely to bounce back to what it was before the vote. The full effect of the most recent drop is still to be seen in values, but we expect that it will reduce the number of UK buyers.
  • The effect on sellers intending to return and sale price to UK will be mixed. Some may decide to wait for further drops in exchange rates to their benefit, but others will be more nervous at the reduction of buyer numbers. Either way, it’s likely to lead to a preparedness to drop their selling price. This will be especially evident in areas where UK owners traditionally dominate, such as in areas of Almeria and Fuengirola to Torremolinos on Costa del Sol.
  • Foreign exchange companies are still reporting that they have experienced a considerable drop in enquiries from UK, but many enquiries from Costa del Sol to transfer funds into sterling.
  • However, thankfully for many reasons, the British market is not by any means the only one and thus buyers from other currencies will have found more bargains. This appears to be the case for Nordic buyers who have shown a considerable increase in activity, although the overall EU and Euro uncertainties must still cause the more cautious to reconsider
  • Within Spain, the political situation is if anything more chaotic than before. It appears unlikely that there will be a Government with a secure majority any time soon and the likelihood of a third election is becoming more and more probable. The polls appear to show that there is more likelihood of a return of a right wing Government, though it will still be by a very small margin or possibly requiring an agreement to work with another party. In the meantime, the statistics for the Spanish economy appear to show growth so maybe the absence of government is not a completely bad thing!
  • Given that the property markets of the Costas are so heavily influenced by international buyers, the areas where these buyers predominate are largely unaffected by Spanish national politics except with regard to buying costs and general property and wealth taxes. These appear to be increasing and we have had conversations with individuals interested in a home in the sun, but looking at the costs and deciding that it just doesn’t make financial sense.
  • There is continuing and increasing concern at the attitude of Spain to Gibraltar. This is likely to be affecting the local market in Sotogrande and around.

Continue reading

Spanish Property Market Report – Q2 2016

q-reportThis is our 10th Quarterly Report. We have kept it brief and specifically relevant to the locations where Survey Spain is especially active.

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

Votes and Results

  • Brexit is the biggest item to have hit the market. Prior to the vote on 23rd June 2016, the £ sterling fell slightly, but the principal effects were in potential buyers waiting for the vote before purchasing or committing themselves to purchase, some with a clause permitting them to pull out of the contract in the event of the UK voting to leave the EU.
  • Since the vote there has been a marked drop in British interest, evidenced in this office by 3 pre-acquisition building surveys being cancelled the day after the vote.
  • Foreign exchange companies report that they have experienced a considerable drop in enquiries from UK, but many enquiries from Costa del Sol to transfer funds into sterling.
  • After the vote, the exchange rate dropped by approximately 10% and has maintained that low-level, making property purchase here by sterling buyers that much more expensive.
  • However, for sellers wishing to go back to the UK, they are now going to achieve 10% more sterling when they sell. Accordingly, some sellers indicated that they are prepared to drop their asking price and/or permit negotiation on that price.
  • Whilst the British market is the major one in some areas, it is not by any means the only one and thus buyers from other currencies will have found more bargains.
  • The end result is likely to be a continuing reduction in UK buyers, both due to volatility in the exchange rate, but also, for those intending to take up residence, uncertainty with regard to health care, working rights, tax levels, etc.
  • The political situation in the UK has stabilised slightly with the appointment of a new prime minister who has stated that “Brexit means Brexit” and therefore the perception in the market will be that it is something that we have to deal with. However, there could still be legal and political challenges to it so in addition to the uncertainty regarding the eventual economic environment for UK passport holders, there is continued uncertainty as to whether the UK will pull out of the EU and when that might be.
  • Within Spain, there was also an election 3 days after the Brexit vote, which, as in December last year, was inconclusive in not appointing one party with sufficient votes to govern independently. As before, there is considerable negotiation between the parties, but as of this date there appears to be no conclusion in sight and the Popular Party continues to govern in absence of any decision.
  • This is likely to continue the uncertainty within the Spanish economy and, whilst there are reports of increased demand and resultant property development in the principal cities of Spain, this is unlikely to spread out to the country as a whole due to the continued indebtedness of individuals, banks and the Spanish national economy.
  • Given that the property markets of the Costas are so heavily influenced by international buyers, the areas where these buyers predominate are largely unaffected by Spanish national politics.
  • The exception to this and significantly affected by Brexit, are the areas where Gibraltar residents, workers and investors catering for them have traditionally purchased. These areas are likely to be significantly affected by Brexit, with concerns that the economy of Gibraltar will be severely hit and even the gates to Spain closed as they were in 1969. The Popular Party is also the most strident in its demands for the change of sovereignty for Gibraltar and in continued harassment of businesses, tourists and general personnel travelling to and from and connected with the British colony.

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