Quarterly Report April 2017

This is our 13th Quarterly Report. It is originally prepared on behalf of a Bank for which we carry out many Revision Valuations, which are now required very 2 to 3 years as Banks must update the value of the assets that they hold as security for loans. So, if you have a mortgage, don’t be too surprised to see a valuer photographing your house from the street as he/she is only carrying out a ‘walk by’ inspection and valuation. Despite the recovery of the market, there are still some huge differences between what was loaned in the good times and the market value of the property now.

As part of the research we have identified a number of wider and national property matters.

The Overall Market – Increasing divergence of markets.

• Building activity is undoubtedly continuing and increasing.
  • Many new individual villas, though the financial rational of those is uncertain as there are still so many available for sale, with those having had the choice of the best sites in the past.
  • New flatted developments are also being created with the developers presumably been reassured by the appropriate percentage of reservations off plan.
  • Older ‘skeleton’ developments that were not completed during the last boom are being acquired and completed by new developers.
• ‘No sign of housing market overheating’, says Bank of Spain. Generally, that is probably the case. However, in certain popular areas there must be a risk that everything is proceeding along a very similar course to before the last crisis. There is increasing demand from many nationalities, with the Nordic buyers still prominent. However, the statistics show that there has been a significant drop in acquisitions by UK buyers, presumably linked to Brexit.
• A useful source of current statistical analysis of the source of buyers can be found at https://www.spanishpropertyinsight.com/2017/04/07/swedish-demand-property-spain/
• Having said that, we have noticed no reduction in the number of building surveys that we are being requested to carry out by UK potential buyers. These are almost exclusively of existing properties, some of which are in good locations. Buyers report that they are still able to negotiate reductions from asking prices and we refer you to the statistics below.
• The uncertainty caused by Brexit is principally to the UK market, but this is spilling over to other nationalities, equally uncertain as to what its effects are likely to be on the EU as a whole and Spain in particular.
• The market dependent upon Gibraltar, both due to proximity and business, is undoubtedly the most nervous of all. The effects of Brexit will be a radical and far-reaching, but everyone has to wait until the UK/EU negotiators finally agree their deals. The attitude of Spain with regard to sovereignty will be significant.
• Comments by Ryanair and other airlines that the ‘Open Skies’ agreement will no longer apply to UK flights to the EU and thus they will be reducing substantially, is also causing concern. Ease of communications has been one of the major factors for UK buyers in choosing Spain as a place to purchase property.
• With Easter marking the start of the main tourist season, it is to be expected that the authorities will be working strongly to enforce their rental licence requirements, which exist now in the majority of Spain. Properties that have a rental licence should have an increased value, but yet we are not seeing many being marketed with that as an asset.

Analysis of Statistics

• As previously, the general opinion is that the market is holding firm and gradually increasing in value, although there are significant areas where values have been reduced in order to achieve a sale and others where prices are undoubtedly increasing.
• 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 Municipalities this quarter. However, as before, we have commented on the majority of the areas relevant to the Bank, with the opinion sourced from our valuers, agents and other sources in the areas.
• Where we have insufficient information, we have combined information into larger areas.
• As requested and also as this is the area with most activity, we have been able to provide more information on the Costa del Sol market.
• 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
• It should be borne in mind that we have very few valuations of new property, with the majority being resales.
• Value per sq m for this quarter.
  • There is a substantial range over the whole area.
    • This quarter, the average values of Asking Prices, Buying Prices and Valuations were all higher than the last quarter, although the property sizes forming the database were also higher. However, given the size of the database, this must be treated with caution, but could be an indication of values rising overall. The highest total value was a country estate in Ibiza (contract restrictions prevent disclosure of the value), with the next lower from that being valued at 9,400,000€ euro, and the highest rate per sq m was found for an apartment in Marbella at 9,028€ euro/sq m.
    • The average of all the properties inspected, even after removal of 2 non-representative properties, was 2,503€ euro/sq m, which is much higher than the previous quarter.
    • The lowest value, in a small town in inland Granada, was an asking price of 145€ euro/sq m for a what was effectively a ruined double townhouse. We advised the client, who was perhaps looking at it through ‘rose tinted glasses’ in asking us what was required to renovate the building, that the only practical action was to demolish and use the site to build a new house to modern specification.

