Market Report – 4th August 2023
PART 1 – WIDER TRENDS, EVIDENCE AND FINDINGS
We’ve had a busy time since our last report, but this one, our 32nd, will be a little shorter than normal due to it being prepared in summer when many contacts are on holiday. However, the market is certainly not, with Survey Spain being as busy as we’ve ever been both with building surveys/home inspections and current market valuations/ appraisals. As an early aside, brought on by the reducing influence of the UK, we have found that originally American descriptions of our work, such as ‘Home Inspections’ and ‘Appraisals’ are replacing ‘Building Surveys’ and ‘Valuations’. They are used much more now as more Americans are looking at property in Spain, and more non-native English speakers are busy in the market, having learned their English with American vocabulary.
We’ve been expressing concern over the last couple of reports that the upward rise of the market could be turning, but still it has ploughed on regardless, with the post-Covid demand being a significant factor. Developers are developing perhaps at an even faster pace, despite costs and prices continuing to rise. Many will be coming on stream in 2024, so hopefully the market will continue to be strong. Yes, there is evidence of some properties struggling, with agents offering incentives of discounted prices and ‘free’ extras on the property to buyers; and incentives to the individual sales rep in addition to shared commission with their agency to introducing agents, but they all tend to be the exception.
Despite Brexit and all the inconveniences that it has caused, the British still appear to be the principal buyers of property on the Costas and islands of Spain. However, their percentage may be reducing with an increasing rise in numbers of EU citizens and especially those from Eastern Europe. There’s also an increase, as mentioned above, in American interest probably due to the advantageous dollar/euro exchange rate. Other non-EU citizens, such as Moroccans, for obvious reasons, and others from further afield, such as the Middle East are also active. Many of these purchasers are in fact investors, principally seeking to secure Golden Visa access to the EU or, for many eastern Europeans, a safe haven for their money and families as far from Russia as possible, “just in case”. Russians who have money here have certainly been keeping a lower profile, but there is no particular evidence of them selling up.
One of the more interesting and apparently more effective arrangements is the so-called ‘Nomad Visa’. This is offered, along with generous tax advantages, to individuals who have a working contract with companies outside of the EU, but are free to live and work anywhere, as long as there can be speedy access back to HQ. No significant investment is required, unlike the Golden Visa where at least 500,000 euros must be invested. These Nomad Visas are particularly attractive to younger people who tend to come with their families, realising the comprehensive benefits of an upbringing in Spain, both in climate and cultural terms. Due to families being involved, property within easy walking or travel distance for ’Mum and Dad taxi’ services, to schools and sports facilities, is increasingly sought after. In addition, there is still the regular stream of early retirees seeking a warmer life in an apparently less stressful location.
Incomers from the UK and USA also include many who have lost faith with that country and its politicians and just want to ‘get out’. They may have had longer term plans to retire to Spain, but the fragile dropping of the pound compared to the euro and lack of confidence in the fragile long-term benefits of Brexit have led them to act now. On the reverse side, those with income sourced in pounds sterling, have increasingly experienced problems due to the poorer exchange rates and increasing costs in Spain. Seeing house prices rise here and beginning to fall in England, they decide to sell up and move back to the UK. Unfortunately, with inflation there being substantially more than in Spain, currently approximately 9% and 2% respectively, it is feared that they’re in somewhat of a trap.
