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Property in Spain: When to buy and when to sell?

Spanish townhouse propertyPrices on the Costa del Sol are still drifting down, except for special properties in the best locations. There is still demand and indeed competition for those, which maintain their value. Parallel to this, the banks are under increasing pressure to revalue their stock to realistic levels and to get rid of their property mountain. My opinion is that, unfortunately, they can only do that in bulk by offering prices that are sufficiently adjusted downwards to interest investors/speculators who hope to sell-off the properties as individual units. There are just not enough individuals around wanting to occupy. The original property bubble was inflated by speculation and it’s going to have to be saved by that too. However, the speculators are going to need deep pockets and to wait before getting any return.

Having said that, I do have a client who has bought two whole urbanisations and is selling to Nordic clients, where the economies have not suffered as much and there isn’t so much personal debt. Prices are not cheap, but he is making sure that his buyers are getting quality and above-average services. However, this is a numerically limited market. Russians, Germans and some other Northern Europeans, including the occasional Brit, are the other buyers, along with some Spaniards who have somehow kept or gained sufficient finance for investment. On the larger scale developments there is Arab money being invested for the longer term, so the future of the Costa del Sol is secure and will continue to mature.

Quality versus quantity
We all hope that a gradual recovery will focus more on quality than quantity, especially since the scope and need for the latter is limited. This is particularly the case in Marbella, where both available space and the kind of buying public reinforce the need to strengthen the Marbella quality brand with low-volume, high-value real estate in the future. In this context Marbella will be looking to modernise and update a lot of existing properties in the coming years, though a change in the attitude towards environmental restrictions could easily open up new areas to construction and shift the balance towards high-volume development again.

The Partido Popular, which came close to winning the regional Andalusian elections on 25th March, had for instance indicated that they were going to forsake environmental considerations in favour of economic ones. However, the PSOE alliance retained power, so current planning directives look likely to be maintained. Regardless of your personal preference, the PP proposal would only have exacerbated the problem by adding more ill considered real estate to the existing stock. My understanding is that on the island of Mallorca*, and certainly Menorca, there was a much stricter policy on coastal residential development. It has meant that the existing properties there have dropped much less in value. That is what is now needed in Andalucía, so the values come back as quickly as possible and thus rescue owners, lenders and investors from negative equity.

*Update – the new PP government in the Balearics is reported to have announced that it is in favour of a substantial development on a pristine four-kilometre beach on Mallorca. It’s the start of personal fortunes and influence over-ruling wider economic and environmental concerns. Are they blind? No, they just appear to be personally greedy.

Business development, not property development, is what is needed right now to create opportunities for employment, so the authorities should be looking to create favourable conditions for entrepreneurs and lower the threshold for the self employed. There can never be enough work in construction again to absorb all those involved in it before. They need to retrain to skills and jobs that are required. The government needs to create a business environment in which new business can be created, nurtured and thrive. Thankfully, the sun still shines and the food and air are good, so people will keep coming here on holiday and to live which, with modern communications, will allow the area to benefit from the growth and wealth of Northern Europe. Indeed, if treated the right way, the Costa del Sol can become one of the drivers of Spain’s economic renaissance.

So what to do if you have an apartment for sale?
What does it all mean for your apartment? The most sought-after properties will certainly retain their value, but I believe there is a good chance that overall prices in this area will still drop a little, so unless you can wait for the medium term it might be better to sell now. The banks have announced that they have to increase the volume of properties released, and if they do, it will entice investors back, but also drop prices in the short to medium term. If, however, you don’t have to sell, are happy where you are and are in a position to hold on to your property, you may be able to outlast such tendencies and see property values begin to gradually recover in the coming years.

In such a situation you would probably want to earn some income in the interim by renting the property out. As you know, long-term letting can be good if you get the right tenant or hell if you don’t. Short-term holiday lets bring you in a much larger income when rented and are certainly less at risk of the property being damaged or illegally occupied, but the competition is strong, so be well-prepared and treat it like a business. Also, always bear in mind the expenses of IBI (annual property tax), community costs, management fees and wear and tear repairs. Combined with those, if you declare the income as you should and are taxed, the probability is that the net amount in your hand will be somewhere in the region of 55% of the gross rent paid.

There are a great many people offering properties to let, that they can’t or won’t sell, and are also looking to cover their costs in this way. This has increased the supply and reduced the rents achievable. On the other side there are people who have lost their property to repossession and others who have decided to rent rather than buy in a falling market, who together have increased the demand. Make the property attractive and modern with good facilities, and play on any strengths, such as a location close to the beach, golf courses, restaurants and shopping; in fact all the reasons you probably bought in the first place, and it should rent reasonably easily.

Campbell D. Ferguson, FRICS, is a chartered surveyor in Spain. His company Survey Spain Network arranges valuation and surveys by RICS chartered surveyors anywhere in mainland Spain and the Balearic and Canary Islands, and Gibraltar. This includes valuations, building surveys, structural surveys, building inspections and investment and development appraisals.