Costa Property Shock Horror!
Costa Property Shock Horror!
Costa Property Shock Horror!
In year 2000, when my wife and I were planning the sale of our home in Sussex to emigrate to Moraira on the Costa Blanca, the UK media was starting to forecast the collapse' of the UK housing market. Eight years on and around 40% up in values, and the media has eventually realised this self-prophesising doom saying. Now, most of us accept that the UK media is driven by two predilections: the lure of the disaster headline and contempt of any form of success. The Spanish property market has enjoyed an amazing run over the past forty odd years consistently topping the tables of property value growth across Europe. It is against this backdrop that the current obsessive attack on the Spanish property market by the UK media has a certain inevitability about it!
Now, I am no expert on global economics, but I have noticed that the whole developed world seems to be on the brink of a downturn/recession/meltdown depending on who you listen to. Maybe I'm becoming paranoid but why pick on dear old Spain? The politics of envy, I suspect. I guess property price collapse and bogus rental deals in Bulgaria, or dodgy build quality in Turkey, or political uncertainty dampens North African property market doesn't really have the same impact, somehow.
So, what is the reality of it all? I can only comment on the area in which we specialise which is the northern Costa Blanca, specifically the Marina Alta. Although the local property market has proved to be a sturdy vehicle for the medium and long term investor, the quality of both investment return and lifestyle varies enormously from town to town within this area. Compared to many of the newer boom regions' and costa golf resorts, further south along the coast, our area has enjoyed a steady, controlled and carefully regulated process of development over the past forty years or so. There have been strict controls in terms of build density in the area and a well enforced low-rise policy in Moraira, where we are based. Add to that, a finite supply of further development land and one can see that local property values are relatively well underpinned. Unfortunately, even within twenty minutes of Moraira, I can think of three over ambitious developers who have committed to build rather more than they can sell in out of town developments of bland euro-boxes' which are totally out of keeping and which I am sure no one asked for; most of us are glad to see them floundering, and we hope this serves as a warning to others! Likewise, in this region there are far too many property agents chasing the same business; O.K., competition is a healthy thing in any marketplace, but at least two thirds of them are idle and complacent little devils who, too easily, sailed through the soft market with little effort, and the same two thirds are unlikely to survive into the next upturn and rightly so they will not be missed.
As there will always be a market for value and quality property, there too will remain a place for agents who make an honest effort and serve their clientele with integrity and fairness. I proceed now with answers to some familiar questions:
What is really happening in your local market?
Well, whilst U.K. buyer interest is down from the heady days of a few years back, demand here is holding steady. We are currently experiencing great interest from perspective buyers from other northern European countries. What has really affected the market dynamics is the recent over-supply of both new and resale property. There is certainly no shortage of folk aspiring to buy and/or relocate here; their constraint lies in the UK market where they cannot sell their current home, or they are caught up in the notorious chain' something that doesn't exist in the local market.
Also the perception of our market here as being flooded with unsold property needs clarification. Many of our recent buying clients have been surprised and frustrated to find that much of the available property is either of poor quality and/or hopelessly overpriced. Once we have identified and eliminated the nonsense stuff, the remaining good value buys are relatively few - maybe just 20% of the total. One client couple, visiting us in September, were surprised and disappointed to have been out-bid twice in their quest to find their ideal villa we did manage to delight them with a great deal before the end of their visit though!
How do you see this changing?
It is already changing. Builders have stopped developing, or adding to, their land banks. The silly prices some were asking (compared to resale values) have been brought back down to earth, and their banks have cut off the supply of easy funding of further speculative development. Likewise, with the resale market we can really divide this into two sectors: those who, for whatever reason of personal circumstance, need to sell; and those who would just prefer to sell. The former group are now coming to terms with the reality that they must put 2006valuations behind them and tempt today's buyer with nothing less than a bargain price. The latter group are generally taking the view that they have owned property here for a number of years and have seen the cyclical downturns and upturns before; they know what their property was worth a couple of years ago, and they feel confident those prices will return before too long. This group are consequently withdrawing their properties from the market, preferring to hold out for better prices in a year or three. This is all healthy stuff, as the combined effect of these three scenarios is to reduce the market supply and to re-introduce a new equilibrium; a more sustainable balance between supply and demand. Another interesting observation, is that I know of several local agents who are taking this opportunity to pick off a few of the bargains on offer to add to the family portfolio' could they know something the U.K. media don't?