A dampener that has been put on the investment market is the recent law relating to rental properties. It provides greater opportunities for tenants, and probably squatters, to remain in occupation well beyond the agreed lease length, even if they have not been complying with the rent payments or other lease terms; and with rent increases capped to a level below the CPI, being equivalent of the retail price index. These occupation rights continue even if the property is sold or foreclosed, so investors and mortgage suppliers must be very strict in not permitting and monitoring formal or informal rentals by their borrower. The new regulations have been put forward despite experience in many countries where similar has been tried, that they are going to have the opposite of providing more low rent accommodation that the government had hoped for. None have been found to be of long-term benefit to tenants. Barcelona was one of the first cities to try and control rented property in such a way and lack of action against squatters, and now there is a dearth of accommodation as landlords and investors withdraw from the market. In addition, Barcelona compelled developers to provide 30% of accommodation in a development as low-cost apartments. This has merely resulted in development almost ceasing within Barcelona. Politically, they have also had repercussions as the controversial mayor who forced these regulations through has now been voted out of office. Nationally, the recent the election has been indecisive, with neither left, support the regulations, nor the right, who have promised to repeal them, appearing to be in a situation of being able to have a majority within the parliament. The ideal for Spain as a whole, by removing the ‘control’ of the fringe parties, would be for a cooperative government including both the centre right and centre left parties working together, but personalities within these are likely to stop such an agreement before discussion could even start.
Andalucía had a Regional election some months ago, which resulted in a change of control to the right wing PP from the left wing PSOE. This has resulted in a loosening of the planning controls, permitting more development, sometimes in controversial environmentally sensitive areas, and significant tax reductions that have made the Region more attractive for investors and as a place of legal/tax residence.
This is our 32nd Market Report. Many of the items in the previous Reports still apply, but are not repeated here They can be seen at Survey Spain | Network of RICS Chartered Surveyors.
Headlines
• As our previous report, strong demand is still being experienced, especially for higher value property, with traditional UK buyers reducing in numbers, being replaced by more buyers from Eastern Europe.
• There is still a shortage of supply of all property types and especially the higher priced, in most areas. However, new developments are being constructed in all areas and will be ready for occupation over the next year or so. With the shortage of immediate access property, it is probable that many buyers have committed themselves to the purchase of off-plan.
• In addition, many have acquired sites and engaged contractors to construct villas to their own specification. Some developers are also offering turnkey properties, where the buyer becomes the owner of the site and the contractor/developer subcontracts the construction. In this way, they can avoid responsibility for some guarantees and the requirement to have decennial structural insurance, if the landowner/occupier of the finished property does not wish it. Survey Spain sees this as a false economy, as it means that the property can only be sold within the next 10 years by agreement with the purchaser to ignore the fact that the decennial insurance is not in place. It also means that there has not been independent supervision of the construction of the structure. If there is proper independent construction management that is not a problem, but we see examples of architects and other professionals being influenced by developers/investors to sign off properties that perhaps require more detailed inspections before being agreed as complete.
• Prices have continued to rise in most areas and for most property types. The increase of buy to let, especially in central urban areas, has led to house prices being raised above the level that the families of traditional residents of the town can afford. The result of this will be a town full of tourists, but with no staff for the services they require. Politicians must address this, but the methods employed in Barcelona and the central government will not provide the answer.
• Climate change still has little or no mention, but perhaps the extreme heat of this summer will have concentrated a few minds on this difficult subject. If the winter storms and heightened sea levels are as predicted, beach and Riverside locations may become less popular. Rising energy costs will also concentrate peoples minds more on their energy rating of houses and the existing installations of solar water heating and electricity panels.
• On the 10th of April 2023, the new general plan of Marbella received its initial approval. It has been 13 years that Marbella has been without a plan, with developments in theory and actuality having to comply with the last fully approved plan of 1986, 37 years ago.
• Idealista, Multi-listing agency. Report – British, German and Swiss are the foreigners who are requesting more financing to buy a home in Spain. According to idealista/mortgage data, these three nationalities accounted for 43% of the requests received from foreign clients in the second quarter, followed by Americans, Dutch, French and Irish. On average, non-residents interested in signing a loan have an income close to 6,000 euros per month and are looking for homes with an average price of around 210,000 euros, which translates into a level of indebtedness of 24%. More than 70% of the mortgages that are signed are fixed.
• An article in the UK ‘left-leaning’ newspaper, The Guardian, shows that control of rentals is a common phenomenon in the EU, with various degrees of success.
