Sunday, 12th July 2020

This Month's Magazine
Schadenfreude or opportunity?

Schadenfreude or opportunity?

Look at Spain - By Count De La Perrelle

Schadenfreude or opportunity?
Perhaps some squeamish souls will feel a pang of guilt and some may just take pleasure from others misfortune but either way the property situation in Spain at the moment is definitely a buyer’s market.

Buyers can benefit twofold now because the pound will buy almost 25% more of the Euro than it did a few years ago and because of the economic setbacks here in Spain, property prices have become interesting and affordable.

Spain in general has become a bargain area and here in the Costa del Sol the property prices are especially interesting. There are properties available in Greece, Portugal and Italy but because their resorts were not overbuilt so extensively as the Costa del Sol, there are not so many properties available in these Countries
and the prices do reflect this situation. There has been some dramatic price falls here in Spain caused by the banks needing to shift their distressed housing stock. In some areas the banks are offering high loan-to-value mortgages on properties which have been discounted by some 70% compared to their peak in 2008.

All in all this creates a great opportunity for buyers, who can now borrow up to 90% (sometimes more) of the purchase price enabling them to achieve very substantial returns in the future. Even high end properties are fetching far less than their apparent value, for example: a property recently valued at 5 million was eventually sold for 1.2 million and then offered to the rental market returning a profit of 19% net!

Beware and scrutinise
Do remember though that any apparent bargains need to be deeply scrutinised with care before buying in any area of the Euro zone. With more than a million unsold homes in Spain which includes thousands of new build properties, there will always be a large overhang, meaning that demand will definitely exceed supply. This could last for some years causing a delay in any recovering prices. Also there is no guarantee that the price of property in any area will not fall further if there is a deepening of the Euro crisis.

My advice is to proceed with caution as buying properties denominated in a foreign currency could hold risks for buyers who earn in sterling – problems which
would not be encountered in Britain.


Raising funds
Most of the continental banks will only lend in Euros. There is always some risk to having a foreign currency mortgage when you earn in Sterling. If you can match
the currency of the property and the debt this will provide some security. For example: If you manage to raise your funds required in Sterling and then convert to Euros on today’s rate, then wish to sell in few years the property’s value will be in Euros. In this case you could find that any gain in the value of your property has been lost due to the conversion from Euros to Pounds. As far as availability of mortgage finance in the Eurozone is concerned France still has many lenders who will be prepared to finance overseas Clients with a wide range of options available. By contrast however, Spain has far fewer lenders who will finance overseas buyers.

The maximum “official” loan to value in Spain at the moment is 60% with interest rates starting at 4.5%. Italy and Portugal will lend up to 80% LTV but interest rates are much higher. Remember also that costs and property purchase taxes in Europe also tend to be higher than in the UK and usually exceed 10%.

Take time and do it properly.
Do remember to always use a bilingual lawyer and for goodness sake do not cut corners. If you buy without professional advice you will possibly encounter problems with full ownership or find that your title is impaired by unexpected debts. Do not ignore the protection of property laws wherever you are. Spain is looking at further ways to increase any real estate transactions by attempting to simplify the process.

One of the main plans is to offer residency permits to foreigners who purchase property at more than 160,000 Euros. This has already been done in Portugal and Ireland. Look out for a distressed sale and check with your legal people that all is in order. Spain needs to improve its brand image and strengthen the real estate laws that had not been enforced and which allowed some regional and local authorities to approve construction of houses that totally violated environmental laws or other regulations.

Spanish property is now less of a risk than it has ever been. If you proceed correctly and investigate your project properly then you may well be able to use very little of your own money and benefit from falling prices and the falling Euro. Even if the Euro plummets or that the worst happens and Spain decided to leave the Euro, (which is not very unlikely) the value of mortgage debt will also be reduced.

Remember that getting good value rather than a bargain is probably the way to go.

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