Quarterly Market Report – October 2017

This is our 15th Quarterly Report. We have kept it brief and specifically relevant to the locations where we are instructed to carry out valuations and/or building condition surveys. 

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

The Overall Market – Concern as to the amount of new construction.

• We repeat our caution as to the amount of new build alongside a possible surplus of existing property. As one agent said when asked, “The market is full of people who can’t spot value. They will overpay by 30-40% for a shiny white box with no community, no history, a poor location and a guaranteed instant loss of value.” There will be a number of disappointed investor buyers if they need to be sellers in the near future.
• In addition, an agent active at the lower end of the market reported that “A number of new builds are not moving as fast as the developers anticipated. Clients are very cautious and want to make sure everything is correct before signing.” This is evidenced by developers offering ‘free’ furniture packages or cars with every sale within a certain time period. However, it does appear that caution does not include value research!
• This attraction of buyers by intensive marketing by new construction has led other agents to declare that the resale market is very slow. Another reason for that slowness for individual agents is that there are many new agencies in the market, many being individuals who have survived the crisis, have achieved a good commission sale while working for another agency and decided they can live on that as an independent agent with the contacts they have built up. As a result, while the ‘cake’ may be larger as demand and supply grows, so the ‘slice’ for each agent is smaller.
• However, there is also another side to the market, where established agents have worked on a locality and gained a good reputation for local knowledge and honesty. They mostly work in tightly controlled higher value areas, and one small agency, selling in the 600,000 to 1M€ euro range and stressing the work done to achieve optimal presentation of the property, reported that they had sold 4 properties in the last 2 weeks. They also said that they had a number of clients looking for 2-3M€ euro properties, but these had to be “super modern” and highest specification.
• All agencies have reported that 2017 is better than last year. Whilst the British interest undoubtedly dropped, it is still a most significant source of new buyers. They are now competing with increased numbers of Nordic, Belgian, Dutch, German and Finnish buyers, many of whom tend towards the locations where there are similar language neighbours and facilities. This has resulted in a number of new agencies being created to serve these nationalities, and they report strong activity. There is an increase in the number of Irish buyers, who used to be numerous, as their home market improves. An increase in the number of French buyers was also reported, with the high prices of S of France reportedly driving them further south for better value for money and a longer season. Russia was not mentioned by any agent, indicating that demand from there is still significantly reduced.
• With the improvement in the Spanish economy, there has also been an increase in the number of Spanish buyers. However, this may be halted by the Catalan crisis. The effect of that has not yet been noticed, but with the movement out of Cataluña of many firms, including Banks, due to their wish to avoid disruption and the importance of staying within the EU, there could be a significant increase in domestic demand in the relocation areas, which include Alicante, Valencia and Mallorca. This should be a warning of what could happen in the UK on a much larger scale with Brexit!
• All the Costa areas of Spain have seen a very strong tourist season, with that season extending back towards Spring and still continuing now in mid-October. There is now an overlap of returning Northern Europeans, who may have spent the hot summer months in their ‘home’ countries, but like to spend the darker winter months in the light and warmth of Spain. This is bringing more wealth and employment to the area and encouraging businesses to continue and be created, all to the benefit of the economy of the area as a whole. However, for permanent residents, they still have the increased traffic and required restaurant reservations that usually disappear at the end of the season!
• Another matter that will have to be taken into account by the market, is that the water supply is at a very low level. There are drought predictions and the probability of supply restrictions, and these will affect some areas more than others. For example, where an area depends upon well supplies if the water table falls too low these wells become dry, meaning that homes have to be supplied by expensive water trucks or desalination plants if close to the sea.

“Pending legal changes that could affect property values?”

• This was a specific request for last quarter, which will be included when appropriate. However, we stress that we are not lawyers and thus can only comment to the best of our knowledge.
• Within the last few weeks, a Court ruling within Andalucía has stated that the restrictions on development close to the beach, being extensions by the Junta de Andalucía of the national Coastal Law, were not correct and can be ignored. There is concern that this could lead to more beachfront development in currently protected areas. As these would be prime properties, they would further remove some buyers from the market for existing property. More importantly, they could further destroy the natural attractions of the area, eventually resulting in a poorer quality environment.

Analysis of Statistics

• 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.

