PART 1 – WIDER TRENDS, EVIDENCE AND FINDINGS
Recent Reports referred to.
This is our 28th Market Report, with the previous one being in January this year.
Covid and especially the travel restrictions, have continued to be a major influence. There have been relaxations followed by tightening on an irregular basis, that has added to the general uncertainty and resultant caution of the lives of individuals and businesses. With vaccinations having proceeded strongly in the principal market sources, there is a gradual sense of returning optimism. The reported strengthening of demand is taking up much of the surplus of properties that has been concerning us over the last few years. However, construction is still strong, and we could be seeing older, resale properties pushed further back in presentation to potential buyers.
- Strong demand is being experienced in most areas.
- In some, the surplus of good properties is being taken up and shortages are possible
- Many older properties are being taken back to shell state and remodelled in the current, flat roofed, open-plan style.
- New construction is continuing, absorbing much buyer demand, despite higher than average prices.
- Demand is from all Northern European countries, although UK has lessened from that of previous years.
- ‘Golden Visas’ are becoming increasingly popular for 3rd country buyers, including those from the UK.
- Demand is still thought to be ‘pent-up’ by the vaccine limitations and the travel restrictions, with it expected to be ‘released’ gradually over the autumn months.
- There has been no general increase in prices, with most agents declaring them to be steady.
- The days of negotiating deep reductions appear to be past, with most sellers confident enough to hold out for an offer closer to their expectations.
- Climate change does not have much of an influence as yet, though effectively it is the ‘elephant surrounding the room.’
Firstly, some general background.
The January report started, “I’m writing this as the rain pours down, as it had done yesterday and promises to do for the next two or three days”. Well, it’s August now, after a drier than normal winter and many weeks since we had any rain. Today there is an amber warning for temperatures over 34ºC, so we’ll be shutting the windows and doors over the hot hours, after enjoying the cooler early morning, and until the cool of the evening let’s us all out to ‘play’ again. Summer is a delight, and as someone raised in the West of Scotland, a few mosquitos can be dealt with much easier than clouds of voracious midges.
The lifestyle is good, with cycling and walking along the Paseos, which are linking, aiming towards a continuous chain of the Málaga province coastline, 165 km eastwards from Manilva, passing along the beachfronts of Estepona, Marbella, Mijas, Benalmadena, Torremolinos, Málaga City, Rincon de la Victoria, Vélez Málaga, Algarrobo, Torrox, to end in Nerja. Hopefully, it will be continued to the other Provinces of Cádiz and Granada.
That’s why we live here, perhaps not always for the direct sun, but for the warmth and lifestyle it can bring.
- All agents and others are indicating that demand is increasing, and they expect it to continue to do so as covid restrictions are relaxed and people worldwide come to terms with the new reality. The only difference between the areas is in the general level of price.
- Especially in Costa del Sol and Costa Blanca, the Brits were the dominant buyers both in numbers and value. With Brexit, their becoming 3rd Country, non-Spanish and non-EU buyers, has caused a major rethink by many, though it’s felt that should be temporary as the principal country and natural attractions are still here. However, the finances of the purchase, especially for those buying lower value properties and dependent on rental income to cover the costs, having changed considerably. Taxes are much higher, and it’s expected that many existing owners could find that they cannot balance their outgoings and income, and be forced to sell.
- There is strong demand from EU and Schengen countries, which will increase the requirement for different language schools, shops, restaurants, etc, so the nature of the coasts may gradually change.
- Increasing demand from Spanish buyers has been reported by a couple of the agents, which is an encouraging sign for the general Spanish economy.
- Most of the demand in all areas and prices is from end users and not investors. However, many older villas are being bought by developers, who strip them down to the basic shell and remodel them as modern, open plan, flat roofed, ‘boxes’, filled with abundant light from their glazed facades. Correctly built, these will greatly improve the electricity and CO2 grades of the properties, to the benefit of the overall environment.
- Despite the increase in Demand, no substantial price increase has been declared by any of the agents, but there has certainly been a stabilising or slight growth. New builds are still seen to be being sold at well above the surrounding market level, and it will be interesting to see, when they start to be resold, whether they will bring the general market up to their purchase price level, or be competitively forced to sell at the lower level of price of the established properties.
Recent Relevant Changes
Relaxation of the Military Rules.
