Quarterly Market Report Oct-Dec 2015

This is our 8th Quarterly Report, as part of the research we have identified a number of wider and national property matters.

• Significant expatriate demand has continued on the Costas, with the availability of mortgage finance assisting. With international terrorist incidents happening in other Mediterranean countries Spain is seen as a safe resort. However, this is a fragile situation and it would only take one major terrorist incident on one of the Costa areas of Spain for there to be a significant pause in the rate of demand. However, due to its location and whether advantages, especially with travel times from the UK, Spain is likely to continue to be the top 2nd home and expatriate destination.
• Anticipated continued demand is evidenced by the significant increase in land sales in prime and good secondary locations. There is a notable increase in construction cranes on the skyline, both for apartment developments and individual villas. The few new developments that have been constructed during the last couple of years are reported to have been selling well, with waiting lists in areas such as San Pedro de Alcántara.
• However, there is still a substantial amount of property available for sale in all sectors of the market and this prevented any significant overall increase in prices. There are indications, especially in prime locations with few properties available, that prices are definitely hardening and increasing.
• 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.
• 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.
• The increase in market activity is also evidenced by the number of estate agencies increasing significantly.
• However, the costs of acquisition and sale are still high. We anticipate that there will be pressure from the authorities, possibly due to EU pressure, to increase the significance of the energy rating of properties. This is already evidenced by the indication from central government that local property taxes will be reduced for properties with better energy ratings.
• As we stated in our reports, the Spanish government is now actively working on improving the accuracy of title deeds and tax descriptions, by ensuring that information is combined on the title deed ideally by the inclusion of a plan. Since November 2015, where there is any significant change to the property or discrepancy between the descriptions, the owner is obliged to have a topographical survey carried out both of the building and of the land with that plan then being approved and attached to the title document and used as the basis for the Catastral. Given our experience of the majority of properties having such discrepancies, it is anticipated that the requirement to carry out this work will only become evident to many sellers close to the exchange date, thus causing delays and additional costs, some of which may be negotiated to be a liability of the purchaser. We anticipate that this could slow down the market to some extent.
• We have not noted any significant effect upon demand due to the current political uncertainty within Spain, but should there be a radical change in either political direction this again could cause some pause in demand. As it is perceived that the government sees property as a relatively ‘soft’ target for money-raising, there is concern that a more radical governmentcould increase transfer and running costs, thereby risking a diminution of demand.
• We also refer you to comments made in the last quarter statement, many of which still apply.
• Survey Spain is recording prices and valuations throughout our Network. Due to the limited number of properties and the even fewer number of reliable sale figures, we are only able to provide a meaningful analysis of prices and values for some Provinces this quarter. However, as before, we have commented on the majority of the areas relevant tothe Bank, with the opinion sourced from our valuers, agents and other sources in the areas.
• In addition, where we have sufficient information, we have subdivided provinces into smaller areas.
• As this is the area with most activity, we have been able to provide more information on the Costa del Sol market.

• There is a substantial range over the whole area.
  • The highest is an apartment in Marbella valued at 10,000€ euro/sq m, although there were considerable doubts as to its size and description. Lesser values of approximately 6,500 to 6,800€ euro/sq m were recorded also for apartments elsewhere in Marbella and on Majorca and Ibiza.
  • At the other end of the scale, the lowest value of just less than 500€ euro/sq m was registered for a townhouse in poor condition in Alhaurín el Grande, Costa del Sol.
  • Analysis of all the Asking Prices, Buying Price and Valuations over the period from the start of our record for you in 2014 has shown a steady decrease and currently indicates the following-
    • The % difference between Asking Prices and actual Buying Prices –
      • 3rd Quarter 2014                      -15.80%
      • 4th Quarter 2014                      -11.41%
      • 1st Quarter 2015                     -18.64%
      • 2nd Quarter 2015                     -10.73%
      • 3rd Quarter 2015                      -8.72%
      • 4th Quarter 2015                      -8.93%

• The % difference between Asking Prices and our Valuations –
  • 3rd Quarter 2014                      -20.65%
  • 4th Quarter 2014                     -19.43%
  • 1st Quarter 2015                      -16.55%
  • 2nd Quarter 2015                     -17.09%
  • 3rd Quarter 2015                      -14.26%
  • 4th Quarter 2015                    -22.64%
  • (The variation in the trend is most likely due to its relating to only 4 properties where we have carried out valuations AND are aware of an asking price. One of these properties had substantial problems, which may not have been reflected in the asking price, but was in our valuation.)
  • Over the entire period our valuations average 93.29 % of the Buying Prices, which is a poorer result than we would have hoped. It may be that it is a reflection of increasing market demand, with our valuations continuing to be cautious.