What do you feel about current local price levels?
When you consider the Spanish climate, lifestyle, quality of infrastructure, healthcare, much lower general cost of living, the crazy politics and lawlessness of the UK society etc. how do we really rationalise U.K. buyers' expectation of prices here being any lower than those of their homeland?!! The fact is, of course, that even at current exchange rates, property prices here, despite the above, are still around 20-40% less than in the U.K. I really don't see too much scope for further falls unless the U.K. market collapses.
Should buyers wait for a better currency rate of exchange before committing to the market?
Frankly, I think not. If one looks back to the peseta years and takes the long term average rate, then converts that to a Euro/GBP exchange rate we arrive at a rate in the low to mid 1.20s to the pound, so I am afraid this is really just back to situation normal'. The problem is really with the pound, not the euro, and I personally don't expect the rate to reach beyond a trading range of 1.20 to 1.30. I really feel buyer's maths should be re-calculated along these lines.
So when should buyers commit to the market?
It would take a very brave man or a fool to call the bottom of this, or any kind of market, without the benefit of hindsight! The Euroconstruct Forecast Group, which consists of 19 European research institutes, expects the Spanish property market to have returned to normal within three years (2011). One might reasonably predict that this translates to a flat period for 2008-9, with an upward recovery during 2009-10, in order to achieve this situation by 2011. The general market malaise began in Spain a year or so ahead of that in the U.K; so one might reasonably expect Spain to start its recovery ahead of the U.K. by a similar period. This situation will need careful monitoring in order for determined buyers to avoid the danger of being caught with their target market recovering, whilst still trying to sell their U.K. home in a market which remains stagnant.
So, who are the losers and who are the winners?
Sadly the first losers are those unfortunate vendors who need to sell. Also the bad guys: the more greedy and foolish of the developers, and the more idle and complacent of the agents. The winners are those buyers who keep their nerve, seek good guidance from the more trustworthy agents and the advice of a good solicitor. For the next year or so we have a rich hunting ground, particularly if they seek out quality properties in the better locations. Of course, the best buys are always the first to sell, so this really is a case of fortune favours the brave'. Another by-product of this market correction is that many owners who refuse to sell holiday homes at the current prices are, instead, looking to rent them out. This has created another soft market and the winners will be those wishing to rent a villa for holidays or viewing trips, as the extra supply will reduce rental rates which hopefully will cancel-out any fuel and flight cost increases for those visiting Spain.
Can you back all this up with any facts and figures?
Yes, I conducted a straw poll of the top local market practitioners whose consensus view confirmed the following:
Current %age fall from top of the price cycle: 15.0%
Previous year of comparative values: 2004
%age of properties sold since 1.1.08 18.5%
%age of property price reductions since 1.1.08 30.0%
%age of property withdrawn since 1.1.08 6.5%
I quote that illustrious doom-sayer and Sunday Times columnist of all things bad about the Spanish market Mark Stucklin; even he has found it in his heart to proclaim a few isolated positives in recent months, as follows:
"but if you want an attractive property in a desirable location, then now is the time to start looking.
Quality property is always in short supply, even in recessions. The good stuff isn't going to collapse in price."
"I don't think there is a hurry to buy now, but you might miss the buyer's market for quality property if you leave it, say, two years."
"Over the longer term, quality property in Spain is a good store of wealth, and a source of happiness, do buy at a good price now, and you are unlikely to regret it."
In conclusion we seem to agree that:
* Quality properties in better locations will prove to be a robust investment, even in difficult times.
* The current market dip has thrown up some excellent investment opportunities, particularly for those looking to buy in the more sought after areas.
* These market dips do not go on for ever; buying against the trend can produce rich rewards.
Now may be a good time to look around for an opportunistic purchase, but do seek out good local advise before making a commitment.
I hope you find the above informative. Should you require any further guidance or assistance, please contact me at: SELECT Villas of Moraira, Tel. 96 6490 861, email info@select-villas.es or visit our website www.selectvillasofmoraira.co.uk .
CHRIS GARWOOD (Partner),
SELECT Villas of MORAIRA
& Costa Blanca SELECT
Chris & Linda Garwood Partner, SELECT Villas of Moraira, Moraira, Alicante, Spain.
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