Quarterly Market Report Spring 2015

This is our sixth quarterly Report.

As part of the research we have identified a number of wider and national property comments that may be of interest and provide links to these.

N.B. The majority of this report was prepared prior to the result of the Greek referendum being announced. It has now been declared as a rejection of the terms offered by the financiers. We are aware that its result may make significant and sudden changes to the demand for and even supply of properties. The demand could slow as non-euro buyers hesitate to invest in a troubled currency and consider that the euro value may decrease and so make their purchase ‘cheaper’. For sellers, they may wish to sell before any further downturn and also be seeing less demand. The situation in Spain is now less certain as Greece has a debt of 25bn€ euro to Spain and it’s businesses and it’s default on that could affect Spain’s financial stability.

• From hearsay information, as with last quarter, we are of the opinion that properties in prime locations are seeing increases in asking prices throughout the Spanish Costas, with competition ensuring that any significant discount requested by the buyer, is unlikely to be granted by the seller confident that in a rising market, they will achieve a sale without doing so.
• However, from our experience in a few cases we understand that discounts may be negotiated or even sales lost as buyers and agents lose patience and move on to other properties due to the delay caused by finding significant faults with the building or the paperwork after completion of the private contract.
• One representative of a major agency stated that discounts that had been 15 to 20%, were now back to the ‘normal’ 10 to 5% or even less.
• Another agency has complained that they cannot find prime properties anymore and that whilst for the previous 5 to 6 years it was the buyer who was in demand, now there is a surplus of buyers and a shortage of prime properties.
• We are informed by agents that in some locations, such as prime beachfront apartments, they even have a waiting list for properties, which will ensure that the requested price is likely to be achieved. In these instances, prices are definitely rising.
• One of the major reasons for this is the increasing availability of mortgages, both in Spain and in many of the buyers’ home countries. This in turn will lead to an increase in prices as the supply is limited and very slow to increase in prime areas. However, it is noticeable that there are more cranes and construction traffic on the roads, indicating new building sites, and an increase in demand for individual house plots.
• Eventually, the increasing prices will force more modest buyers to seek properties within their price range and so the increase in buyers will ‘ripple’ out to off prime locations and ‘troubled’ properties.
• However, it is still the case that as before, once a property is ‘off prime’ there is a struggle to sell if the price is not competitive and/or sellers are not prepared to offer a significant discount.
• Problems with the property, physical and/or with the paperwork also have a similar significant effect even overcoming location attractions. Buyers are much more informed than in previous years and are more cautious about identifying and taking on problems than in previous years.
• Sometimes though, the strength of interest can be so strong overcoming prudence or buyers can be wrongly advised. We recently carried out a building survey of an apartment where we informed the ‘buyer’ our client, that a similar property had just been sold for 200,000€ euro. Subsequently, we were told that he had been on the point of buying at 400,000€ euro, but has now declined to do so and stopped using the agent who was ‘advising’ him.
• Survey Spain is recording prices and valuations throughout our Network. Due to the limited number of properties and the even more limited number of reliable sale figures, we are only able to provide a meaningful analysis of prices and values for Alicante and Málaga Provinces this quarter. However, as before, we have commented on the majority of the local Costa areas, with the opinion sourced from our valuers, agents and other sources in the areas.

VALUE PER SQ M FOR THIS QUARTER.

• There is a substantial range over the whole area.
  • The highest is a villa in Benahavis valued at 3,622 € euro per sq m.
  • The lowest is semi-ruined townhouse in a rural pueblo in Granada province at 161€ euro per sq m.
• Averages in the Provinces for the last quarter of 2014; the first of 2015 and this quarter. (We have excluded the Provinces where there is insufficient evidence to be statistically accurate.)
  • Cádiz: (principally Sotogrande) 2,013€ euro/sq m – 2,417€ euro/sq m – 2,685€/sq m
  • Málaga: 2,302€ euro per sq m – 2,332€ euro per sq m – 1,907€ euro per sq m.
    • Whilst we have a substantial amount of information available for Málaga, the range of values in each quarter does vary significantly and therefore makes the averages difficult to compare. i.e. in this case from 3.3M down to 48,000€ euro
  • Almería and Murcia: 1,416€ euro per sq m – 1,362€ euro per sq m – 1,377€ per sq m.
  • Alicante: 1,422€ euro per sq m – 1,662€ euro per sq m – 1,553€ per sq m
    • See comment for Málaga.
  • Baleárics: insufficient information – 2920€ euro per sq m – insufficient information
• Analysis of all the Asking Prices, Buying Price and Valuations over the period from the start of our record in 2014, indicates the following-
  • The % difference between Asking Prices and actual Buying Prices has reduced from 15.8% to 10.73%.
  • The % difference between Asking Prices and our Valuations for banks has reduced from 20.65% to 17.09%.

