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Why Spain – Why now: A Property Market Overview

C

Cogress

New Member
Based on the latest facts and figures and despite Spain’s downturn, the country has managed to bounce back out of the economic crisis, managing to exceed its pre-crisis level of gross domestic product. Nine years after Spain slid into a long and bitter recession, the country is back where it was in 2008.

After three years of impressive economic growth, Spain is about to pass a crucial milestone on the road to recovery. Nine years after sliding into a long and bitter recession, the country is now on track to exceed its pre-crisis level of gross domestic product.

Arguably the seeds of Spain’s economic downturn were sowed during the years of artificially low-interest rates that followed the launch of the European single currency in 1999. A country with a history of high inflation and high-interest rates was suddenly able to borrow at dramatically reduced rates on financial markets. That fall in the cost of money sparked a credit as well as a property boom that led to excessive borrowing, record housing starts and inflated real estate prices. As a result of the high leverage that built up across the economy, the country was left vulnerable to effects of the global financial crisis of 2008-09. The construction, real estate as well as the banking sector were rocked to the core by the twin collapse in credit and property prices.

The correction that ensued has done away with significant economic imbalances accumulated over the boom period. The banking sector has consolidated, the record external account deficit has been reduced and the contribution of residential construction as a percentage of GDP has fallen from a peak of above 12% in 2008, to 4% of the economy in 20131.

Spain finally emerged from this severe recession in 2014 and since then its economy has been outperforming its European peers, growing at 3.2% in 2016. Sustained economic growth and an initial reform of the rigid labour market have led to a significant reduction in unemployment, which has fallen by 9.7% (CAGR) from the heights it reached in 20132.



Real GDP Growth (%)



Source: OECD, Economic Outlook, March 2017



Unemployment Rates (%)



Source: OECD, Economic Outlook, March 2017

The real estate bust led to a substantial stock of unsold new dwellings which, combined with a lack of availability of mortgage financing, contributed to a sharp fall in property prices. Since 2014, however, the Spanish residential real estate market has seen increases in average selling prices.



House Prices (Annual %)



Source: OECD, Economic Outlook, March 2017

Even though Madrid and Barcelona have also seen a spike in investors’ interest in property, both capital cities remain affordable compared to their Western European peers3.



Average size of new dwelling for EUR 200,000



Source: Deloitte



Total housing transaction have also been on the rise since their low point in 2013. Existing housing stock has made up the bulk of transactions, though new housing starts enjoyed 70% annual increase in 2016, to approximately 85,000 units.



Total Housing Transactions – Value (LHS) and Volume (RHS)



Source: INE



The transaction price per square metre of new dwellings in Spain has risen since 2014 but remains attractive relative to all Western European markets bar Portugal.



Average transaction price of new dwelling (EUR/m2)



Source: INE, Deloitte



In terms of regional performance, Madrid, Barcelona as well as the coastal markets of Southern Spain have seen the greatest concentration of activity in terms of total property transactions4.



Property transaction by provinces in the first half of 2016



Source: INE, Deloitte



Investors interest spikes in Spain
In spite of improved activity levels and higher property prices, the residential real estate cycle remains attractive, especially when compared to the majority of other European markets. House prices in Madrid and Barcelona remain cheap relative to their cyclical peaks, providing investors with capital growth opportunities5.

The improvement in underlying economic performance has brought Spain back on the radar screen of international investors. Property investment has especially benefited from this reversal of trend, with the residential property market the beneficiary of significant inflows of foreign as well as domestic funds6. In 2016, the main focus of investor interest were Madrid and Barcelona.

In addition to the cyclical improvement, the real estate market has also enjoyed structural improvements. The arrival of several international institutional investors that have purchased local property developers has injected capital as well as new level of professionalism into the sector.



Sources

1 http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&pcode=tipsna50&language=en

2 https://www2.deloitte.com/la/en/pages/real-estate/articles/international-property-handbook.html

3 https://www2.deloitte.com/be/en/pages/real-estate/articles/be-deloitte-property-index-2016.html

4 JJL, Residential Report, November 2016, page 30

5 JJL, Residential Report, November 2016, page 43

6 JJL, Real Estate Investment Market Report, March 2017
 

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Nicholas Wallwork

Nicholas Wallwork

Editor-in-Chief
Staff member
Premium Member
Great post thanks for sharing... it certainly looks like Spain is yet again a good opportunity for property investors and not just for the fabulous climate!