- In a speedy turnaround, the Spanish Ministry has issued a regulation exempting the need for non-EU citizens to require permission to acquire most properties, even if they are within militarily sensitive zones. The requirement still remains for acquisition within Rustic land, and therefore may still apply to ‘regularised’ properties with an DAFO. The map of the sensitive zones is given below.
- Due to Brexit on 31st December 2020, UK buyers are now non-EU citizens. Accordingly, under the Law 8/1975, and the Royal Decree 689/1978 in Spain, as with most other non-EU citizens worldwide, UK Citizens may be required to obtain permission from the Spanish Ministry of Defence to purchase rural property in substantial areas of Spain that are held to be militarily sensitive. In addition to North Murcia and South Alicante and the area West of Sotogrande, these include much of the Balearic (Mallorca, etc) and Canary (Tenerife, etc) Islands.
This uncertainty can delay purchase by a number of months, which could put UK buyers at a disadvantage when offering against an EU Citizen. Sellers are less likely to accept a conditional offer that could take some time to conclude.
More Properties require an Energy Certificate CEE (EPC in UK)
- An Energy Certificate, CEE, estimating the amount of electricity used in a property over a year, and the amount of Carbon Dioxide (Greenhouse gas) created by that property, is a legal requirement BEFORE a property can be marketed.
- As the certificate lasts for 10 years, except for those in the poorest Grade G, which now only lasts for 5 years (presumably in the hope that the property will be improved), there is no benefit to the sellers/owners and estate agents taking the risk of fines that each will be charged and start at 600€ euro, due to marketing the property without first obtaining a CEE. It must be shown in the label form on all advertising. Stating it’s in preparation (Pendiente) will only be a defence if the appropriate professional has been instructed.
- A recent change has included short-term seasonal rentals, so even if you only do holiday let’s, it is now required.
- Everyone has an obligation to humanity to make their property as energy efficient as possible, ideally by solar water heating and photovoltaic electricity creating panels, combined with correct insulation, external shades, etc. Changing from diesel oil central heating to air or ground heat pumps, and even down to changing all light bulbs to LED, which use up to 80% less energy and can last 4 times longer than traditional ones.
Does your building require an ITE?
- National law states that properties over 50 years old must have a technical inspection to ensure the structural stability – Inspección Técnica de Edificios (ITE), which is required to be renewed every 10 years thereafter. It is the stated intention to extend it eventually to the whole of Spain. Owners of buildings close to or older than 50 years should therefore anticipate that a certificate will be required in the near future.
- However, Municipalities have been given the right to reduce the period below 50 years and add further renewal inspections, so that there is the possibility that a similar inspection will be required for properties even as ‘young’ as 20+ years old and subsequent revisions every 7 years. For example, on Costa del Sol, Estepona require the inspection after only 30 years and Mijas is even younger at after 25 years. On Costa Blanca, Orihuela and Santa Pola demand them 40 years after a property is built.
- In addition to the structure, apartment buildings will be assessed as to their suitability for disabled and also their CEE energy rating.
- Property sales probably will not be registered without the appropriate Certificate.
The Golden Visa lets you stay longer than 3 months and/or work legally in Spain!
- The Golden Visa for Spain is a residence visa issued to a non-EU national who intends to make a significant investment in the Spanish economy. The Visa offers residency in Spain and access throughout the Schengen Zone to the holder, spouse or unmarried partner, dependent parents and children. Also access to public health services and schooling.
- “OK, let’s go for that.” Well, just a few T’s and C’s.
- Personal First –
- Must have no Criminal Record – That’s worldwide, not just Spain and presumably applies to the family too.
- Must have Health Insurance in Spain.
- Show that you have sufficient income to support yourself and your family while you live in Spain.
- Money Now – at least one of –
- Purchase Real Estate in Spain, totalling over 500,000€ euro, in addition to any mortgage, OR
- Buy shares in a Spanish company or make a deposit in a Spanish bank of at least One Million € euro, OR
- Make in investment in Spanish Government Bonds, (the country’s debt) of Two Million € euro or more, OR
- Invest in a business project to be developed in Spain, that is accredited as of general interest, which must do at least one of these
- Create Jobs,
- Realise a socio-economic impact of relevance in the geographical area in which it is to develop,
- Make a relevant contribution to scientific and/or technological innovation.
- Given the bureaucracy, it’s probable that proof of the Business Project route will be arduous and lengthy, so perhaps try one of the other investments first.