Based on the above, and bearing in mind the small number of the sample, we are of the opinion that there are increases in value in most areas. We consider this as evidence that the steady fall in values has come to an end, for prime property at least.

THE MARKET IN INDIVIDUAL AREAS.

(Note that the rates per square metre may be averaged from a small number of properties in some cases. We have continued to supply these as we believe that they will show a trend over a number of quarters, whilst the variation between one quarter and the next may be ‘out of step’ with the perceived trend )

• SAN ROQUE AND LA LINEA, INCLUDING SOTOGRANDE.
  • Sotogrande is the principal source for our information in this area in this quarter.
  • Rate per square metre for villas only – 2,685€ euro per sq m
  • The rate increase since the last quarter is significant as the property styles are similar.
  • There are fashionable and unfashionable ‘pockets’ in the area and thus there is a range of values.
  • As mentioned previously, the ownership of Sotogrande has changed. We were fortunate to talk with one of the advisors to the buyer, who stated that the new owners intend to bring up the quality of the infrastructure and commerciality of the area, making it more attractive to residents and selective tourists all the year round and looking to centre it on an up-market ‘Puerto Banús’ style commercial area, whilst benefitting from the adjacent existing ‘pueblos’.
  • As before, there has been an increase in interest in property in the area and gradually the substantial amount of properties available both on and off the market are being taken up.
  • We have no reason to believe this will not continue with it eventually causing prices to rise slowly, though this will happen more quickly in the fashionable areas.

• MANILVA
  • Insufficient evidence for statistics.
  • Beachfront property is in demand and the attractions of the services in Sabinillas are making it more of a centre.
  • Duquesa marina is being tidied and showing better proactive management. It has been stated as a ‘draw’ to live in the area and thus should renew demand.
  • However, there are still substantial areas of urbanisations available in the hills behind, for which purchase at any time is uncertain.

• ESTEPONA
  • Estepona is part of the ‘Golden Triangle’ of Marbella, Benahavis and Estepona and thus is benefiting from the increase in these markets.
  • Rate per square metre – 1,861€ euro per sq m
  • Again there are a limited number of properties, but it shows a significant increase which reflects market perception.

• BENAHAVIS
  • La Zagaleta previously had a substantial number of properties available, but agents report that there has been considerable buying demand so that the stock is reducing.
  • Rate per square metre – 2,983€ euro per sq m. This is a drop from the previous figures, but that reflects that the bulk of the evidence this quarter has been from locations that are good, but less than top of the market.

• MARBELLA
  • As stated previously, Marbella is the worldwide address known on Costa del Sol. It covers a wide variety of locations and values. Whilst renowned for its glittering lifestyle, there is the other side where there are daily soup kitchens, food banks and families with significant mortgage arrears.
  • There are more new developments being constructed within the area and activity is strong. The local agents, of which there are a great many, all report optimism both on the part of the sellers and buyers, which is leading to a gradual increase in asking prices and values paid.
  • One agency has reported that their client is increasing the prices of apartments in the second phase of their development by more than 20%, now that the first phase has been sold.
  • The completion and commercialisation of the new park over the tunnel in San Pedro de Alcántara has brought a significant increase in interest in the town in general and in Nueva Alcántara in particular.
  • Rate per square metre – 2,188€ euro per sq m
  • As with Benahavís, the change in rate is principally due to the different selection of property in the sample.

• MIJAS AND FUENGIROLA
  • The quality of location and property vary significantly throughout this area.
  • There is a significant amount of property still available, but agents report a strong level of sales, which will reduce the supply and if demand continues will inevitably lead to an increase of values.
  • Rate per square metre – 1,753€ euro per sq m. The size of the increase since the last quarter reflects the quality of property involved rather than market generally.

• BENALMADENA
  • Similar market situation to Mijas and Fuengirola in its western section, with older multi-storey and generally poorer quality property near the coast.
  • Rate per square metre – 1,501€ euro per sq m.
  • Agents report continuing demand for all property types.