• San Roque and La Linea, including Sotogrande.
  • The evidence only relates to villas within Sotogrande and the surrounding areas.
  • Rate per square metre for all property types – 2,056 euro per sq m.
  • Within this ranging from 1,464€ euro per sq m to 2,626€ euro per sq m.
  • There has been an announcement that the owners of the high prestige urbanisation of La Zagaleta are proposing to carry out a development within Sotogrande. This will maintain the prestige reputation of Sotogrande in general. It will increase interest at the top end overall, but blight areas near the construction for a few years and add competition for sellers of existing properties, with subsequent forced reductions countering any perception increase.
  • Gradually, the substantial amount of properties available both on and off the market are being taken up, with competition for the better locations.
  • Other than those mentioned above, we believe that interest in property in Sotogrande will continue with it eventually causing prices to rise slowly, though this will happen more quickly in the fashionable areas.

• Manilva
  • Insufficient evidence for statistics and the properties here have been combined with Estepona and Casares.
  • See comments last quarter as they are still appropriate.

• Estepona/Manilva/Casares
  • This general area contains a wide variety of locations, property types and values. The area east of Estepona is known as the New Golden Mile and contains many valuable properties, and principally between the coastal road and the shore. The area west of Estepona gradually reduces in value, with the exception of one or two pockets of development, one being from the aforementioned Taylor Wimpey. Manilva has been seen as a lower value area, principally due to over development during the boom years. However, the Puerto Duquesa and Sabinillas areas, with a good supply of essential shopping and leisure services, have recovered their popularity and could be growth points in the future.
  • Rate per square metre – 1,655€ euro per sq m from a relatively small number of properties.
  • Ranging from 857€ euro/sq m for a studio apartment to almost 3,000€ euro/sq m for a hotel suite.

• Benahavis
  • La Zagaleta is the prime location and there appears to be a continuing strong demand gradually taking up surplus property.
    • There are also indications that individuals are proceeding with developing new properties on vacant sites within the urbanisation.
  • • Obtaining comparisons for properties at this location can be very difficult due to the difficulty of obtaining detailed information required to justify a very wide range of rates per square metre, which has been found to be from 2,000€ euro/sq m to 10,000+€ euro/sq m.
  • Elsewhere within the municipality, whilst there is still a substantial amount of property available, due to the prestige of the addresses, there is a steady supply of buyers who are reducing the supply overhang.
    • Rate per square metre – 2,149€ euro per sq m. From a small number of transactions and therefore not comparable with previous quarters.

• Marbella
  • The market in Marbella had been proceeding steadily until it was dealt a savage blow by the Spanish Supreme Court declaring that the general plan for the town was null and void and that all planning arrangements being negotiated in order to regularise planning in the municipality could not take effect. The core of this decision is that developers and investors cannot be held liable for any payments required to bring illegal developments into line, and that it is the current owners who have the liability.
  • This decision is likely to have far-reaching effects upon planning within Spain as a whole, indicating that any general plan for any municipality to which there are objections that are likely to proceed to the Supreme Court, cannot be held to be 100% reliable.
  • The immediate result is to have frozen sales in contentious locations, but to have possibly increased the value of legitimate properties being offered in a reduced total supply. However, it is too soon to have any reliable evidence of this effect.
  • Rate per square metre – Villas – 2,457€ euro/ sq m. Apartments 3,439€ euro per sq m. This would appear to show a significant increase over values in the previous quarter. An increase is the general impression though this is bound to be affected by the planning decisions mentioned above.

