Survey Spain quarterly Spanish property market report – January 2020 – Part I

PART 1 – WIDER TRENDS AND EVIDENCE

This is our 24^th Report. We keep it brief and specifically relevant to the locations where we are aware that most of our clients, actual and potential, have an interest.

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

The Overall Market – The market is nervous with so many national and international matters potentially affecting both buyers and sellers.

• Government: Spain now has a left-wing Government, which has previously acted against the free movement of the property market and this appears likely to increase.
  • In Andalucia, Murcia and Valencia, the situation is more complex, with them having elected right-wing Juntas, so being, once again, in political opposition to the Madrid Government. This may reduce the effects of some of the national Government’s intentions, but, from previous experience, is likely to lead to reduced national investment.

• World Conflicts: affecting confidence in the world economy, oil supplies and world finance, with this having been significantly increased in the last few days due to the increased tension between Iran and other Middle East countries backed by the USA, and the continuing belligerence of North Korea.

Whilst far from Spain, these all affect the timing of decisions of potential buyers.

• World Economy: The world economy is already struggling due to Trade sanctions between the USA and a number of the other larger economies such as China and the EU.
  • Interest rates are so low that, whilst they make mortgages very attractive, they leave national and regional economies fewer options to cushion the effects of any world economic downturn or to stimulate economies back to growth thereafter.
  • There is increasing concern that the current economic growth and debt based model may have run its course and radical change is essential to take account of depletion of the world’s raw material resources and the Climate Crisis.
  • Again, these matters all affect buyers’ decisions and the terms, availability and exchange rates of mortgages and other bank finance.

• Brexit: Assuming the UK irreversibly withdraws from the EU at the end of this month, January 2020, the UK and the EU are still having to concentrate on Brexit negotiations. ‘No Deal’ is still a prospect as, having apparently been removed from the table by the Conservative/Leave election win in December 2019 in the UK, it’s being introduced again by the need to have the basics of an interim agreement by sometime in early June 2020, to be ready for the EU’s European Council meeting ratification on 18^th and 19^th The Interim agreement period ends on 31^st December 2020 and without agreement, a ‘No Deal’ appears to be the only alternative.
  • In addition, the UK Government’s tinkering with previously stated immigration ‘promises’ for EU citizens already in the UK or to arrive this year, is adding uncertain as to how the Spanish authorities will act as the EU has always said that its regulations will mirror those of the UK.
  • Whilst existing residence, health and working rights appear to be assured, the change of taxation treatment from EU to 3^rd country citizen, could affect net incomes significantly, e.g. Rental income, being taxed at 24% on gross receipts and not at 19% on the net after expenses as now.

• Climate Crisis: All these matters are like Nero “fiddling while Rome burns”. As stated in www.history.com – ‘The expression has a double meaning: Not only did Nero play music while his people suffered, but he was an ineffectual leader in a time of crisis.’ Unfortunately, the world appears to have many ‘Nero’ Governments, such as USA, Brazil, Australia, India, China, etc, which are either denying that mankind can take action to reduce the climate effects, or acknowledging that something must be done, but then looking inwardly at their own countries immediate ‘petty’ problems still based on growth economics, and not taking the concerted worldwide action that is required. It is being left to the individual citizens of the World to act, but inevitably there will be increasing migration and internal conflicts, caused by the lack of action.
  • 2019 saw the first reduction in tourist numbers visiting Spain since 2012, due in part to individual’s wish to reduce their own carbon ‘footprint’ with fewer flights, warmer summers in Northern Europe making the benefits of travel less rational, and the resurgence of tourism to other Mediterranean coastal countries.
  • In Spain, the Climate Change is predicted to lead to –
    • Less rainfall – 2019 is understood to be the driest in Málaga Province since records began, the reservoirs are at their lowest level for many years, and 40% of drinking water in the Marbella area is being supplied by desalination. We still have the Spring rains to come and we can hope that they will be plentiful.
    • More storms and sudden downpours, which unfortunately cause surface floods rushing over the land and away to the sea, with little percolating down to the aquafers upon which our water wells depend.
    • Increasing sea levels, with small rises already being seen, prediction of substantial metre or more rises worldwide, being advanced closer with each analysis.
    • These rises and storm surges will see more regular inundation and damage of coastal areas, and flooding upriver as the downpour waters meet the storm waves surging up from the sea.
    • On the beneficial side, there will be more tourism hours of sunshine to boast of, and carbon-free energy will be plentiful from both wind and solar power.
    • Spain should not be affected any more severely than any other part of the world and if it’s economy, residents, culture and agriculture can accommodate the changes, there will be many less pleasant places to live, work and play.
  • Though readers are unlikely to see it, the World Meteorological Organisation reports that the last time the Earth experienced a comparable concentration of CO₂, [as that predicted now] apparently caused by volcanic activity, was three to five million years ago. Back then, the temperature was 2-3ºC warmer, and sea level was 10-20 metres higher than now.

