The Latest Spanish Property News from Kyero.com
May 4th, 2007
As fears grow in Spain that the housing market bubble will burst, should you sell up or hold tight?
Half a million Britons who own properties in Spain are being urged to hold their nerve after experts warned of an impending property crash that could wipe tens of thousands of pounds off the value of their holiday homes.
The Organisation for Economic Cooperation & Development warned that prices are now 30% overvalued as evidence grows that the decade-long boom in Spanish property is about to go bust.
Britons who have recently invested on the Spanish Costas could face steep losses if the predictions are correct. There are also worries that those who have bought into future developments could be left high and dry.
Analysts believe that most will be able to weather the downturn. Stunning gains over the past decade mean that anyone who has owned a property for five years or more should make a profit even if house prices plummet. For Britons considering a Spanish holiday home, a collapse in the housing market could create a golden opportunity to pick up a bargain.
Spain has long been the favoured location for Britons buying abroad. Nearly 32% of people who bought an overseas property last year opted for Spain, according to the AIPP international property market report, compared with 19% who bought in France, the second most popular country.
About 500,000 people have either retired there, or bought second homes or investment properties. Most have opted for coastal locations on the Costa del Sol, Costa Brava and Costa Blanca.
Over the past decade buying a property in Spain has been an almost sure-fire way to make money. The boom in the Spanish housing market has been even more spectacular than the one here in Britain. Property prices have risen by 270% over the past decade, compared with 209% in Britain.
Last week fears that the boom is over were sparked by panic selling of shares in Spain’s property firms on the Madrid stock exchange. On Tuesday, Spain’s leading stock-market index, the Ibex 35, fell nearly 4% while property shares plunged 20%.
The Spanish finance minister sought to reassure investors that the wobble in financial markets was unconnected with the strength of the housing market. He said the government still believed that house prices were heading for a soft landing rather than a crash. Many economists are not so optimistic.
Charles Dumas, chief economist at Lombard Street Research, an economics consultancy, said: “The country is overhoused, people are overindebted and the construction industry continues to churn out homes. The housing market in Spain is about to implode.”
In some areas the slowdown is already under way. Despite fears of a crash, properties have continued to be built in their thousands. With so much development, homeowners trying to sell properties that are only a few years old have been struggling to find buyers.
Mark Stucklin at Spanish Property Insight, a website that provides advice for people buying in Spain, said: “The market in the coastal areas, which are popular with the British, has been difficult for a couple of years. There was a real boom here, but this led to huge levels of development and supply is exceeding demand. Prices have already been slipping and many new properties are being sold for the same amount as those built two or three years ago.”
Britons who have bought property off-plan are particularly vulnerable if prices slide. Buying in this way means you commit to somewhere before it is built. It has been a popular option with speculators who intend to sell the property on when it is complete, netting themselves a profit. In a rising market this can be successful, but if prices slow they could end up with an investment worth less than they paid for.
Tim Hodges of The County Homesearch Company, a property finding firm, said: “Fundamentally, I think there needs to be a correction. The two-bedroom apartment market is most at risk because there is a glut of supply. “I would estimate that there is probably a 15% to 20% oversupply of apartments across the coastal regions.”
People who own property in Spain and are already thinking of selling are being advised to get out now before big price falls. For those who are thinking of buying, some analysts believe there will be good investment opportunities – if you wait and then choose carefully.
Hodges said: “I think there will be significant opportunities in villas that were built 15 to 20 years ago. The owners will have seen the value of their properties surge over that time, so the smart sellers will discount prices in order to shift them.”
Katy Katani at Grupo Lar Sol, a Spanish property developer, thinks the top end of the market will be less affected by the slowdown. She said: “I don’t think high-quality areas, such as the west of Marbella, will be badly affected although eastern Marbella and towns in the southern Costa Blanca, such as Torrevieja, could be hit because they are so built up.”
For many existing homeowners the simplest option is to sit out any downturn. This is what Cheryl Edwards, 42, pictured with her two daughters Sian, 13, and Alisha, 7, intends to do. Edwards owns a two-bedroom apartment in Villamartin on the Costa Blanca which she and her husband Chris bought three years ago.
The personal assistant from Walsall in the West Midlands said: “This is a holiday home for us and we are not planning to sell. You have to be slightly concerned about talks of price falls, but we like the location and still believe it will be a good investment over the long term.”
Tips for dealing with the fall-out
If you are planning to sell, you may have to accept a lower price than you would have achieved this time last year.
However, if you have owned the property for more than five years you should still be selling for substantially more than when you bought.
People who have bought in the past three years or have invested off-plan with the intention of selling it on completion may already be nursing a loss.
Unless you have to sell, it is probably worth waiting for prices to recover.
Do not expect the strong returns that have been seen over the past decade. Low single-digit returns are more likely from now on.
I was thinking of buying a property in Spain. Is it still worth it?
Experts recommend that you hold off until the situation becomes clearer, but a property slump could throw up some bargains.
Andrew Benitz at Titan Properties, a property investment adviser, said: “The market is undoubtedly swinging in favour of the buyer, and astute investors who do their research will be able to secure some fantastic properties as the market softens.” For up-to-date information about what is happening in the Spanish market look at websites such as spanishpropertyinsight.co.uk and kyero.com.
Are there better prospects in France and Italy?
France’s market is slowing after a decade of double-digit returns but it is not expected to crash. Therefore it might be a safer bet than Spain for Britons looking for an overseas bolthole.
The same is true in Italy where the rate of house-price growth has already slowed. Prices there rose by an average of 4% last year, according to Knight Frank, the estate agent, compared with 8.1% in 2005. The slowdown is set to continue this year, although price falls are not expected.
Analysts expect house-price growth across Europe to be in low single digits for the forseeable future. Investors who want to make a quick profit should therefore look elsewhere. Adam Cornwell at estate agent GEM Estates tips Brazil and Morocco. He said: “For those who want to make money, the best opportunities are in the emerging markets.”
Is it worth buying in America to take advantage of the weak dollar?
The cost of buying a property in America has plunged 11% over the past year as sterling has surged against the greenback. The pound broke through the $2 dollar mark a fortnight ago and is still at $1.99 to the pound.
This should have provided a golden opportunity to snap up a holiday bolthole, but the unsettled US housing market is putting off many potential buyers.
Nationally, house prices are expected to fall 0.7% this year, according to the National Association of Realtors.
In Florida, the most popular destination for British buyers, sales have slumped by nearly a third. There are bargains to be had, but risks of significant further falls remain, so only buy now if you are investing for the long haul.
David Dabby, a property analyst in Florida, said: “The market is trying to find its bottom, but it could take a while. I don’t see any significant appreciation in prices for at least a few years.”
You might also consider its neighbour, Canada, where the property market is still strong. The Canadian dollar has also weakened 11% against the pound over the past year.
How easy is it to get a mortgage?
Some British high-street banks and building societies, including Halifax, Lloyds TSB and Barclays, will lend abroad.
However, you can often get a better rate from a local bank, so seek advice from a specialist broker such as Savills Private Finance International or Conti Financial Services.
