By Campbell D. Ferguson of Survey Spain Network
January 2012

We all have an opinion about the value of a property, especially when it’s ours, and that’s the problem! It’s the value that a prudent, knowledgeable buyer will put on it that’s important.

Homeowners, mixing emotion and ego (and sometime desperation) plus the money they have spent on it, into the equation, will famously tend to overvalue their property. An agent may go along with this to get the listing, but reality strikes when the buyers list what can be bought elsewhere and the bank won’t give a big enough mortgage at that price.

Therefore, it is important to bring in an independent, experienced professional specifically trained to accurately value individual properties – the chartered surveyor, based in Spain.

Bearing in mind that cost does not equal value, a starting point can be the cost of land plus construction plus charges for taxes, permissions, professional fees and, often forgotten, the cost of financing the land and construction when it’s being built.

Obviously in practise these factors are variable depending on the market and the individual property.

• Land cost – if this can be registered for uses other than merely residential, the value may be greater
• Desirability of the location and technicalities such as ease of access and availability of services will also affect the price.
• Construction – the cost of this can vary considerably. At times of high demand the cost of materials and labour charges will increase. However, during periods of economic crisis the cost of getting work done will be noticeably lower.
• Permissions – these should be relatively constant.
• Recompense for the hassle and risk of construction – it takes a long time between buying the land and getting the permission to occupy the property and there has to be some recompense for that.

However, if there is a similar property that is being offered at a lower price, the ‘builder’ has two choices – either drop the price and accept less recompense or hold on and hope that the cheaper properties will be sold, demand continues and thus the house becomes the best that that price can buy. In a falling market, as we’ve had for a few years in Spain, many have been caught out and ended up chasing the market down, dropping their price eventually, but always finding somebody willing to sell a similar property at a lower price.

As with choosing a life partner, the attractiveness of any given property is in the eye of the beholder! That is why property (we do not ‘value’ life partners!) can only be valued on a comparative basis, with the valuer judging, from experience, how the average buyer and seller, the ‘market’, will react at the time of the valuation. The Royal Institution of Chartered Surveyors’ (RICS) definition of market value is: ‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’

A professional valuer forms an opinion of value based on what else the buyer could do with the money; what other property could be acquired for the same investment and how does this particular property relate to all the others on the market? If there are more buyers with finance and willingness to purchase than there is available real estate, there will be strong competition, with the ‘winner’ being the one who offers the highest price. On the other hand, as now, if there is more property than buyers, the successful seller will be the one who offers the best for least.

Reliable information on actual sale prices and accurate descriptions of properties is difficult to come by in Spain. The Survey Spain Network of twelve Chartered Surveyors around Spain has the advantage of our reliable records of the thousands of our own building surveys, valuations and assisted sales conducted over the past eight years, which have enormously augmented our bank of knowledge. Many of our valuers have personal records that extend many years further back.

It is common knowledge that the property market can vary enormously depending on considerations of location, which can be as specific as on which side of the street the property stands or even which view is obstructed by trees or not. In all markets, the best properties in each range will sell, judged by location, quality and price. Even now, there is competition for these. On the other hand there are others for which no prudent, knowledgeable buyer can be found at any price.

So, what is value? Value, like beauty, is in the eye of the beholder and every property is ultimately worth only what a prospective buyer is prepared to pay for it.

A recent article at the Spanish financial website Finanzas.com gave tips on the best Spanish property opportunities next year from a group of real estate ‘analysts’. (In the worst tradition of Spanish journalism, the article didn’t clarify who was being quoted and why, so we will just have to assume they are people who know what they are talking about.)

One property sector inside called Acuña says that small city-centre flats will be the best investments in 2011. “2-beds sell better than 3-beds, and 3-beds better than 4,” he said.

But another ‘analyst’ called José Barta warns there is a glut of small homes, so not all 2-beds will do. “Recently, too many small homes have been built. Now you have to look for niches where there are shortages,” said Barta.

