• There is no damp or infestations
• The electrical installations are in perfect condition
• This place never gets flooded
• Taxes and maintenance costs are low
• It’s a quiet area
• They are going to build a golf course here
• Your sea view is safe

The opportunity of a decade for Prime beach locations like Cala Tarida

Property markets are cyclical, and the time to buy prime property is now, during the bust, when everyone else is trying to sell. We could be on the threshold of the buying opportunity of the decade.

I’ve been bearish about the Spanish property market since 2004, and was expecting things to go pear-shaped 2 years before the boom started to show the first signs of exhaustion. Being a Cassandra for so long I started to think I was the only mug who didn’t understand the market, whilst everyone else got on with making money out of it. But I was always going to be right sooner or later, if only because property markets are cyclical, and always have been (though the long-term trend has always been up, in Spain at least).

My gloom may have been premature, but anyone heeding my warnings that prices might fall would have done well not to buy from 2004 onwards. But now, for the first time in 6 years, I think we are on the threshold of the buying opportunity of a decade, as we start the next cycle. Prices, in some cases, are back to where they were before 2004, and distress and capitulation are in the air. Property markets are cyclical, remember, and this time is no different. The time to buy is now, during the bust, when everyone else is trying to sell, not during the boom, when everyone else is buying.

But opportunists have to proceed with caution. There is still a lot of over-priced property on the market, and some of the talk about distressed sales and bank repos is just bluff. More importantly, there is a large glut of property that may not have a market today at any price; namely unattractive, poor quality flats in undesirable locations. It’s the biggest segment of the market and I believe it is doomed for some years to come.

The opportunity today, as I see it, is in the prime and A-grade segments, where thanks to the economic crisis and property crash you can now find attractive homes in superb locations for very reasonable prices. The worst of the crisis appears to be over, and most European economies are growing again. Many affluent Europeans are bound to be interested in a prime property on the Spanish coast, which means those properties are never going to be given away, and prices might not go down much further.

D’ya wanna know about the gems?

I regularly travel around Spain and get to see a lot of property, and sometimes I come across something that I think is a real gem. When I do, I have to assume that anyone thinking of buying property in Spain would be interested in hearing about it too. So as we enter this period that I believe could be the buying opportunity of the next cycle I will start reporting here on the real gems as and when I find them.

But for the sake of transparency, let me be clear about one thing. If I find a gem, then I am going to charge the vendor a fee to publicise it, as doing so creates value for both the vendor and potential buyers. If you have any doubts about me charging the vendor to tell you about it, then please, ignore everything I say. But if you are interested, and want to know more, then it’s up to you to contact the vendor for more information.

So, what have I got for you? Well, a real peach in Ibiza, no doubt about it. Something I think people will look back on in 10 years time and say “that was the time to buy”.
+ The real deal in Ibiza, Les Terrasses de Cala Tarida

Ibiza, a traditional German haunt

Britons piled into Spanish property and got burnt. The Germans bided their time. Now they’re starting to come back, should we follow?

We may fancy ourselves as a nation of hot shot property investors, but are we really any good at investing abroad? Not if our record in Spain is anything to go by. Many British investors crashed and burned in Spain over the last decade, using their favourite investment strategy of ‘follow the herd’.

German investors, on the other hand, largely avoided the bubble, and are now taking back their favourite haunts like Mallorca from distressed British vendors in full flight. Could it be that the Germans are just better at football AND buying overseas property than we are? And if so, shouldn’t smart investors be following German buyers back into Spain, rather than just watching our fellow Britons stampede for the exit?

The Germans always used to be big buyers in Spain, but from around 2003 onwards they retreated as the British advanced, with many selling out to British buyers after several years of surging property prices. Now it looks like they are back, at least in traditional German strongholds like Mallorca and Gran Canaria. “Ja! More Germans come back now,” confirms Margret Düllman, head of Düllman & Hundertmark, an estate agency catering to German buyers in Gran Canaria. It’s a similar story in Mallorca. “They bought low and sold high, and now they are back to buy low again,” explains Martie Quick, a director of estate agents Engel & Völkers in Mallorca.

To a certain extent the Germans have just been lucky with their timing. One reason they left Spain after 2003 was an economic recession at home that dented their confidence, and made surging Spanish property prices look crazy in comparison to their own declining house prices. But they also deserve some of the credit for their cautious attitude to buying property abroad.

For a start Germans don’t like borrowing money, unlike the British who will happily borrow more than 100% given half the chance. “They are always looking for a good investment but only something they can afford with cash,” explains Brigitte Wendel, a German estate agent with Engel & Völkers. “They want to be able to sleep at night.” Without mortgages they were priced out of the market during the boom, which turned out to be a blessing in disguise. Rising prices just encouraged the British to borrow more, like a red rag to a bull.

