With properties selling for 30% less than their asking price, it’s a boom time for buyers on the Costa del Sol.
Sunday Times Home Section, 17 September 2006
The Costa del Sol property market is having a difficult year. Corruption scandals have rocked the coast, while employment in the construction sector in the Marbella area has reportedly fallen by 85%. Off-plan investors, meanwhile, have disappeared to cheaper destinations such as Bulgaria, and, not surprisingly, with new building continuing apace, many properties are taking longer than ever to sell.
Estate agents are feeling the pinch as they struggle to adapt to selling resale properties with lower commissions. The number of agents is falling, while some of the leading ones, who used to work together in the boom days, pooling information about properties and sharing sales commissions, are now at each other’s throats.
It is all a far cry from 2003, when house prices in Malaga province rose by 29%, and investors were falling over each other to buy multiple units in the latest “hot” off-plan project. As one agent wistfully describes it, “2003 was a free-for-all, a feeding frenzy”.
The really dirty little secret of the Costa del Sol is that prices at which properties actually change hands are falling, even if this is not yet reflected in government figures, which show a 10% increase in Malaga province in the 12 months to the end of June.
“Vendors’ expectations rose too far, too fast,” says Barbara Wood, who runs the Andalusian branch of The Property Finders search agency. “There is still demand for the Costa del Sol, but not at current asking prices. Serious vendors have to accept offers. If not, they don’t sell, simple as that.”
All of which is good news if you’re buying. Do your research and you should be able to pick up a good property in a desirable location at 20%-30% below the asking price.
“I have recently worked on two sales where we got more than 20% off the price for really excellent properties,” says Wood. “We negotiated one villa down from €1.4m (£950,000) to €1.1m (£745,000) and another from €1.69m (£1.15m) to €1.35m (£915,000). Both were in great locations on upmarket developments.”
Mark Clifton, managing director of The International Property Partnership, a Marbella-based agency that specialises in sourcing bargains, also believes prices have fallen by 20%-30% from their highs of late last year.
“A typical example is an attractive villa in a place like Mijas, not too far from shops and restaurants, down from €450,000 (£300,000) to €390,000 (£265,000), at which point the sale happens quickly,” he explains.
This means essentially that prices have slipped back to the levels of two to three years ago. It is hardly a disaster for many vendors, but those who have bought off-plan in the last year will be lucky to break even and may have to accept a loss.
“Many investors buying off-plan in 2003-4 paid deposits of about €60,000 (£40,000),” says Clifton. “If they can get back, say, €40,000 (£27,000) and not have to face the expense of completing, they may be better off. Investors are starting to accept offers for less than what they paid off-plan two years ago.”
Developers are also struggling to sell at today’s prices, especially in competition with off-plan investors undercutting them on their own projects. Many now offer better payment terms or thinly disguised discounts, such as two years of mortgage payments or guaranteed rental schemes.
But although this is a buyer’s market, it is unlikely that prices for quality properties will fall much further than what can be achieved already, so holding out for even better prices in future may not work. Agents say properties sell quickly once prices drop by 20% or more, to 30%, which should prevent any further reductions.
“The Costa del Sol is one of the most popular destinations on earth,” says Clifton. “A lot of people still want to be here, and that pent-up demand keeps a floor under prices.”
Having said that, there are two exceptions in the current market that buyers and vendors need to be aware of.
First, the number of mediocre new-builds in mediocre locations — for instance, looking over the toll road at the back end of Benalmadena or in Duquesa — may have to fall by more than a third to find buyers. Those who are prepared to buy this kind of property may be better off holding back for now.
And second, bear in mind that unique locations are still in hot demand, so don’t expect all vendors to accept offers.
As Sarah Dodgson, head of Marbella agency Hermosa Homes Spain, puts it: “Frontline beach properties free of legal problems can still sell over the phone within 10 minutes of coming onto the market.” Smart moves
How to take advantage of a buyer’s market:
- Arrange your finances in advance so you can offer cash and complete quickly if necessary. This will appeal to vendors struggling to sell
- Investigate the market thoroughly to spot the opportunities
- Find out all you can about vendors. Forget your qualms and focus on properties whose vendors need to sell quickly due to money troubles or ill-health
- Don’t be frightened to make an aggressive offer of 20% to 30% below the asking price, but back it up with clear signs that you are serious and can move fast
© Mark Stucklin (Spanish Property Insight)