It's always been popular with the Brits too so given the solid growth now it should be a serious option for investors again...


Sent from my iPhone using Property Forum
 
L

Lee Filkins

Administrator
Staff member
Premium Member
Spain is the most popular country for UK residents buying property abroad. The Home Office estimates that close to 400,000 UK expatriates live there. It is just as simple to buy property in Spain as it is in the UK - as long as you take the correct professional advice, and proceed with caution.

Over the years, high demand has led to the development of various unscrupulous practices by developers, lawyers and estate agents. There are an estimated one million illegally built Houses in Spain, of which it is believed around 10 per cent were purchased by British buyers. Some Britons have seen these Homes demolished and been left out of pocket.

There are many reputable estate agents in Spain, mainly members of the API or GIPE (professional real estate associations),who can provide an experienced guide to the locations you prefer. But this is a deregulated industry in Spain, and almost anyone can broker a property sale, so choose your estate agent with care.

You should always engage the services of an abogado (qualified lawyer),registered with their local Bar Association. It is only registered lawyers who will have indemnity insurance. Do not take up any recommendation of the selling estate agent. Unless your Spanish is excellent, make sure they are English-speaking so they can guide you through the purchase process without language barriers. The gov.uk website has lists of English speaking lawyers across Spain and its islands.


The legal process of buying Spanish property will always include a notario (notary). There is no real equivalent in the UK but they are effectively a neutral lawyer for the Spanish state, who makes sure all the legal documentation is correct and that all taxes are paid.

Once you have found the property you wish to purchase, you may be asked to sign a reservation contract. While not a necessary part of the buying process, signing a reservation contract should mean the property is no longer marketed by the estate agent. This may seem to be an innocuous document, but it is roughly equivalent to being sold subject to contract in the UK. You should therefore have your lawyer review this document before signing.

The next stage is a private purchase contract - the equivalent of an exchange of contracts in the UK. At the point this contract is signed, the buyer becomes legally liable to complete the purchase and will, at least, lose their deposit (normally 10 per cent) on withdrawal.

It shouldn’t be rushed, but if outstanding matters remain, such as obtaining a Spanish mortgage, or legal searches, then it is possible to include various conditions, or “get-out” clauses.

If those clauses are not subsequently met, you could still be involved in a legal battle to extricate yourself from the contract, however, so it is always preferable to deal with these matters first. You will then need to:

1. Establish you can borrow the right amount of mortgage, and have it legally in place.

2. Obtain the services of a valuer. If the property is a large independent property, the valuer will establish that what is showing at the land registry is accurate. If an application has not been made and the relevant license granted to increase the property size, this could mean that parts of the property are illegal. This must be resolved prior to purchase.

3. Utilise the services of a surveyor. A Spanish survey will consider things like the adequacy of foundations, the utilities, the presence of insects, whether asbestos is present and the condition of the roof. Contracts are not subject to survey in Spain, so it is important these issues are unearthed in advance.

4. Ensure all legal searches have been completed. If you are purchasing a new build, this will allow you to establish that the property is being built legally, the extent of local development, and what is expected to be built immediately surrounding your property.

When choosing an existing property, the searches will establish if there are any outstanding fines, debts or bills with the authorities, utilities or banks. In Spain these attach to the property, not the individual, and you may become legally responsible if they are not cleared prior to completion.

5. Ensure that the full value of the property is shown in the documentation. In the past, under-declaration of the sale price was a routine means for the seller to reduce capital gains tax. You may still come across the odd vendor asking you to declare you are buying the house at a price that is lower than the real price agreed – the difference satisfied by a cash payment. The seller may assure you this fraudulent practice is perfectly normal in Spain, but it is not.