- So, you fill in the forms, with proof of at least one of the above, which can be done from anywhere, or have a lawyer, accountant or other professional in Spain do it for you, and you only need to come to Spain to get your residence permit.
- Your family also must fill in forms individually, as dependents, with appropriate proof of family relationship (Not sure how unmarried partners will do that?)
- The first Visa is valid for one year, during which time you must get your residence permit, which replaces the visa and lasts for two years. The residence permit will be renewed, if the investment is still there, and you come to Spain to collect the permit. You can get permanent residency, renewed every 10 years, if you can show you have lived in Spain for 6 months in each of the last 5 years. That, of course, will probably also make you a Spanish Tax resident.
- Then it’s the warmth and light of Spain, all the year round.
- If the investment is reduced or removed, the Golden Visa benefits will also be removed.
Problems with Mortgages for Rustic and DAFO properties.
This week we’ve had a troubling time, for which there doesn’t appear to be an easy answer.
- A client instructed a building survey, with that and planning checks showing problems that sensibly dissuaded him from buying it – no point in buying somebody else’s problems.
- So he asked us to carry out a building survey of another property. This second one is a lovely place, solidly built more than 20 years ago, with appropriate permissions letter from the Ayuntamiento (Town Hall) and a recent no infracciones Pool and fruit orchard, views of mountains and sea, but only 10 mins drive from the nearby town. The purchase price appeared good and there didn’t appear to be anything wrong.
- Until he instructed the mortgage tasador. The valuation came back at 70% of the agreed price. Why? Because it was not within urban zoning, and so had only been valued on the basis of the value of the land plus the cost of building new.
“But it has all the permissions, and the town hall has no problems with it”.
“Ah, but if it’s burnt down or destroyed by earthquake, you won’t get permission to rebuild.”
- That does appear to be the case. The principle is that an illegal building that should not be there, cannot be reconstructed. The laws of building in Rustic areas have become stricter over time and so, whilst this one was legal, its legality is now conditional.
- The same appears to apply to buildings that have achieved a DAFO, Declaración de Asimilados a Fuera de Ordenación, which are being obtained by many of the tens of thousands of illegal campo buildings around Andalucía, currently being Regularised to prevent demolition and/or fines. Whilst under a DAFO, the owner is permitted to, ‘carry out repair and preservation work required for the maintenance of the safety, habitability and sanitation of the building’, they are not allowed to rebuild. Though in the event of a partial problem, there would certainly be scope for discussion on the extent of reinstatement work permitted.
- An insurance broker consulted was confident he could arrange cover, but then, the client would be left with an unbuildable site and only a cash payment for his loss, based upon rebuild costs and not market value.
- And that presumably is the logic behind why the tasador gives a site plus building cost valuation.
- However, many buyers are prepared to take that risk, and that’s why the market value is above the building cost value. Banks, being the cautious people they are, do not take the risk and so demand a cautious valuation.
Rustic V. Urban. Problems – A Continuation of the same theme as above.
- Buyers and sellers are often faced with the question, “Is my house on Urban land?” and the answer will greatly influence the value, timing and even if the property is sold or not.
- What is Urban Land?
- Spanish Planning law clearly defines Urban Land as that which has completed urban infrastructure. Urban Infrastructure means paved access roads with surface drainage, pavements (sidewalks), street lighting, water and electricity supply, and a mains sewer system. All these must comply with regulations related to minimum sizes and technical characteristics appropriate for their location.
- Why do so many Urban Settlements have incomplete Urban Infrastructure?
- Unfortunately, many urban settlements and urbanisations are older than the national laws that regulate the urban land and the municipal urban planning regulations. To explain, and in a way give a certain legal status to this situation, councils define these settlements as part of the urban land, but without urban infrastructure or incomplete urban infrastructure. The local plan defines the missing infrastructure needed to be completed in each urban area.As a result, private owners are considered to have responsibility for completing the urban planning of the municipality, and are requested to assume the costs and works of creating the missing infrastructure.
- The other circumstance where incomplete urban infrastructure can occur is when an urbanisation is part built and the promotor and building contractors, personally and/or their companies, become bankrupt, but buyers have moved into their individual dwellings.
- What are the Consequences to be taken on by Private Owners?
- In settlements where the urban infrastructure is incomplete, private owners can be confronted with two possible scenarios.