Elisa Morillo of Foro Consultores, quoted in a seperate article, argues that 3-beds are the way to go, thanks to a relative scarcity of this type of home. Cost cutting and expectations of smaller families lead developers built too many studio flats and 1-2 bed homes during the boom, she argues, and not enough 3-4 bed homes.

Bank stock?

The banks have a lot of property for sale, and some agents are making a song and dance about bank repos, but do banks have anything interesting to offer? Not according to Barta. “In the end, the banks are only offering the worst of what they have,” he says.

The best opportunities for good rental yields will be found on the outskirts of cities, especially Spain’s mid-sized cities like provincial capitals, says Ferrer-Bonsoms, another ‘analyst’. Many of them already come with 100pc financing.

Along with niche-hunting, Barta also recommends holiday buy-to-lets on the coast, but not everywhere. “Most of all, in places where the Germans and the British like to holiday,” he says, recommending the coast of Catalonia (Costa Brava & Costa Dorada), Mallorca, Menorca, and some parts of Alicante. Carlos Ferrer-Bonsoms (Jones Lang LaSalle) would add Almeria (sticking to 2-beds and the best locations), where he says you can get discounts of up to 50pc.

But Nicolás de Sangenis, another ‘analyst’ quoted in the article urges investors to be cautious about buying on the coast, saying prices could fall in coastal areas by up to 20pc next year.

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

A typicall scene at Deserts Springs in Almeria

A new David Lloyd Resort opening this month in south-east Spain is offering holiday homes for sale on a shared-ownership basis at prices as low as £24,000 with a potential for investment benefit.

Publicity

The location is the Desert Springs Resort in south-east Spain, Europe’s only international award-winning luxury family resort and championship desert golf course in the Almanzora region of Almeria.

Former British tennis ace David Lloyd earmarked Desert Springs as an ideal location for the expansion of his business during a visit in July last year. In a radio interview with Jon Gaunt of the Sun online radio station Sun Talk, he said that he had been encouraged to visit Desert Springs by his friend Sir Ian ‘Beefy’ Botham who owns a holiday home there. David praised what he described as “a great resort” with good year-round weather and easy access from the UK.

Now, through The David Lloyd Resort at Desert Springs, properties can be purchased on a shared-ownership basis for the first time in the resort. They range from two-bedroom apartments to three-bedroom townhouses set in mature gardens. Some of the properties overlook the resort’s 72 par 18-hole Indiana golf course designed by former Great Britain and Ireland Golf Team Captain Peter McEvoy who was inspired by the desert courses of Arizona and California.

Simon Coaker, sales and marketing manager at Desert Springs, says that David Lloyd’s ownership scheme is attractive because it is based on a shared asset purchase between a set number of individuals.

“David Lloyd Resorts uses this principle to provide individuals with the opportunity to share in, and enjoy, exclusive property ownership that may previously have been unobtainable as a sole investor,” he said.

David Lloyd

Explaining how the scheme operates, Nick Lawrence, sales and marketing director of David Lloyd Resorts, said: “Each property is divided into 13 shares, and sold at three different price levels which are based on seasonality. Shared owners hold a share in a chosen property based on the amount of equity invested, but all share equal occupancy rights. Each share entitles the owner to four weeks usage each year. These are two weeks reserved from a choice of price bands and two ‘freedom’ weeks enabling owners to explore the flexibility of the David Lloyd Resorts exchange programme by staying in our properties in Phuket, Canada, the West Indies, Turkey and Cyprus.”

He added: “Our business plan for Desert Springs is to sell each property after 10 years and, at that stage, return the proceeds to the 13 owners in a manner which is proportionate to their original equity investment.”

Among resort facilities which appealed to David Lloyd during his visit last year, and which property owners and visitors to Desert Springs can enjoy, is the Tennis Academy which includes two brand new tennis courts, two new paddle courts and a beach volley court. The tennis and paddle courts are finished with surfaces designed to give high bounce and add to the ease and pleasure of the game.