• ALMERIA, MURCIA AND COSTA BLANCA
  • See above for rate per square metre.
  • Especially in Northern Costa Blanca, which tends to be more quality property, there is a strong demand and prices are beginning to rise.
  • North Murcia and southern Costa Blanca also have strong demand, but there are so many properties available in these areas, many of them largely identical and with few locational unique selling features, that it is likely to be some time before the market here recovers and begins to show significant growth.
  • Almería is seeing growth in special areas, but is still blighted by so many illegal properties.
  • Comment by local valuer for Almería and Murcia –
    • “Prime areas are recovering quite rapidly, with price rises up to about 10%.
    • Strength of the Pound against Euro helps.
    • Secondary areas just about holding their own, but fringe areas still struggling and the Spanish market still in the doldrums.”
  • Comment by Local Valuer for Costa Blanca and Murcia –
    • “Definite improvement in the market over the last three months, but very mixed with some prime locations (especially those popular with buyers from the UK such as Javea and Benidorm) showing price increases, whilst prices in tertiary locations still decreasing slightly.
    • Overall prices in the Comunidades of Valencia and Murcia remain relatively stable with slight decreases of between 2% and 4% in the last three months.
    • There is evidence that developers are re-entering the market, as well as an increase in the number of private houses being built.
    • Any recovery, though, is delicate and is partially dependant on euro – sterling exchange rates.

• BALEARICS
  • The market here is continuing to be strong and prices are undoubtedly increasing in most areas.
  • There are many exceptional locations and due to the strict planning guidelines restricting numbers, properties located there are experiencing stronger demand and increasing prices.
  • Comment by local valuer for the Balearics –
    • The foreign market is more buoyant – top and bottom end better – middle still struggling.
    • UK buyers not here in the numbers I would have thought likely considered conditions.
    • No sign of Spanish buyers back yet – their ability to borrow not quite there yet. Salaries still low, unemployment still high, etc.
    • Ibiza still “recklessly” expensive – I wonder how long it can remain so fashionable?

• GENERAL
  • We attended a property exhibition in London in May and the breakdown of locations for which people were enquiring over the 3 days is as follows.
    • Costa del Sol – 39%
    • Costa Blanca North – 6%
    • Almeria – 5%
    • Costa Blanca South/Murcia – 9%
    • Balearics – 3%
    • Canaries – 3%
    • Barcelona – 7%
    • Other Areas – 7%