• Good News: As a result of all the development licences that have been granted, the financial status of some Municipalities has been transformed. Estepona, to judge from the public works construction that is being carried out, is using that money to enhance their sports and health facilities, even to the point of sharing the cost of a new hospital with the Regional health authority. However, the construction of fancy new Town Hall is questionable, given the amount of other public works that money could be spent on, such as completing the Coastal Paseo, stopping pozo negro and septic tank pollution by ensuring that all properties have access to public sewerage, and improving roads and roundabouts throughout the Municipality.

• Increased Incentives: Financiers and Developers appear to be reacting to reduced inspection visits, by enhancing the commissions to agents, reducing prices and offering buyers incentives. Others are deciding not to progress with planned developments and further Phases of existing ones, until the market becomes clearer.
  • As stated in previous Blogs, etc, the Spanish market statistics may have been misleading over the last year or so, with the significant attraction of many buyers into ‘off plan’ new build purchases. These are secured by private non-notarised contracts, and so will only appear in the statistics when the building is complete, the first occupation licence is granted, and developer and buyer go to the notary to sign the final purchase and hand over the keys.
  • So, in the next few months, there is likely to be a ‘bounce’ in the statistics apparently showing an increase in buyers, when in fact these buyers committed to purchase over the last two or three years. If developers are encouraged to restart development by this apparent increase in demand, they could be disappointed, as the statistics gradually show buyer numbers falling as the off plan purchases run through the system.

• Completions: Survey Spain is instructed by individuals to carry out ‘Snagging’/Building Survey inspections of new builds. These individuals realise that, whilst the developer will have instructed ‘snagging’ inspections before accepting the building from the building contractor, that is likely to have been carried out by an estate agent keen to have the building accepted, so that the sales can go though and they get their commission. Our experience is that we find many properties where the specification promised has not been followed and the level of workmanship has not been acceptable, perhaps due to construction being rushed due to developer nervousness as to the buoyancy of the market. We imagine ourselves living in the property and try to catch even the smallest detail of construction or design, that will inconvenience somebody for whom the property is their home to live in day-to-day.

“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.

• Housing Regulations: As stated above and previously, Local and National Governments are making regulations to affect the form of development (e.g. demanding a percentage of the development is set aside for VPO ‘Council Housing’), and requiring Licences for seasonal rentals so that the administration of those is similar to hotels. Given the left-wing bias of the newly sworn-in Government, there are sure to be further impositions in attempts to create a ‘fair’ market for tenants. Past experience has shown that most of these types of measures, merely skew the market with short-term tenant benefits, but medium-term reductions in availability.

• Mortgages: Another law has passed, which is affecting the ability of mortgage seekers, who earn in currencies other than Euro. The law’s effect is that if a mortgagee finds that the exchange rate of his/her earning currency has fallen significantly, they can oblige the Spanish bank to change the mortgage from a Euro one to the currency the mortgagee earns in. Naturally, banks are reluctant to lend under those terms as it will make their income and loan repayment uncertain. There are 9 countries in the EU that are affected, being Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden and the UK, plus all the other countries of the world.

• Regularisation of Properties: One of the first acts of the new Junta in Andalucia, was to change the local regulations permitting owners of ‘illegal’ houses, built outside urban zoned areas and/or without full planning permission, to ‘Regularise’ their houses. Not making them legal, but in all ways effectively doing so, as long as they comply with modern building regulations and are not in flood plains, natural parks or the like. However, this ruling has been appealed to Spain’s Supreme Court, by parties, including the National Government and environmentalists, who see such rulings effectively giving these properties, which are often without basic sewage, water or electricity services, an amnesty and so encouraging illegal development in the future. There is some justification to this thinking, as apparently there was a similar amnesty granted in the past, where the illegal home owners just paid a fine and thus were legalised.