• As normal, there is a substantial range over the whole area.
  • This quarter shows a substantial increase in the difference between Asking and Buying prices that we have recorded at 12.01% of the Asking Price, which is similar to the levels seen a year ago.
  • The highest valuation was for a beachfront apartment in Los Monteros, Marbella at 6,226€ euro per sq m; with the lowest being 518€ euro per sq m for a country property, with planning, structural and wiring problems. The result of an expert witness Court valuation related to a divorce settlement, we think that for once both parties will be disappointed at the low value.
  • We are pleased to note that our valuations continue to show an increasingly high degree of accuracy, with them averaging 99.73% of known agreed Buying Price, over the whole period of our reports since the start of 2014.
• 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 –
    • 3^rd Quarter 2014 -15.80%
    • 4^th Quarter 2014 -11.41%
    • 1^st Quarter 2015 -18.64%
    • 2^nd Quarter 2015 -10.73%
    • 3^rd Quarter 2015 – 8.72%
    • 4^th Quarter 2015 – 9.38%
    • 1^st Quarter 2016 – 11.68%
    • 2^nd Quarter 2016 – 5.69%
    • 3^rd Quarter 2016 – 11.97%
    • 4^th Quarter 2016 – 13.48%
    • 1^st Quarter 2017 – 6.94%
    • 2^nd Quarter 2017 – 6.76%
    • 3^rd Quarter 2017 – 12.01%

• We compare valuations of properties that we have carried out over a number of quarters and the average of these still shows a positive trend of +4.98%, marginally up from last quarter. This does include a wide range of variations with the largest increase being +36% and a low of -19%, both where detailed inspection showed size, quality and view differences from those assumed from the best available information previously.
• 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. It appears that new build properties are being compared against other new builds, rather than the market as a whole.
• Marbella is still the highest rate per sq m of all the areas we have valued, with the inland area of Alhaurín El Grande being the lowest.

The market in individual areas. 

• San Roque, including Sotogrande.
  • The average valuation for properties in this area is 2,003€ euro a square metre, which shows a further reduction of 11% following on the 15% between the 2 previous quarters. As before, this may be an exaggeration of the market, but it appears to show a downward trend is continuing, probably due to the Brexit uncertainty regarding the situation of Gibraltar.
  • However, discussing the situation with a prominent agent in Sotogrande, he stated that there was still plenty of demand. There are new builds and remodelling, with the new owners, Zagaleta, reportedly taking a 15 to 20-year view and being positive with other community owners regarding carrying out improvements.
  • They reported a broader nationality spectrum of buyers, but still with the British being the principle one. The place was busy with a good tourist season and though the failure of Monarch airline with its regular UK flights from Gibraltar was disappointing, as they were thought to be profitable routes, he was sure that another airline would fill the gap.

• Gaucín, Manilva and Casares
  • There is steady demand for this ‘middle’ area and Sabinillas and Duquesa, the coastal parts of Manilva, are continuing to attract tourists and buyers, due to the facilities and lower prices than the high-value areas to East and West. However, as there was a considerable oversupply previously, it will take some time to absorb that and for values to rise.
  • As we only carried out a few valuations here, the statistics are not representative of the market.

• Estepona and Benahavís
  • There are many developments and proposals proceeding throughout these two municipalities, as they benefit from frustrated developer demand in Marbella. Permissions can be gained in a matter of weeks in non-contentious locations. However, as stated in the general comments, there is a concern that supply will exceed demand and that the amount of new build will lead to lowering of prices further in resale properties.
  • The average valuation for the sample of properties in this area is in the region of 2,453€ euro per sq m, which is a drop from the previous quarter, but probably due to the limited number of valuations.

• Marbella
  • The planning situation is still unchanged, with it proving a severe brake on development in the Municipality, with many owners and potential developers of land being greatly frustrated by many month delays in getting decisions.
  • However, there has been a change in the political ruling party in the town and it may be that there will be greater progress now.
  • Sierra Blanca is one of the highest value areas and is one where developers have been able to proceed with developments due to historic, uncontentious permissions. However, we carried out a study of the area and found that more than one-third of the properties there are being actively marketed for sale, extensively remodelled for sale or new and for sale. It is difficult to see how demand can take up that supply, which is likely to lead to reducing actual sale prices, if not of the visible asking price.
  • The agency stressing the importance of presentation in resale properties is active in a popular, established area to the East of the town and they reported good demand with 4 properties in the 600,000 to 1M€ euro range having been sold in the last month.
  • The average rate per sq m of 3,563 euro is higher than last quarter, but that may be caused by variations in the types of properties valued. The highest values per sq m are seen in beachfront apartments, where there is always buyer interest for the ‘dream’ property.