COMMENT

• In each of our valuation reports we provide comment on the general market. I include a copy of that below on the understanding that this report may go to others who are not necessarily seeing our reports on a regular basis. I have also updated the information since the previous report.
• The property market in Spain has been depressed for at least 8 years. However, it is clear that in the popular areas demand is returning, principally from abroad. As there is still so much property available it is likely to have an insignificant effect on the quantity for some time, except in the best areas, where there are signs of a shortage. Preferred locations and property styles will always experience interest and the prices for these properties return quicker. Competition for these properties is even resulting in some values rising again.
• However, due to the shortage of mortgage finance, buyers who had finance available had a considerable advantage and could negotiate strongly with sellers. We note that more mortgages are becoming available, which in turn is strengthening demand, so that sellers are more reluctant to offer discounts, now have the hope that prices may rise and so are prepared to experience a delay in sale in order to achieve the price they consider is appropriate.
• There are a number of properties available in the area with asking prices varying widely. Some have frontline views; some are being sold fully furnished; others obviously have never been occupied; others have been on the market for a considerable time and still are offered at out-of-date high prices; whilst there are still some ‘distressed’ sellers who really need to sell as soon as possible and thus reduce their price to their minimum, which may be below the ‘rational’ market value.
• In addition, due to pressures from the Bank of Spain/European Union, banks in Spain have been under pressure to dispose of their ‘acquired’ property assets or revalue of them realistically. A substantial amount of ‘distressed’ portfolios have been sold. The Spanish ‘Bad Bank’, SAREB took many of the most indebted properties and is offering them for sale. Although the Banks/SAREB were dropping their prices well below the level of debt owed to them in order to sell, we have noted a hardening in their attitude as they become more confident of a rising market. In addition, they are offering up to and sometimes effectively more than 100% mortgages, all of which makes the competition for an individual seller extremely difficult to combat without reducing prices even further.
• In order to reduce their debts further, the Banks have been selling their ‘good’ real estate or at least their management and agency businesses, to large international investment companies. The attitude of these investors to their real estate may be significantly different from that of the banks, perhaps wishing to hold for longer term gain or to selling at a discount for early lesser profit. It does not appear to have had a significant effect upon the individual property market.
• There has been uncertainty surrounding the future prospects of the euro, with the change in the exchange rate being substantial over the last few months; benefitting buyers from outside the Eurozone, but causing problems for sellers who are intending to relocate outside the Eurozone. This is leading to buyers being prepared to increase offers in euros to partially take up the currency exchange margin they are benefiting from; fortunately matching the requirements of sellers in being less likely to consider reductions in the asking price.
• There is still uncertainty about the Spanish economy and its governance. The cuts in public spending are ‘biting’ fully and many Municipalities have substantial debts, which may prevent them from carrying out maintenance and other services. However, with the local council elections giving results indicating the division of public opinion to smaller parties and a general election being due in December of this year, political expediency may ‘hide’ these problems, but with them coming back significantly after the election. In addition, many communities of owners have significant shortfalls in income that will again mean that community services cannot be provided to the house owners and that the community charges are rising significantly.
• However, whilst the domestic residential property market continues to falter, the market amongst foreigners is active, driven by foreign economies such as the UK, Nordic, other Northern Europeans and, formerly, Russians. Foreigners recognise the inherent attractions of living in Spain, especially as a place to holiday or retire to, and they are buying property ‘bargains’ counter cyclically. There is a good demand for well-priced properties that are offered at 40% to 60% less than what they might have been valued at in 2007. For a property to sell it needs to be genuinely well priced, photogenic and attractively presented. In the most popular locations and developments the strength of demand has seen asking and sale prices rising.
• One of the major groups of buyers recently has originated from Russia. The effects of the significant reduction in the Russian economy and financial sector over the last year or so have reducing demand at all levels, which will be affecting all property values. However, it may also increase demand in the few Russians with funds outside the country as they seek to acquire property in order to be eligible for residence within Europe. (See below)
• A significant increase in demand from UK buyers is being experienced due to the changes in the pension/annuity rules. They are releasing access to substantial amounts of capital to senior citizens who may consider buying a property in the sun.
• In addition, the Spanish Government has announced that any non-EU national buying property totalling more than 500,000€ euro will be granted residence in Spain, thus enabling them to travel freely throughout the open border areas of Europe, transfer funds, etc. This is an encouragement to wealthy foreign nationals and their family who are residents of apparently less politically ‘fair’ governments to spread their assets into a more democratically responsive location.
• A less welcome Government decision that has reduced demand relates to the requirement for all residents to declare all worldwide assets to the Spanish tax authorities. Undoubtedly, this disclosure requirement has discouraged some wealthy potential buyers who require more privacy. However, it has been reported that the EU has objected to this legislation and imposed a fine on Spain. Accordingly, the requirement may be amended in the near future.
• Another draft law that is being considered or already active in many Regions is that no private property can be let on a holiday basis without the property being registered and subject to specific levels of facilities and regular inspection. Whilst this will improve the quality of the letting market, it will also increase the costs and bring the perhaps previously casual use to the attention of the authorities. Some buyers may be dissuaded if the economics of their purchase depended upon such gross income, which may now be net of increased capital and income costs and taxes.
• A less important, but perhaps a more serious temporary dissuasion to settle or holiday in the Costa del Sol, for UK residents at least, is that satellite access to British TV has ceased to be available as a consequence of different satellites being used, more focused on UK. British TV is available through the internet, but that requires a good broadband telephone connection. Satellite and ‘line of sight’ services are also available.
• Speed of the internet connection has to be sufficient to permit ‘streaming’. For this reason and general dependence, internet connection speed and reliability will increasingly affect ‘buy’ decisions.

SURVEY SPAIN SUMMARY CONCLUSIONS (PRIOR TO THE GREEK REFERENDUM DECISION)

• The market is staging a confirmed recovery with buyers convinced that if they wish to buy now is probably a good time. The increasing availability of finance both at ‘home’ and in Spain is enabling more people to take action.
• International buyers are still the major purchasers, with few Spanish being active, except in a business sense of investment and/or refurbishing property to sell on.
• There is an increasing number of smaller buying groups looking for properties with the intention of holding them for a period or remodelling and/or renting them, with the intention of selling at a profit when the market rises. We are of the opinion that this may be for a longer term than anticipated before sale at a profit, especially when high buying and selling costs are taken into account.
• The Spanish Central and Regional Governments are still subject to strong political pressures given the results of the recent local elections. The central government and political parties are very conscious of the forthcoming general election in December.
• The effects of the Greek euro crisis are uncertain, but unlikely to be beneficial to Spain whichever way it goes. Some buyers and speculators may see opportunities of better bargains there rather than in Spain.