Demand for Spanish property facing a number of issues
Image Demand for property on the Spanish Costas has increased from expats who are benefitting from good mortgage rates and there is a rise in construction activity with a number of new developments being started, according to a new report.
It also explains that there are a number of other factors likely to affect the real estate market in the coming months including currency rates, the Spanish election and in Andalucía new rules regarding holiday lets.
Expat demand is coming from the UK, Scandinavia, and Germany with other northern Europeans also active in the market, says the report from the Survey Spain network of chartered surveyors covering the first quarter of 2016.
However, there is likely to be an increased nervousness in the market as the British referendum approaches on 23 June because of fears that the poll will support the UK leaving the European Union.
The threat of a Brexit and currency exchange rates are just a couple of major issues that could affect the Spanish property market. The report says that doubt about the referendum result and it’s after effects are causing UK buyers and sellers to hesitate.
In addition, the fall in the value of sterling, from the €1.40’s to €1.20’s in the last three months has made the relative costs of property in Spain much more expensive for UK buyers but of course better for those wanting to move back to the UK.
‘However, the latter will be concerned that there is more reduction in value to come and so may decide to hold onto euro asset until closer to the referendum in the UK on 23 June,’ the report says. It refers to a recent letter received from a client which says they are concerned that if the UK leaves the EU then property prices in Spain may fall considerably.
There are also risks associated with a change of Government in Spain. The firm has found that more than one client has stated that they will sell and move if a left wing Government should be elected. ‘Again, the uncertainty could be causing buyers and sellers to pause until there is a result, which could be before the end of May or, with a new election, at whenever a new Government is established after the end of June,’ the report points out.
The property market could also be affected by decisions made by Spanish banks who still own a lot of properties due to the economic downturn. The Spanish banks are obliged to update their valuation of assets practice to include regular annual or bi-annual valuations of each individual asset.
The report explains that this has seen Sareb, the Spanish bank rescue bank, announce a write down of their portfolio by more than €2 billion in addition to a €968 million write down in the past two years.
‘It may be that many private banks will have to do the same, which may result in them lowering the asking price for properties they are trying to sell, thus reducing the market level as a whole. The reduction of asset values also could reduce the banks’ ability to offer mortgages. It could lead to a downward spiral again,’ the report adds.
Demand and supply is also likely to affect the housing market. ‘There has been a widely reported analysis of Spanish home demand over the next 10 years that anticipates a substantial amount having to be built to meet that. However, as it was prepared on behalf of a construction consortium, this is looked upon with some scepticism as there is still a substantial amount of property available for sale in all sectors of the market,’ the report says.
‘Prime locations are seeing some scarcity with prices definitely hardening and increasing.
However, the prices for resale properties have not shown any significant increase overall, with any reduction in supply due to sales being countered by additional properties coming on the market due to the perceived activity. There are still significant discounts being offered to achieve sales,’ it explains.
‘Some of the demand is coming from speculative purchasers, acquiring properties with the intention of remodelling and renovating and then selling on. Thus the property is not really removed from the market, merely moved up a level,’ it points out.
‘However, the costs of acquisition and sale are still high and these are increased for the seller by the legal requirement for an energy certificate and a topographical survey to provide an accurate description and plan in the title and catastral,’ it adds.
Another issue is new regulations that come into effect this month in Andalucía, an area popular with overseas buyers that restrict the previously ‘free’ market in tourism rentals to those that meet the registration requirements and have registered. The report suggests this is likely to have an increasing restraint on demand.
‘Many buyers anticipate occasional rentals covering the fixed annual running costs of the property with many assuming that they will be able to avoid taxes on that income. That is going to be a much more high risk option as the authorities monitor all management companies and internet and other advertising. The true costs of ownership will become clearer and this may reduce demand,’ the report says.
‘In addition, meeting the requirements of the regulations could be costly and appear superfluous in properties that currently meet the requirements of most tourism occupiers. However, properties already meeting these requirements and being registered with the authorities are likely to have an increased value. If the property does meet the requirements, it is probably to the owner’s advantage to have it registered in any case, whether they intend to offer it as tourist accommodation or not,’ it adds.
Meanwhile, the latest figures from Survey Spain show that values in the first quarter of 2016 were lower than previously, but that is probably just the result of the size of the database. The highest is a villa in Marbella valued at €6,781 per square meter while the average is €1,730 and the lowest a derelict and vandalised villa at €703.
The report looks at the differences between valuations, asking prices and buying prices. In the third quarter of 2014 the difference between asking prices and actual prices paid was 15.8%. This fell to 11.4% in the fourth quarter of 2014, rose again in the first quarter of 2015 to 18.64%, was down to 10.73% in the second quarter, to 8.72% in the third quarter and has gone up again to 9.38% in the final quarter of 2015 and 11.68% in the first quarter of 2016.
According to propertywire, “The difference between the firm’s valuations and asking prices has also varied. It was 20.65% in the third quarter of 2014, 19.43% in the fourth quarter of 2014, 16.55% in the first quarter of 2015, 17.09% in the second quarter, 14.26% in the third quarter, 22.64% in the fourth quarter and 21.53% in the first quarter of 2016.”
‘Over all the quarters our valuations average 96.14% of the known actual buying prices, which is a better statistic to be considering. Unfortunately, due to the difficulty of obtaining information, the number of accurate buying prices we can obtain is relatively low,’ the report says.
‘We are of the opinion that the above records showing the difference between asking prices and buying prices and valuations are the most significant information for buyers. However, as agents and sellers become more bullish, with the number of transactions reported to be increasing, we are finding the asking prices of a number of properties are being increased,’ it points out.
‘This permits the seller to offer a similar % discount as before, but to obtain a higher price, and may account for the slight increase in percentage between asking prices and actual buying prices,’ it adds.