• Analysis of all the Asking Prices, Buying Price and Valuations, over the period from the start of our record in 2014, has shown a decrease in the differences 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 – 9.38%
  • 1st Quarter 2016 – 11.68%
  • 2nd Quarter 2016 – 5.69%
  • 3rd Quarter 2016 – 11.97%
  • 4th Quarter 2016 – 13.48%
  • 1st Quarter 2017 – 6.94%

• We are pleased to note the reversal of what appeared to be an unexpected upward trend of margins. This went against the perceived logic of higher demand reducing the negotiating power of buyers and may have been a reflection of having relatively few reliable figures to compare.
• As before, we have also noted a number of properties where optimism by owners and agents has encouraged them to increase asking prices.
• We are also still noting that new build properties are being sold at significantly higher prices than similar existing property nearby, especially regarding apartments. That must lead to the buyers experiencing an immediate significant drop in value as, if they have to sell, they will not have the marketing power of the developer and may even be competing against that.
• The average Asking Price of the properties has risen since the previous quarter, whilst our average valuation has reduced. This could be due to optimism mentioned above, which is not currently supported by the market.

The market in individual areas. 

• San Roque, including Sotogrande.
  • Again, the main factor affecting the market in Sotogrande must be the Brexit effect upon Gibraltar. The continued uncertainty regarding border crossings and rights of residency, etc, are reducing substantially interest from Gibraltar itself and those likely to be doing business with it.
  • The further complication for some properties is that the Andalucia Marina authorities are threatening to use the coastal law ‘Ley de Costas’ to reduce their concession period for all marinas along the coast. Obviously, this will have particular effects upon properties that are linked to moorings, but also to boat owners who may see the continuing uncertainty of moorings as another point to influence them not to stay in the area.
  • However, the intrinsic quality of the Sotogrande development will always attract buyers and we understand that the owning company is continuing to invest in improving the quality of the area.
  • The average valuation for properties in this area is 2,655€ euro a square metre, but that is from a relatively small sample.

• Gaucín, Manilva and Casares
  • Inland and further up the coast, these areas do not have the prestige of Sotogrande.
  • However, Gaucín and certain parts of Casares, are looked upon as prime rural spots for country houses, with the small towns being increasingly popular with expats.
  • There is a significant amount of property available, of variable quality, so that making effective deductions from the relatively small sample of properties is not possible.
  • Recent impressions gained indicate that there is a possibility of the market beginning to come back for inland property, although generally prices are unlikely to rise significantly and may indeed continue their gradual decline.

• Estepona and Benahavís (The Western section of the Golden Triangle and the New Golden Mile)
  • With the continuing restrictions on planning within Marbella, these towns, which have always been popular, are the areas where there is the majority of new developments being carried out present.
  • We are confident that the new developments that are located in prime locations will be successful, such as the beachfront at Velerín in Estepona. However, only slightly further inland there are still some developments that have properties that have never been occupied and the ‘creaming off’ of the market is likely to continue to slow the sale of these secondary locations.
  • However, it can also be said that buyers on the frontline are unlikely to consider secondary locations, but investors are more likely to choose the prime locations and not spread their investment over a number of lower value properties as they would have to do in the absence of the prime location.
  • The average valuation for the sample of properties in this area, is in the region of 3,386€ euro per sq m. Unfortunately, we do not have sufficient reliable information on actual buying prices.

