Market Report – Summer 2018 – 31st October 2018

This is our 19th Quarterly Market Report. We have kept it brief and specifically relevant to the locations where we are aware that the majority of our readers are interested in.

The Overall Market – Continuing demand generally, but with some ‘stickiness’ in areas. However, everywhere there is still a heavy bias in selling towards new build where are the higher valuations, but not necessarily the best building conditions.

• The market hasn’t changed much in the last quarter, in that New Build is still the property of choice for many buyers. Despite their comparatively higher values, the heavy marketing and high commissions promised to estate agent will be capturing more than their share, as the generally lower value resale market is much more hesitant. 
• There is still general concern at the difference in value between new build/off plan and the equivalent resale properties value. There are going to be many disappointed owners should they want to resell in the near future. One agent reported that an off plan buyer, with completion approaching, was desperately trying to sell his rights at more than 100,000€ euro less than the contracted buying price.
• Resale properties are generally in over supply and this, along with the buyer supply being greatly reduced by new builds, is keeping the values down.
• Despite this, there has been a great increase in the number of estate agents, many from Nordic countries being more obvious. They have a background of estate agency professionalism in their own countries and it is hoped that they will keep this level, rather than being dragged down to the unscrupulous level that can be experienced from some other agents, sellers and buyers.
• There may be the start of hesitation in some areas due to Brexit, principally due to exchange rate fears. Thankfully, it appears that the Gibraltar market is now beginning to discount it with the feeling that something will work out that won’t be a disaster for the Rock.
• Within Spain, the new left wing government is beginning to cause some concern, that Spain will be come a high tax country, falling disproportionately on non-residents due to their lack of voting power and normal ignorance of benefits or the like available from the state or local government. This is especially the case for Brits who will become Non-EU residents in March next year and thus suffer significant tax disadvantages.
• Larger country properties are suffering from lower demand too, though there is always a demand for smaller ‘finca’/smallholding properties, especially if they have all the required papers and are relatively convenient to village life. 
• Recent changes allowing ‘illegal’ properties to be ‘Regularised’, through complying with the building regulations and requesting formal occupation rights by a DAFO. However, obtaining these permissions can take some months or even up to a year. Buyers are now more aware of the potential difficulties of ‘illegal’ properties and so tend to shy away from them, especially as there is a gradually increasing supply of Regularised property. In addition, in our building surveys we have seen some poor quality ‘off grid’ properties that will cost a substantial amount to comply with the regulation, so that the resultant cost will not be matched by the current market valuation.
• Those ones aside, owners of illegal properties are advised to carry out the works required and submit their DAFO application as soon as possible due to the time involved. Unfortunately, many illegal properties are low value and the costs of Regularisation is often beyond the finances of the current owner.
• The large companies such as Blackstone continue with their buying of the remains of the Spanish Banks bad loans, poor property portfolios and even their estate agencies. One hopes the Funds know what they are doing, but it’s going to change the property business in Spain as the Banks once again will have funds to lend. 
• However, what action are the portfolio investors going to take to increase the value of their portfolios? Could be hard times ahead for those whose debts have been transferred to a less socially considerate lender. 
• Also, the property market could see the Funds dumping properties, at well below market value, but still giving them a handsome return on their investment. Once again, that would increase the supply of resale property, again putting downward pressure on valuations.
• Many portfolio holding companies have also seen the rise of rentals being to their advantage and are intending to offer a substantial percentage of the portfolio for long-term and/or short term lets. It is an expanding market, so they should do well, if the property is reasonably located. 
• However, rents in the major cities and in other areas throughout the country, have been rising much faster than income. This is resulting in a shortage of accommodation for the average worker. Buy-to-let investment buyers have also been purchasing properties, outbidding what can be afforded on a normal salary, which drives more people into the rental market. 
• Some of the larger cities have started putting restrictions on investors and rental of property in attempts to stop the market from overheating and driving locals out of their own cities. Without these local workers, the Cities will quickly lose their attractions in any case.
• Locally, some areas have been severely hit by flooding, with infrastructure damage and individual homes inundated. Building surveys of these properties in the future are bound to show evidence of dampness for a number of years after the event. This is likely to drive potential buyers to consider the possible effects of some events, though the amounts of rain that have fallen during October, have featured as ‘once in 100 years’ statistics.
• Combined with winter storms hitting the coasts and rising sea levels due to Climate Change, maybe ‘front line’ anything is not necessarily as attractive as it first appears during the warmth and tranquillity of the average day on the Costas.
• The stormy weather is also likely to bring forward defects and emphasise poor specification and building quality control supervision in many new properties, and lack of maintenance of resale properties

“Pending legal changes that could affect property values?”

• This will be included when appropriate. However, we stress that we are not lawyers and thus can only comment to the best of our knowledge.
  • As stated above, the new national Government has many ‘innovative’ ideas for controlling markets and housing is certainly in their sights. Town Halls have been supported with restrictions and even some prohibitions of temporary rentals. In Andalucia, there is now the ability of 60% of the owners in an Urbanisation, to block the approval of any more short-term tourist rental licences. This could cause significant problems to those who depend upon rentals for paying mortgage and other expenses and is likely to remove a number of marginal buyers from the market. It is also likely to increase the market value of properties that are already licenced.

Analysis of Statistics

• Survey Spain is recording prices and valuations throughout our Network around the Costas and inland of Spain. 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 relevant areas, with the opinion sourced from our valuers, agents and others active in the property market in the areas.
• Where we have insufficient information, we have combined information into larger areas.
• As requested by readers 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 few valuations of new property, with the majority being resales. Buyers of new property are not encouraged by the developers or their agents, to investigate the values outside of the development they are promoting.

Value per sq m for this quarter.

• As always, there is a substantial range over the whole area. 
  • The highest valuation per sq m was a truly outstanding 13,772€ euro per sq m, which was the sale price achieved for a splendid villa in the prime location in Marbella. The next closest was a ‘modest’ 6,076€ euro for another Marbella villa. At the other end of the scale, we saw 433€ euro/sq m for a poor quality townhouse in a declining pueblo N of Valencia. 
• 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. It 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%
    • 4^th Quarter 2017 – 9.56% 
    • 1^st Quarter 2018 – 7.05%
    • 2^nd Quarter 2018 – 9.79%
    • 3^rd Quarter 2018 – 5.37%
• This shows a substantial difference from the previous quarter and is the lowest of all the quarters. Perhaps it indicates that either seller’s prices have become more realistic (not likely) or that the buyers are negotiating less as there is more competition for the best properties. 
• It also should be borne in mind, that the averaged data contains a low of 1.39% and a high of 10.92%. Agents are also reporting asking prices being accepted and we have been involved in a sale where closed offers were requested, which achieved a price higher than the asking price.
• The attitude to value can also vary significantly. Whilst some buyers will have researched the market intensively, others tend to ignore the price and purchase the particular property on which they can obtain the best discount.

Section II – THE MARKET IN INDIVIDUAL MUNICIPALITIES AND AREAS – follows shortly.