• Mijas, Fuengirola and Benalmádena
  • The average rate per square metre has risen again to 1,990€ euro per sq m, confirming the continued general attraction of these areas.
  • However, some significant drops have been noted in asking price for higher value properties, so perhaps there is a concentration on lower value, smaller properties.
  • Traditionally, there has always been a mix of buyer nationalities, with a few areas being almost exclusively Finnish, British or other. It is thought probable that the market will note the Brexit effect in UK buyers, but that demand will be taken up by other northern European nationalities.

• Costa del Sol East, ‘Inland Spain’ and Granada.
  • The values in these areas still appear to be dropping, perhaps reflecting the considerable percentage of illegal properties, which is reportedly in the tens of thousands. Efforts are underway to ‘regularise’ these, involving them being made to comply with all building and planning requirements possible, though still outside the planned urban ‘envelope’.
  • Potential buyers here appear to be better informed of the probability of irregularities and are cautious and easily dissuaded from taking on seller’s problems. Some parts of the area also have significant geological problems that haven’t been anticipated by the house builder, so we do see more subsidence problems here than elsewhere.
  • However, the sometimes outstanding physical attractions and the lower prices still attract buyers to these areas and if ‘Regularisation’ can be carried out successfully and becomes generally accepted in the market, there is likely to be an upswing in values.

• Almería, Murcia and Alicante South
  • Our valuer here reports –
    • The market, in general, is improving and so are the prices, BUT there are huge regional variances.
    • Almeria, for example, is more robust than most of the rest of the Country. The Province has enjoyed the second largest increase in sales volume in all of Spain (National College of Registars). From June last year to June this year, the number of sales shot up by 25.7%, vastly more than the Spanish average.
    • Mojacar, in particular, is booming! Maybe a question of supply and demand, as all sectors appear to be active.
    • Other areas, such as Murcia and Southern Alicante, seem to be just ‘holding their own’, as these are areas largely favoured by the British, who are beginning to feel the Brexit effect and the lowering of the Pound Sterling.
  • It may be that these increases were from a relatively low base where a small increase in numbers has a significant % effect.
  • There are few new developments, with many older ones, in Murcia in particular, still, struggle to achieve an acceptable level of occupation.

• Costa Blanca North
  • As stated before, the area is always popular and generally has a better quality of location, property and market that Costa Blanca south. The average value has increased up to 2,094€ euro/sq m.
  • There are developments anticipated and as Javea town gets its planning difficulties sorted out, it could be that there will be increased growth.
  • This area may benefit more than most with transferred demand from Cataluña due to businesses relocating at least their registered addresses to Valencia and Alicante.

• Balearics
• A valuer there reports –
  • A busy summer.  The markets have been very active, but starting to tail off.  Confidence is definitely back with new build developments underway in the better areas.
  • Scandis are still the “purchaser of choice” for the agents, buying up mostly period properties in historic areas.
  • Since Brexit, British investors have fallen back to about 3rd or 4th in the league table of purchasers, instead of their historically usual 1st or 2nd (Behind the Germans, Swedish, French)
  • The Spanish market is much stronger due to the better economic situation.
  • Bank lending is up.
• As stated before, the strict planning regulations throughout the Balearics have led to the preservation of the natural beauty of the islands and as a result a scarcity of prime properties. Thus, values have been maintained and continue to gradually increase as there is interest from all over Europe and beyond.
• There have been some protests against tourists on all the islands and there is an increasing crackdown on antisocial and immoral behaviour in the ‘party’ areas of the past. It is likely that there will be an endeavour to move the tourist visitors ‘up-market’, which will increase the reputation and attractiveness to buyers.

• General property market observations  – Summer 2017
  • Outside of the Cataluña crisis, Spain appears to have been benefitting from a generally improved economy and especially it’s almost solus situation as a safe tourist destination around the Mediterranean. However, as Cataluña contributes more than 20% to Spain’s economy, the continuing political and social troubles there will have an increasingly depressing effect upon the country as a whole.
  • Buyers continue from all northern European countries and the final effects, on the whole of the EU as well as Britain, of the rollercoaster of UK and Brexit, are as yet unknown. It is a cloud becoming increasingly darker and lower as the apparent lack of a solution becomes apparent. Daily changes in the exchange rates due to rumour and counter-rumour, for all buyers from outside the euro, appear to be being discounted unless there is a significant and apparently permanent drop when action slows, but gradually picks up again.
  • However, the sun continues to shine (though we need some rain) and the bikinis are still on the beaches, so life could be worse!