• Mijas
  • Mijas is a large municipality and covers a wide range of locations. Accordingly, average values can be misleading when related to specific addresses.
  • The best addresses, which tendto be uphill towards the Pueblo and overlooking the wide coastal plain of Fuengirola, have been developed over many years and have the continued popularity. Similarly, the coastal area is a steady interest, but in both locations there is a substantial amount of property available for sale, which is reducing the effect of any continued purchases. As elsewhere, popular properties will see considerable demand and possible price increases, whilst others in less desired areas and styles will still struggle to achieve a sale unless at a discounted price.
  • Rate per square metre – 1,880€ euro per sq m. This returns the rate to approximately the level seen in the quarter before last. There is a relatively narrow range from 1,501€ euro/sq m to 2,659€ euro/sq m.

• Fuengirola, Benalmádena and Torremolinos
  • The properties in Fuengirola are on the east side and therefore have been included with those of the adjacent two municipalities, which are of a similar character.
  • Rate per square metre – 1,662€ euro per sq m for a mix of villas and apartments. The range is from 1,202€ euro/sq m to 2,021€ euro/sq m

• Graada and Costa del Sol East
  • There are too few properties to provide relevant statistics.
  • However, we continue to see enquiries for building surveys for these areas indicating that there is continuing demand.It also perhaps indicates that buyers are becoming aware of the ground and planning problems especially in the area around Lake Viñuela leading to increased prudence in carrying out due diligence prior to purchase.

• Almería and South Murcia
  • This is traditionally a relatively low value area, which is part of its attraction to purchasers.
  • Rate per sq m 1,192€ euro/sq m, ranging from 603€ euro for a country villa to 1,600€ euro for a villa within the modern urbanisation near the Mar Menor.
  • Comment by local valuer for Almería and Murcia –
    • Prime areas now going up, but secondary areas still in limbo.
    • What to watch is the Pound versus the Euro. Currently 1.36, which is Ok, but the threat of a Brexit, could affect the market, as the Brits are the predominant buyers. Also, the Spanish political situation could change the climate, so, watch out! We are in very unpredictable times!
    • It would only take a terrorist attack in Spain to change the whole environment!
    • Discounts depend on area, could be anything from nothing to up to 10%. It’s all a question of supply and demand and location.

• Murcia and South Costa Blanca
  • The average rate is 1,146€ euro/sqm, varying from 815€ euro/sq m to 1,429€ euro/sq m.
  • There is a substantial amount of property available, much of which is in intensively developed low rise urbanisations without beach frontage. In addition, there are a number of resort developments which have only been partly completed and many without the promised common area and leisure facilities. This all provides a large overhang on the market and for any property to sell it has to have a significant unique selling feature and/or very attractive comparative price.
  • The higher values are seen in properties close to the beach and amenity and leisure facilities.

• Costa Blanca North
  • As stated in earlier quarters, this area has a significantly different character to that of the municipalities south of Alicante city. This is reflected in the values.
  • The average rate is 1,962€ euro/sq m, varying from 706€ euro/sq m to 3,667€ euro/sq m.
  • Comment by the local valuer for Costa Blanca North –
    • Definite further 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 (between 4% and 8% increase) and Denia (4% increase)) showing price increases, whilst prices in tertiary locations still falling slightly.
    • A good description might be ‘bouncing along the bottom’, if we were sure that this is the bottom and future economic problems don’t cause further market falls.
    • Overall prices in the Comunidad Valencia remain relatively stable with slight increases of between 1% and 2% over the last 12 months. Murcia, however, has seen decreases of around 4% over the same period.
    • One notable indicator of improved market sentiment is the number of new estate agents offices, with around one a week opening in the Marina Alta area, Costa Blanca North.
    • Another obvious sign of increased activity are the crane towers on the skyline, predominantly on private, individual builds.
    • Any recovery, though, is delicate and very dependent on the economic recovery Europe wide.

• Balearics
  • As always, the islands of Mallorca and Ibiza, and to a lesser extent Menorca, have a consistently high level of value, with steady demand. Due to the previous strong planning policy, there is much less of a property overhang here and thus increases in value are probable.
  • The average rate is 3,791€ euro/sq m, varying from 1,070€ euro/sq m to 6,890€ euro/sq m.

General

As in the previous quarter, above statistics and comments appear to confirm cautious optimism in the market, with the better properties beginning to show a slight increase in value due to buyer competition and greater confidence among sellers.