Wednesday, 8 April 2009

SPAIN'S LUXURY HOMES MARKET HITS BOTTOM

With prices for luxury homes at Spanish coastal resorts down by as much as 50 per cent from their peak in 2007, the bottom of the market for these properties may have been reached, according to industry experts.

As a sign of the times, a three-bedroom beachfront penthouse on the Costa del Sol marketed for €1.3 million (HK$13.49 million) a couple of years ago was purchased for €600,000 recently.

Bank of Spain figures show prices for homes along Spain's Mediterranean coast rose by 200 per cent during a lengthy boom from 1996 to 2007. In Andalucia, the Mediterranean coastal region where the Costa del Sol is located, prices rose 243 per cent over that period.

Buying agents said that prices had fallen back by 40 to 50 per cent for upmarket properties on the Costa del Sol to 2004 levels from the 2007 peak. It is the same situation on the Costa Blanca, which is located further north up the coast.

Today, the entry level for upmarket properties on the Costa del Sol is about €500,000, on the Costa Blanca, €250,000. Lured by these lower prices, buyers are returning to the market for luxury homes.

Barbara Wood, director of buying agency The Property Finders, said: "Nobody rings a bell when the bottom of a downturn is reached, but in my opinion the number of buyers who are coming forward to buy now, means we have probably reached it, at least in prime locations.

We are now seeing discounts of 40 to 50 per cent compared with the peak. If you can find a really motivated seller who just has to get out, then now is the time to deal."
However, some developers only offered 10 per cent cuts and individual sellers might not reduce asking prices from peak levels.

Demand for mid-market homes, those valued at €200,000 to €500,000 on the Costa del Sol, and €100,000 to €250,000 on the Costa Blanca, remains quiet.

The market for low-end properties offered at around €200,000 or less on the Costa del Sol (less than €100,000 on the Costa Blanca) has collapsed, because of massive oversupply. Spain has an estimated 1 million empty homes, mostly along the Mediterranean coast and around Madrid.

"As regards the mountains of high-density, identikit apartments in second-rate developments in second-rate locations there is no evidence that buyers are coming forward at all," Ms Wood said.

"I suggest that this type of product will go even lower and maybe it is too early to enter this market, but any investor should ask themselves whether it is a good buy at any price."

Inez Rix, co-director of Marbella-based property auctioneer Direct Auctions, said prices for one- and two-bedroom flats in large developments, the type of low-end home most oversupplied, had fallen 30 per cent over the past 12 months.

"Prices will continue to fall as more stock is released on to the market and more importantly as the squeeze hits owners," she said. "I have had a steady increase in entries especially with owners now listening and taking off substantial sums in order to shift their properties. Banks are now caught with thousands of units they cannot shift and this will add further pressure to the market."

In addition, the future of an estimated 40,000 illegally-built homes around Marbella adds to uncertainty among buyers.

Estate agents are confident about the long-term prospects for property markets at Spanish coastal resorts.

According to estate agent Cluttons, which has an office in Marbella, these resorts remain popular with north European holidaymakers and will attract more tourists when new transport links are completed.

These include proposals for a high speed rail link between the Costa del Sol and the Spanish capital, Madrid.

Robert Green, director of developments at Cluttons Resorts, said: "Malaga airport receives over 10 million visitors each year but the new runway and terminal at the airport, combined with the new high speed train connection from Madrid, the AVE, is set to double tourism in the region. An overland rail extension along the coast of the Costa del Sol will help relieve congestion on the major roads, which in turn are being improved."

On the Costa del Sol, Ms Wood said, beachside homes, golf apartments and detached villas on hillside locations around Marbella, Puerto Banus, San Pedro and Estepona presented the best investment opportunities.

These properties included a new two-bedroom duplex penthouse on the beachfront near Puerto Banus marketed at €715,000, but bought for €418,000.

At the Costa Blanca, investment opportunities were available along the coast from Javea towards Valencia and the Costa del Azahar, she said. These included a three-bedroom detached villa on one square kilometre of land with private pool originally offered for sale at €460,000, but reduced to €300,000.

"The best deals are being done if the seller is British and repatriating the sale proceeds," she said. "The weakness of sterling means that they are able to slash asking prices even lower than euro sellers."



SPAIN HOME BUYER'S GUIDE

Spain is one country with two systems as far as overseas property investors are concerned. European Union nationals pay less tax than other overseas buyers and have automatic right of residency in Spain. Non-EU nationals must show they have sufficient resources to provide for themselves to gain residency.

While non-EU investors must pay 35 per cent capital gains tax when they sell a property, EU nationals only pay 18 per cent, Barbara Wood, director at buying agency The Property Finders, said. All other taxes are levied at the same rate for both groups of buyers.

A 7 per cent purchase tax is payable when buying a resale property, and a 1 per cent purchase tax and 7 per cent VAT are payable on new homes bought from a developer. Rental income is taxed at 24 per cent.

Legal, notary and registry costs amount to about 2 per cent of the purchase price, and mortgage costs about 3 per cent. Ms Wood said mortgages could be cheaper if the buyer took on the seller's mortgage, a common practice in Spain.

When buying at auction, fees range from 8 per cent for cash purchases to 15 per cent for mortgage-backed acquisitions. Bids can be taken over the phone, in writing or on the floor at auction houses such as Direct Auctions.

Ms Wood said rental returns were low on the Costa del Sol and Costa Blanca.
"Gross yields are very hard to predict in this market and I would hesitate to quote more than 2 to 3 per cent currently," she said.

Brennon Nicholas, managing director of estate agency Cluttons Spain, said there was steady demand for rental accommodation on the Costa del Sol, because its population was transient and swelled by holidaymakers in the tourist high season.

The level of rent achieved would depend on whether a property was let out as short-term holiday accommodation or in the long term, he said. A €5 million villa could be let out for €10,000 a week in summer, or €12,000-15,000 a month as a long-term rental, he said.

According to The Global Property Guide, Spain's rental market laws are strongly pro-tenant. During the first five years of a tenancy a landlord can only increase the rent in line with inflation. After that period a landlord can raise the rent 20 per cent above the current level. It can take six months to evict unruly, non-paying tenants. Landlords have greater control over rent levels and length of tenancy in the holiday lettings market.

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