- In the first scenario, a developer owns the majority of the land and decides to complete the infrastructure for the settlement as part of a real estate promotion. The rest of the owners affected by this promotion, won’t have a choice, and will be required to assume the corresponding costs in relation to their percentage of participation in the settlement, according to the area of the land they own and as detailed in the Title (Escritura). In some cases, owners must give part of their own land, in order to enlarge roads or build the missing pavements, which can be a reason why Title and Catastral site areas can differ. This can have a double disadvantage of bringing the road closer and perhaps even reducing the distance between the house frontage and the road below the minimum permitted, making it appear illegal. Due to this ‘Fuera de Ordenación’ situation, it could restrict rebuilding in the event of fire or the like, and restrict mortgage valuations in the future.
- In the second scenario, the owner decides to do works on his property, which will affect the original volume, size, surface, drain installation or structure; usually known as ‘Obra Mayor’ (major works). In order to grant the building license, the council will require the owner to assume the cost of the missing urban infrastructure to be completed in front of their property. The costs of initial Urban Infrastructure works are not assumed by councils.
- What is the concept “Fuera De Ordenación”?
- A literal translation of the concept is “out of order”. Regarding urban planning, the concept defines the status of buildings, constructed according to older rules, prior to the existence of any urban development regulation or, in the case of buildings in completed urban settlements, not complying with the current regulations. In these cases, the use of these buildings is allowed to continue if they comply with the general use of the area. An old industrial building will not be allowed in a current residential area, but an old residential building is allowed to continue being used in this function, even if it does not comply with the current regulations. Maintenance works, as long as the functionality of the building is preserved, are allowed, but never ‘major works’.
- What is the usual confusion with the Catastro?
- The Catastro is the department of the tax authority in charge of setting real estate values to be used to calculate taxes. For that reason, this administration has recorded every land and building in the country. For the Catastro, all kinds of built constructions are considered urban, even if they are located in non-urban land. But the Catastro condition of Urban is not the same as the legal and planning condition for a piece of land to be defined as Urban.
- We strongly advise all buyers and sellers to have legal support from a Lawyer and technical support from a Building Survey. Changes to Land or Buildings, should not be completed without a survey, including the planning urban status of the building, a certificate describing the building, habitability conditions including its age, and an urban report issued by the council. In the cases of buildings “out of order”, a certificate issued by the town hall granting that it has no open file of urban infraction.
Thank you to contributor Javier Leonardo Rimolo, Arquitecto
We have combined the valuation records for the first 6 months or this year. As in our January report we provide the statistics based on the last 6 months of 2020, this provides an interesting comparison.
As usual, we have kept a record of the average difference between Asking Price and Actual Selling price, where we have been supplied with that information from reliable sources.
Average Difference Between Asking Price and Actual Selling Price.
Quarters of 2019
January to March – 7.61%
April to June – 10.69%
July to September – 9.7%
October to December – 11.29% – These figures are the average of a range from 0 to 16%
Last two Quarters of 2020
January to March – 8.66% – This figure is the average of a range from -2.53% to -13.69%
April to June – 12.93% – These were biased towards the end of the period and ranged from -9.13 to -16.53%
July to December – 8.94% – Ranging from 1.87% for an apartment in Casares, to 18.92% for a flooded finca that had been empty for a year.
First 2 Quarters of 2021
January to June – 10.80% – Ranging from -3.35% for a S/D Villa in Tarragona, to -26.72% for a remodelled villa with problems in Marbella.
This is surprisingly large, but reflects sellers becoming more realistic and agreeing sales instead of standing out demanding their Asking Price. However, the 6 months does cover a wide range of market conditions and influences, evidenced by the 1st quarter figures being 13.05% and the 2nd quarter 7.81%
Changes in Multi-Listing Site – Resales Online
We found on 6th August 2021 that there were 20,930 properties of 100,000€ euro or more, which is a significant drop of 13.33% from the 24,150 properties found in January 2021. This provides confirmation of the agents’ comments, in Part 2 of this report, that they are experiencing shortages of some property.
3,315 (15.84%) of these properties are found to have a discount of 10% or more since first listing, which again is a significant change from the previous two records of 17.6% and 17.22%.
Those increasing their price was 1,364 (6.52%), which is higher than the previous 6 months of 5.8%.
Altogether, I consider this further evidence that the market is changing, and increased demand could see prices rising.