The Germans are also canny buyers who instinctively go for good beach locations in places like The Balearics and The Canaries, where there is always strong demand from holiday makers. Many British investors, on the other hand, were easily persuaded that new developments in obscure parts of inland Spain, miles from the sea, would make a good investment.

German buyers head for the beach

And finally, Germans are fussy about quality and like to see what they are getting, so they found the off-plan boom a turn-off. Nonchalant British investors, on the other hand, piled into off-plan investment with gay abandon. All these factors together kept German buyers out of the market as the bubble inflated and then burst. By 2007, German buyers were just 10% of British demand, according to figures from the Property Register.

So what is starting to lure the Germans back? “Prime property at reasonable prices, at least in Mallorca,” explains Quick, who claims that prime property prices on the island are down by as much as 25% in the last few years. “You can now buy apartments in good locations with sea views for around 350,000 to 400,000 Euros, down from 550,000, and villas are down to 1.5 million from above 2 million Euros. The crisis has created a window of opportunity that the Germans are exploiting. They are after the best properties, in the best locations, with the best views, for the best price. If the price isn’t right, they won’t buy.”

Of course there are also some British buyers who can see the opportunity. Last October Pauline Lewis, 62, an antiques dealer, and her semi-retired husband Robert, 65, from Halesworth, Suffolk, spent 1.1 million Euros on a 4-bed apartment with sea views in Costa de la Calma, just 5 minutes drive from Port Andratx, in the South West of the Island. “The asking price originally started above 1.45 million Euros, but when it dropped another 150,000 Euros last autumn we decided that it was time to make our move,” explains Pauline Lewis. “Also, we didn’t want to waste more time wondering what will happen, saying shall we, shan’t we. At our age if you don’t get on and enjoy life it will pass you buy.” The Lewises took out a foreign exchange option contract to ensure they get money back if the Pound rebounds.

Though there is little evidence that Germans are buying outside of their usual haunts, you could argue that this is the best time in years to buy property in other popular destinations around Spain. For a start there is a glut of brand new, key in hand properties languishing on the market, so investors are spoilt for choice. Many of the urban planning scandals and illegal building problems that were hidden dangers are now out in the open and being dealt with, and prices are down between 20% and 40% or more, regardless of what the official price index says.

In Marbella, Spain’s flagship resort, savvy Spaniards who know the market are doing most of the buying. “It depends on the property, but in general terms asking prices are down 20%, and closing prices down 30% since they peaked in 2006,” explains Diana Morales, head of the eponymous estate agency in Marbella. “That means prices are back where they were in 2004 or before. You can now buy lovely villas for between 1 and 2 million Euros, that’s less than the replacement value. And for lower budgets a town house recently went for 250,000 Euros that was sold for 375,000 Euros in 2005. I can’t see it getting better than this.”

In Lanzarote, which is fast becoming a major destination for fitness freaks thanks to its amazing climate and terrain, there has never been a better time to buy, says Mario Izquierdo, a local lawyer. “It’s incredible, you can now buy villas with a pool in Playa Blanca for less than 200,000 Euros. That’s less than the construction price,” says Izquierdo.

And in Ibiza prime property with sea views is selling quickly if the price is right, showing that the market is far from dead. “We are getting a lot of enquiries for villas between 1 and 1.5 million euros, and anything really good in that range – private, with sea views – gets snapped up,” explains Cathy Ouwehand, head of estate agents Ouwehand & Wall. “There are also some fabulous deals to be had with newly built apartments by the beach, mortgage financing included.”

Of course prices may continue falling, but it would be foolish to expect prime properties to be given away. “British people making offers 50% below asking prices are going home empty handed,” notes Morales in Marbella, whilst in Mallorca “Germans know they won’t get bargains, but they think now is a good time to invest, and better and safer than having their money in the bank,” says Wendel. It’s a different story in Spain’s most over-developed coastal areas where a monumental glut of unsold new properties mean that subprime locations could be depressed for a decade or more.

And what about the tens of thousands of bank repos that Spanish banks will have to sell sooner or later, especially now that the Bank of Spain is forcing them to make bigger provisions for their property portfolios? Some of that stock is in the wrong places, and banks are not yet realistic about their pricing, so opportunties are limited for the time being, though that may change. “Our resales are cheaper than the few bank repossessions of interest in Marbella,” points out Morales.

But in places like Mallorca, the window of opportunity may shut sooner than people think. “Vendors are still open to offers, and it’s far easier to negotiate with them just before prices start rising than just after,” says Quick. “But for the first time in 18 months we are actively having to look for property, so the supply of properties priced to sell is getting tighter again.”

Of course the big problem for British buyers right now is the weak Pound. There are ways to mitigate this, such as forex option contracts or taking out a mortgage (if you can), but there is no escaping the fact that British buyers with Pounds do not benefit from lower prices as much as German and other buyers with Euros.