• Marbella
  • As stated last quarter, the planning situation is largely unchanged, with it proving a brake on development in the Municipality.
  • As Marbella remains the main internationally renowned address, it does mean that property and development sites with full permissions are at a premium and so there is likely to be an increase in value generally as the supply is restricted.
  • A number of developers have been successful in ‘crossing all the hurdles’ required to obtain appropriate licences and construct. There are also a number of individual villas under construction, upon which we have commented above. Of these, a significant number are speculator built and there must be the risk of over provision, especially as there are a significant number of villas already on the market.
  • The average rate per sq m 3,818 euro.
  • House sales are proceeding and it appears that the average discount is close to the 7% mentioned above.

• Mijas, Fuengirola and Benalmádena
  • Comprising a substantial mix of property types, the average rate per square metre is 1,687€
  • There always appears to be a steady demand for relatively lower value properties, which, considering the facilities that are available in these towns, make them a particularly good buy.
  • Given the density of population, and especially during the tourist season, there certainly not the most peaceable places, but they are continually popular with both Spanish and expat buyers at that level.
• Málaga City, Costa del Sol East, ‘Inland Spain’ and Granada.
  • Unfortunately, we do not have sufficient statistics to make meaningful analysis of these areas.
  • However, in the first quarter of this year we have had more building surveys, especially for inland Granada, than we had for the whole of 2016. These appear to be principally from UK buyers seeking somewhere different and it may be that there has been promotion within the UK or it’s a reaction whereby people just want to get out of the cities and back to a simpler life.
  • Malaga City continues to have good press and our understanding is that properties in the traditional city centre are in demand.
  • Axarquía, Nerja, La Herradura and Almuñécar all have a continuing attraction with values generally less than Western Costa del Sol. Some of the coastal areas are particularly attractive and well maintained reflecting the strong interest from northern European owners and buyers.
  • There are still a significant number of properties available, especially outside of Malaga city, and these are preventing any general increase in values.

• Almería, Murcia and Alicante South
  • The market is very split. Mojacar still seems to be doing OK, but other areas, such as Torrevieja, still seem to be losing value due to the lower Pound! Anyone’s guess as to the future!
  • The report from our local valuer is as follows, reflecting as before that the lower values of property within the strong British enclaves are significantly affected by fluctuating exchange rates.

• Costa Blanca North
  • Comment by the local valuer for Costa Blanca North –
  • Continued very gentle improvement in the market, despite impact of Brexit on demand from UK. Interest from Spanish and international buyers has been sustained and the number of sales is increasing year on year.  Prime locations such as the Costa Blanca North and Balearics are beginning to see consistent price rises, but there are still discounts on marketing prices in secondary and inland locations, continuing the very mixed market.

• Balearics
  • Mallorca market seems to be pretty active locally.
  • Banks reporting lots of mortgages – many fixed rate deals seem appealing.
  • Brits still a bit tentative but Swedes and Germans very strong.
  • No news on the other islands – seems very quiet there.
  • The local valuer states –
  • With our recent direct experience in valuing properties on Ibiza, we have found that the market there is steady with agents reporting a reasonable level of activity, but nothing too exciting.
  • Having said that, the Balearics is one area that was highlighted by the Bank of Spain as having a strong market when they were warning about an impending development ‘bubble’. We find this surprising given the strength of the planning regulations within the islands and would be relatively confident, especially given the ‘survival’ of values in those areas during years of crisis, that the values reflect strength of demand on a limited supply.

• General
  • General comments stated in the previous report are still applicable, in that despite the significant reduction in demand from British buyers, they are still by far the largest individual sector of the expat market. Strong interest from Nordic countries is seen, but their population is limited and therefore is bound to reach a level where the majority of demand has been satisfied. Strong Belgian demand has been noted recently, which we understand may be due to tax changes within the country.
  • All in all, the market appears to continue at a steady pace with the gradually recovering Spanish economy beginning to bring in more buyers and those from Scandinavia, Germany and France making up for the reduction in British demand.
  • However, Brexit and all the other political happenings within the world are likely to keep a continuing uncertainty as to future prospects.