The “fiscal value” is the value of the property registered at the town hall, and is used by the tax authorities in Spain in assessing any purchase taxes payable. Your Spanish lawyer should emphasise to you the legal and financial consequences of paying taxes on completion based on a price which is less than the fiscal value.

Buying a property in Spain needn’t be a daunting prospect. It is, however, crucial that in your rush to buy the property of your dreams, you do not find you are buying a house with issues that could come back to haunt you later.


 
M

Michelle Barringer

Member
Forum Partner
Thanks for this info - its always interesting to look at trends in markets and certainly helps to identify opportunities
 
C

Cogress

New Member
Spain is the most popular country for UK residents buying property abroad. The Home Office estimates that close to 400,000 UK expatriates live there. It is just as simple to buy property in Spain as it is in the UK - as long as you take the correct professional advice, and proceed with caution.

Over the years, high demand has led to the development of various unscrupulous practices by developers, lawyers and estate agents. There are an estimated one million illegally built Houses in Spain, of which it is believed around 10 per cent were purchased by British buyers. Some Britons have seen these Homes demolished and been left out of pocket.

There are many reputable estate agents in Spain, mainly members of the API or GIPE (professional real estate associations),who can provide an experienced guide to the locations you prefer. But this is a deregulated industry in Spain, and almost anyone can broker a property sale, so choose your estate agent with care.

You should always engage the services of an abogado (qualified lawyer),registered with their local Bar Association. It is only registered lawyers who will have indemnity insurance. Do not take up any recommendation of the selling estate agent. Unless your Spanish is excellent, make sure they are English-speaking so they can guide you through the purchase process without language barriers. The gov.uk website has lists of English speaking lawyers across Spain and its islands.


The legal process of buying Spanish property will always include a notario (notary). There is no real equivalent in the UK but they are effectively a neutral lawyer for the Spanish state, who makes sure all the legal documentation is correct and that all taxes are paid.

Once you have found the property you wish to purchase, you may be asked to sign a reservation contract. While not a necessary part of the buying process, signing a reservation contract should mean the property is no longer marketed by the estate agent. This may seem to be an innocuous document, but it is roughly equivalent to being sold subject to contract in the UK. You should therefore have your lawyer review this document before signing.

The next stage is a private purchase contract - the equivalent of an exchange of contracts in the UK. At the point this contract is signed, the buyer becomes legally liable to complete the purchase and will, at least, lose their deposit (normally 10 per cent) on withdrawal.

It shouldn’t be rushed, but if outstanding matters remain, such as obtaining a Spanish mortgage, or legal searches, then it is possible to include various conditions, or “get-out” clauses.

If those clauses are not subsequently met, you could still be involved in a legal battle to extricate yourself from the contract, however, so it is always preferable to deal with these matters first. You will then need to:

1. Establish you can borrow the right amount of mortgage, and have it legally in place.

2. Obtain the services of a valuer. If the property is a large independent property, the valuer will establish that what is showing at the land registry is accurate. If an application has not been made and the relevant license granted to increase the property size, this could mean that parts of the property are illegal. This must be resolved prior to purchase.

3. Utilise the services of a surveyor. A Spanish survey will consider things like the adequacy of foundations, the utilities, the presence of insects, whether asbestos is present and the condition of the roof. Contracts are not subject to survey in Spain, so it is important these issues are unearthed in advance.

4. Ensure all legal searches have been completed. If you are purchasing a new build, this will allow you to establish that the property is being built legally, the extent of local development, and what is expected to be built immediately surrounding your property.

When choosing an existing property, the searches will establish if there are any outstanding fines, debts or bills with the authorities, utilities or banks. In Spain these attach to the property, not the individual, and you may become legally responsible if they are not cleared prior to completion.

5. Ensure that the full value of the property is shown in the documentation. In the past, under-declaration of the sale price was a routine means for the seller to reduce capital gains tax. You may still come across the odd vendor asking you to declare you are buying the house at a price that is lower than the real price agreed – the difference satisfied by a cash payment. The seller may assure you this fraudulent practice is perfectly normal in Spain, but it is not.