The British may have dominated the mass market during the boom, but today there are plenty of other Europeans interested in prime property now that prices are coming down. So Spain may be in the middle of a massive real estate crash, but it could be a mistake to think that prices for the desirable properties in good locations will go down much further. Warren Buffett famously said that he tries to be greedy when others are fearful and fearful when others are greedy. Right now British property investors are fearful, but German buyers are showing signs of an appetite. If we have anything to learn from the Germans it is that the time to buy property is during the bust, not the boom.

CONTACTS
Engel & Völkers, Santa Ponsa, Mallorca
T: +34 – 971 – 69 90 63
SantaPonsa@engelvoelkers.com
www.mallorca.engelvoelkers.com

Ouwehand & Wall, Ibiza
T: +34 971 19 25 88
info@owbalearic.com
www.owbalearic.com

Diana Morales, Marbella
T: +34 952 765 138
info@dmproperties.com
www.dmproperties.com

Related article (from The Sunday Times): You crazy English: a German’s view of our buying habits

I’m on the fast train from Madrid to Barcelona, travelling through the heart of Spain. Miles and miles of stunning countryside bathed in Spring sunshine flash past the window as we cruise along at close to 300 kmh. The snow-capped Pyrenees are visible in the distance.

Quite apart from the fact that catching the fast train in Spain makes anything to do with rail travel in the UK look distinctly 3rd world, it’s also a great way to see a bit of “real Spain”.

Many British people who dream of moving to Spain – and there are still a lot of them – claim they want to live in the “real Spain” but few of them actually go anywhere near it. The route of this train crosses 620 kms of Castilla La Mancha, Aragon, and Catalonia, almost half the country. It couldn’t’ get more real, and only takes 2 ½ hours on this sleek, modern train (€240 return first class).

Every now and then you pass a city with chicken-coops of new developments on the outskirts, but most of the way it’s just attractive countryside, with traditional towns dominated by the ubiquitous church. Drive down the coast and you get the impression that Spain is covered in new developments, but go deep inland and you realise that it’s just not the case.

And though prices all over Spain have risen in recent years, in these parts property is still cheap, relatively speaking.

The main problem you might have is finding what you want given the limited housing stock. From what I can tell from the train, and from what people have told me, it’s either a village house or a fairly basic traditional farm house. No Marbella-style villas around here, if that’s your cup of tea. That said, once you get into Catalonia, you start seeing some nice piles.

Another problem you might have is finding an estate agent, or anyone for that matter, within a hundred miles who speaks English. But that’s the way it is in “real Spain”.

Plot in search of a reasonable builder

With Spain going through a sever real estate bust, and the residential construction sector in the eye of the storm, you could be forgiven for thinking that now might be a great time to build your own villa in Spain, taking advantage of plunging material, labour, and land costs.

That would certainly be the case if prices were indeed falling, which I was under the impression they were; After all, hundreds of thousands of construction sector workers have lost their jobs, and builders’ merchants and builders are struggling to survive, so the price of building a house must be coming down, right?

Apparently not, at least not according to one British couple who have been looking into building themselves a house in Marbella, on the Costa del Sol.

“We own a plot of land on a great golf course called the Marbella Club Golf Resort (MCGR), which we have tried unsuccessfully to sell for 2 years,” explains Stephen, who says he is avid reader of this blog. “We had planning approval – since lapsed- for a magnificent villa which we had hoped to build and ultimately retire to in a few years, but then the UK property market started to fold, and we had to shelve our plans to build out our dream house.”

They first looked at building when the boom was in full swing, but the high prices put them off. In those days people in the building trade on the Costa del Sol were drowning in work, and felt confident asking the earth.

“At the start we were quoted an astronomical build price of €1.3m to build a villa of 485m2 ( more like 780m2 with terraces and a basement ) which put us off,” says Stephen. “In fact, we spent almost £100k (Pounds!) on the architect’s fees to design the villa, which I have to admit, we loved.”

What about now? Have build prices come down to reflect excess capacity in labour and materials? Not a bit.

“Since we cannot sell the plot ( valued by the MCGR at €800k ) we decided to look at building again, having been told that build costs would probably have come down due to lack of demand, and…………..heyho, when we make the enquiry only last week, we are quoted the same price of €1.3m that we were quoted 2 years ago!”

“To be honest we were expecting something like a 50% reduction in the cost of the build because: A, it was an unreasonable price to start with, B, the cost of materials has come down dramatically and C, builders should be squeezing their profit margins to attract clients and stay in business,” complains Stephen.

So what?

“The moral of this story is that if Spain really wants to attract foreigners back to Spain to help kick start the economy by employing builders, then people are going to have to be more reasonable. If they continue trying to charge the prices they got used to in the boom, foreigners like me will be put off investing in Spain,” says Stephen, who signs off “Cheers, rant over!”