The UK is an unusual example of what happens when there is very little regulation and protection for renters. In Denmark, renters can stay in their homes indefinitely; in France, landlords cannot issue evictions in the winter months; landlords in Germany cannot charge 10% more than the average rent for similar properties in the area; and social rents set the norm for private rents in Sweden.
STATISTICS
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. These are often from clients for whom we have carried out a building survey/home inspection, and they inform us what price they are actually paying for the property after receiving our report.
Average Difference Between Asking Price and Actual Selling Price.
First Quarter of 2022
January to March – 5.72% – It was a busy quarter, reflecting the post-Covid optimism, before the start of Putin’s war. Ranging from -1.74% for an apartment in a prime address in Marbella, to -10.14% for a townhouse in Marbella, where our building survey/home inspection had identified possible structural problems..
2nd Quarter of 2022
April to June – 4.63% – This difference is the lowest, but the average is artificial as the discount ranged from -16.06% for a property with paperwork problems, to two properties in Mijas and Benalmadena, where the original properties were substantially improved between the original asking price and the eventual sale price, thus causing increases in value. However, it did reflect the strength of the market at that time.
3rd Quarter of 2022
July to September. 7.09% – is the most recent quarter, where the market is perhaps beginning to reflect the seriousness of the European and World economic situation and sellers are more nervous and so willing to accept offers at less then the asking price.
4th Quarter of 2022
October to December – 6.29% – Strong demand and fewer properties available show that sellers don’t need to discount and buyers are prepared to accept asking prices. Fewer examples available, but varying from 4.2% up to 7.56%
1st Quarter of 2023
January to March – 12.03% More than double last year and standing out as very different from any recent quarters. The amount of evidence was small and was influenced by one property where the discount was 30.41% for an older, renovated property that had been on the market for some time, and the owners were at last persuaded that they weren’t going to get back the total cost of their improvements.
2nd Quarter of 2023
April to June – 7.86%. Back to a more realistic level reflecting the reality of the market, with the smallest being 5.41% and largest just short of 10%.
Changes in Multi-Listing Site – Resales Online
Comparison of figures are restricted to one region and we have chosen Costa del Sol, as being the most active on the website.
We found on 4th 2022 that there were 13,193 properties for sale at 100,000€ euro or more, at 0.11% a slight drop on our last recorded analysis in October 2022. 134 (0.1%) marginally higher were identified as representing new developments. There were 3,663 (27.8%) priced at 1,000,000€ euro or more, 59 (44% of the total) representing new developments. These figures are very similar to those of 9 months ago.
1,442 (10.9%) of the 100,000+ properties are found to have a discount of 10% or more since first listing, which is similar to the previous analysis. Those increasing their price was 1,151 (8.7%), which is slightly lower than the previous period. 460 (12.6%) of the 1M+€ euro properties were found to have reduced their prices by 10% or more and 522 (14.25%) to have increased their price by 10% or more.
1,480 were found to be available for long-term rental, which is less than before, with 1,157 (78.2%) being at more than 1,200€ euro/month, and only 53 (3.6%) being available at less than half that. On the other hand, 595 (40.2%) were available at 2,500+€ euro/month, and 257 (17.36%) at 5,000+€ euro/month
Analysis
The changes in price, + or – 10%, are not significantly different from 9 months ago, indicating a continued demand.
As before, the absence of lower rentals could just be a reflection of the agencies involved in the listing, but it does indicate the continuing difficulty for lower wage families in finding a home, with these people tending to be the service business workers. Talking to bar, restaurant and many other business owners, as nearly a year ago, are all are finding difficulty in sourcing staff. The recent changes, giving tenants more rights, are likely to make property owners less keen to take the risks of letting, thus reducing the number of places available even more. Higher interest rates have moved mortgages out of reach for many, and those, accompanied by increased service and food costs, are going to lead to many households having difficulties over this winter.