The “fiscal value” is the value of the property registered at the town hall, and is used by the tax authorities in Spain in assessing any purchase taxes payable. Your Spanish lawyer should emphasise to you the legal and financial consequences of paying taxes on completion based on a price which is less than the fiscal value.

Buying a property in Spain needn’t be a daunting prospect. It is, however, crucial that in your rush to buy the property of your dreams, you do not find you are buying a house with issues that could come back to haunt you later.

Great tips Michelle! thank you.

At Cogress, we're looking into equity investments in Spanish property development opportunities and always with a well established local partner.
 
M

menachem

New Member
Thank you for that rich in information post. However, I'm wondering if buying a property in spain is easy than here in UK?
 
C

Cogress

New Member
Thank you for that rich in information post. However, I'm wondering if buying a property in spain is easy than here in UK?
Hi Menachem,

Thank you for your message.

The market overview is focus more on the reasons why the Spanish property market is ready for UK investments and doesn't discuss the procedure of purchasing a property in Spain.

When buying a property abroad, whether it's for investment (buy to let) or buy to live, it is key to understand the local regulations and laws. So to answer your question, there's no clear answer, it really depends on who is the buyer, where is he from and what is the nature of the purchase.

We hope that makes sense,
Cogress
 
T

totallyproperty

Administrator
Staff member
Hi Menachem,

Thank you for your message.

The market overview is focus more on the reasons why the Spanish property market is ready for UK investments and doesn't discuss the procedure of purchasing a property in Spain.

When buying a property abroad, whether it's for investment (buy to let) or buy to live, it is key to understand the local regulations and laws. So to answer your question, there's no clear answer, it really depends on who is the buyer, where is he from and what is the nature of the purchase.

We hope that makes sense,
Cogress
What particular regions of Spain are you investing it? Is it coastal opportunities that are increasing in value more than cities or is it across the board?
 
L

Longterminvestor

Administrator
Great post!

I hear that the last of the repossessed properties are in the process of being sold so this should lift another cloud from the market. This is one of these situations where we will all look back in a couple of years time and say to ourselves "Yes, Spain was a no-brainer 2 years ago, why didn't we jump onboard the recovery?"

Has anybody considered the currency issues for UK investors in Spanish property?
 
C

Cogress

New Member
What particular regions of Spain are you investing it? Is it coastal opportunities that are increasing in value more than cities or is it across the board?
We currently reviewing residential opportunities mainly in and around the largest cities (Madrid, Barcelona etc.)
 
N

nmb

Well-Known Member
Have you seen much interest in coastal areas from the expat community?
 
C

Cogress

New Member
Have you seen much interest in coastal areas from the expat community?
We can see interest in the big costal cities like Barcelona, Palma de Mallorca, Malaga etc.
However our focus is residential developments rather than commercial/tourism ones.
 
N

nmb

Well-Known Member
Expats will flock back to Spain once the markets settle down - they are nibbling away already. However, it does look as though some investors are waiting for Spanish banks to offload their last lot of repossessed properties before the dive in :)
 
E

Europe Real Estate

New Member
The housing market is improving again, slowly this time (since 2015) led by the coastal cities, Madrid and Barcelona. In Madrid a lot of renovating is going on inside the cities nicer areas like El Viso and Chamartin area. Mortgages are pretty cheap again, around 1% plus euribor and they are actually offering down to 2.5% fixed rate or less if you sign up form more stuff),which is rare in Spain.
 
D

diyhelp

Active Member
I am not sure the worst is over for Spain - the independence issue in Catalonia just will not go away and is starting to impact the economy. We know that Catalonia is the engine room of the Spanish economy, if it were to go independent the impact on Spain would be huge!
 
C

Chris Garren

New Member
I am not sure the worst is over for Spain - the independence issue in Catalonia just will not go away and is starting to impact the economy. We know that Catalonia is the engine room of the Spanish economy, if it were to go independent the impact on Spain would be huge!
You are absolutely right. The independence issue of Catalonia starting to impact the economy.
 
N

nmb

Well-Known Member
I think the main kicker for Spain will come when interest in tourism and holiday homes does return (as it will). Brexit and other economic issues are holding back this kind of investment just now.
 
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