The Spanish Property Market (2013)
Unfortunately, for many Spanish property owners, the past half-decade has delivered primarily only gloomy news, with prices stagnant at best and in some areas prices have continued to fall, if only due to inventory levels and distressed (or simply fed up) sellers, rather than a broader falling market.
Buyers however, largely remain spoilt for choice and will benefit from low prices across the board. The Spanish government introduced new laws almost every day at the lowest point, some designed to encourage property sales, others designed to fill the ailing state coffers. All in all, there have been mixed messages related to the property market there, but it could be an excellent time to buy your home in Spain, where at least the sun continues to shine.
On the other hand, the Government has increased the IVA (VAT) on sales of new property from a low 4 per cent to 10 per cent, which will add somewhat to the purchase cost. They have also introduced a ban on cash transactions of over €2500 (approx. £2,030) when professionals are involved, so this will also affect house purchases in an effort to stop “black money” changing hands. This rises to €15,000 (approx. £12,180) for non-residents, however, providing they can prove they are domiciled outside Spain.
Is a Recovery in sight?
Things do (possibly) seem to be looking up, in at least some of the coastal communities and on the islands. The mainland Coastal Apartment market has certainly seen an increase in the past 12 months, with Spanish property portal Kyero’s recent analysis of search figures from 2012, showing that some that 40% of inquiries for property in Alicante (one of the principle coastal property regions) were for apartments. Some 33% of inquiries were for three bedroom properties and 55% of would be buyers wanted a property with a swimming pool (no real surprises there then).l regions, many of which were hardest hit during the depths of the recession, as overseas buyers all but vanished and countess resorts were left only part finished, at best.
The figures are published at a time when property agents are reporting an increase in inquires and sales across many ‘resort’ markets. For example, Taylor Wimpey (España) said that it has experienced an increase of sales from 97 units in 2012 to 174 units in 2013, with £37 million worth of sales already secured.
The Luxury Market & the Islands….
While many would be buyers are looking for bargain prices, the luxury property market in parts of Spain is also doing well. Last year the Balearic Islands topped the charts for property sales over one million Euros to foreign purchasers and that trend remains for the first quarter of 2013. The upper end of the Balearic real estate market (along with the higher end locations within the Canaries) were significantly less affected by the collapse as many mainland areas.
At Propportunities, we combined all the general thoughts reported and data available to estimate where we felt the best ‘target recovery zones’ may be. In truth, as for any recovering market, we have probably already missed the bottom, but losing out on the first 5 or 10% of any upswing is probably worthwhile, given how quickly things can move in the wrong direction when you get it wrong!
Mallorca & Peurto Andratx
Consdiering the above, we focused our research on Puerto Andratx in South West Mallorca. Not as well known on the celebrity scale as perhaps Denia or the Marina resort of Peurto Portals, Puerto Andratx is set around a smaller marina development and a town of cafe bars, boutiques and upmarket restaurants (virtually without a tourist or souvenir shop in sight).
The town and its array of expensive retail outlets (not to be confused with its parent and neighbour, the nearby and more traditional Spanish town of Andratx) is supported by a series of surrounding bays and hills, hosts to a range of luxury Villas and Apartments. Sea views are very much at a premium, with huge prices paid for front and second line plots. Apartments here start at not less than €300k, with anything below €500 being considered a bargain. Detached villas are rarely found at below €1m and there are plenty of hill or cliff top homes available at over €10m!
One such bay is Cala Moragues, located just north of the Marina and out of sight of the main town. Other than the odd villa or apartment block from the 1980’s, the area was predominantly (and extensively) developed in the last boom, with around 50 properties located across the two hillsides and the valley below. Moragues is certainly not one of Mallorca’s cheaper spots, with apartments starting at around €500k and detached villas rarely being marketed for less than €2m. The area is particularly popular with the German and Scandinavian markets, but there are also a number of British, Russian and Spanish owners in residence.
In 2008/9 work on a number of sites simply stopped as development money dried up, with both plots and new builds staying vacant (lightly marketed) during the hardest hit years. However, there is now notable activity taking place with at least three luxury villas under construction and a new road extension , which was previously abandoned, again showing some signs of activity.
Having studied the area, we found what we consider three potential propportunities with conceivably large margins attached, being;
A Villa Refurbishment;
Wandering along the main road leading to the front line (cliff edge), visitors will notice that one of the prominent detached villas is somewhat less polished than its neighbours. The house is large, at least five or six bedrooms and, built over four stories (including basement garage) it is fitted with all the opulent extras one would expect. Speaking to neighbours and local agents, there was some confusion as to who owned the property or why it had been left open and unloved for the past three years.
Stories ranged from simple repossession, the bankruptcy of the owner and even of a raid by police, after which nobody has returned.
True, there may not be a Propportunity here at all, but if it’s currently held by either the state or one of the larger real estate banks, there’s probably a deal to be done… With neighbouring (smaller) properties on the market at anything from €2.5m to €5m plus and allowing for up to €500,000 to bring it back to its former glory, we’re sure that anyone with up to €2m would be making a shroud purchase with this one.
For many this would be an all or nothing deal and there’s certainly much on the market, albeit with assurances from the local agents that “if its priced correctly, it’s still selling”. However, we counted at least 15-20 villas (not forgetting that there are only 50 or so there) that are currently available. The difference between Peurto Andratx (and other parts of Mallorca) and mainland Spain is perhaps that here, prices have not (significantly) been reduced, with vendors preferring to ride it out rather than take a loss. So are asking prices a true reflection of the market? Again we were assured they were, but with a perhaps telling “you could always try an offer, it’s been on for a year”….
An (unfinished) Apartment Block;
If the ‘all eggs in a single basket’ approach is too much for your nerves, how about spreading the risk in the form of an unfinished block. This is certainly a rare propportunity as there are few apartments in the immediate area and they do tend to command high prices. Just off the small roundabout that divides the various access road and ramps to the valley, is a skeletal frame of a block of six (two bedroom) units, four of which have sea views and the two penthouse units having 360 aspects, including the town & marina. The main structure is in place and the pool area allocated and already partially dug out. Whilst this property is clearly only a shell at present, anyone with experience of hillside development will agree that much of the hard work is already done. Again, there was little knowledge of ownership or history (Peurto Andratx property appears to have something of an inner circle), but it’s likely that the site is currently sitting somewhere on the ‘to do’ list of a major bank.
The finished units will (conservatively) draw around €300k each, with around €500 for the two penthouses. With potential sales of between €2m and €2.5m and a budget of not more than €800k to be considered, anyone with the confidence to make and offer of up to €750k would surely be facing little downside (although we think €500 would be a good opening bid).
The Building Plot;
Perhaps the safest option, with a lower initial outlay and less dependency on the international market, would be a new built, particularly at the lower end of the luxury Villa market. The economics of building in such locations clearly favours larger properties, particularly at Andratx prices, but with so many on the market and with so much capital tied up in each, we thought smaller units may offer something.
On one of the primary roads (with excellent sea views) we found two plots remaining, both with outline permissions and utilities in place. Furthermore, each had main road access (top) and a service road (bottom) meaning that many of the expensive restraints of hillside building were removed. The larger of the two plots was being marketed at €500k with the smaller unit listed at €175k two years ago. Whilst this is not currently being marketed, we were unofficially told it was still for the taking albeit at around €200k.
The approved plans included a (smallish) 3 bedroom villa with small pool and parking area, totalling some 180sqm. We have made comparisons against (limited) similar properties and can confidently put an asking price of €1m on the finished site. Even after assuming build costs of €1,500 per metre and adding an additional €100k for the pool and high spec fittings, we have a total project cost of €570k and a potential margin of €430k (over 40%). True, costs may be higher and you may not sell as quickly as you would like, but with a weekly rental of around €2,500 during the summer months, any cost of finance should be covered.
In summary, each of these three potential propportunities will give an excellent return to the braver investor, willing to step back into the Spanish market first. The prices are real and we are confident that similar properties, if not these, will be sold to early movers soon. There is however one property in Cala Moragues which must get a mention before we sign off…
Shortly before the market halted, a large and imaginative home was built right at the cliff edge, complete with amazing views and all the space and facilities an Oligarch or Hedge Fund manager could wish for included in the plans. When the market stopped, so did the work and in 2010 it was openly marketed across a number of brokers, as a shell, with a price of €3.5m “as is” or “approximately €5.2m” completed to the buyers personal tastes.
Whether the property was sold in that shell condition, or whether the exiting owners hung on and waited for the market to turn is unclear, but it is now available, as the finished article, for just €8m, yes €8m! Things may well be looking up in Andratx, but I think even the smoothest talking agent would be tested to justify such an increase in what remains to be a fairly stagnant environment.
Then again, if such an agent does exist, they’re likely to have an office in Andratx!