Also open is the Sierra Sports and Fitness Club with facilities for football, cricket and a gymnasium. Both the football pitch – inaugurated by Sir Bobby Charlton and Sir Geoff Hurst, with its floodlights, shower and changing facilities, and referee changing room – and the cricket pitches are popular with school and clubs for pre-season warm weather training.

Places to eat at Desert Springs include the resort’s international award-winning El Torrente Restaurant and the family restaurant and bar within the Crocodile Club with its pools, sun lawns and sand play bunkers

The climate at Desert Springs

Desert Springs takes it name from the region’s desert microclimate which is unique in Europe. It has the warmest winter weather on the continent with an annual average of more than nine hours of daily sunshine and maximum daily temperatures of between 16°C (60°F) and 30°C (86°F) throughout the year. Annual rainfall is less than 200 mm. The Almanzora’s coastal waters are among the cleanest and warmest in Europe, attracting both fish and diving enthusiasts.

Getting there from the UK

The Almanzora region is easy to reach, thanks to three international airports. The current journey time from Almeria International Airport to Desert Springs is around 50 minutes by road. Other international airports are at Murcia – 70 minutes on the toll motorway direct to the Almanzora Valley – and Alicante which is less than two hours by road.

For more information call The Almanzora Group on 01242 680299 or visit www.almanzora.com

For more information about The David Lloyd Resort at Desert Springs telephone 01372 824518 or visit www.davidlloydresorts.com

Golf resort under construction, bank's business?

There was an interesting couple of articles this week in the Spanish daily ‘El Mundo’ about bank repossessions in Spain, and what the 10 biggest lenders are offering investors.

One article pointed that Spain’s banks and savings banks – known as cajas – are now the country’s biggest real estate companies. “Nobody knows how many properties they own, not even the banks themselves,” one expert told El Mundo. Their stock of repossessions is growing fast, and is expected to keep on doing so. All thanks to foolish lending in the past.

Banks aren’t, or shouldn’t be, in the property business, so this is a big headache for them. To liquidate their growing stock of property banks start by classifying property as ‘A’ or ‘B’.

‘A’ is new build from developers who can’t repay their loans, good quality, in good condition, and easier to sell, in theory at least. This is reported to make up 70% of the stock the banks now hold. Banks are using their own property divisions – recently set up in most cases – and branch networks to sell this ‘A’ property, offering discounts and preferential financing terms.

(In my opinion the article is too optimistic about the sales potential of the ‘A’. After all, there are quite a number of new promotions, finished and standing empty, that have no future. There are just no buyers for them at any price.)

‘B’ is made up of repossessions from home owners who can’t pay the mortgage. There are forecast to be 74,000 foreclosures this year, and banks already have 9 billion Euros of bad debts from private owners on books.

The problem with ‘B’ is its variable quality, which Santiago Baena, President of the API estate agents organisation, describes as “highly suspect”. At this stage in the downturn, much of it is downmarket, in many cases gutted or vandalised by former owners. “The cheapest and the worst quality” says one expert. Banks are trying to sell their ‘B’ properties through external channels, offering big discounts of “up to 50%”, explains Baena.

The other article on the subject reviews the property offering of the 10 biggest lenders

Banco Santander (Spain’s largest bank)
1,300 discount properties, 400 of which have already been sold to the bank’s employees or other select groups (such as employees of Telefonica, Spain’s version of BT) with discounts of 20% to 30% and 100% financing with terms of 40 years. Now starting to sell to the general public through its property division Santander Altamira Real Estate.

BBVA (Second largest bank)
900 new builds and 600 resales all around Spain. On sale to the general public with ‘offers’ but no overall discount policy. Available through property division Anida. Best ‘bargain’ on offer flat of 56m2 in Madrid for 125,000 Euros

Banco Popular
700 properties around Spain on offer to general public, but preferential financing terms only offered to employees and family. Selling through property division Aliseda Gestión Inmobiliaria. Best ‘bargain’ on offer flat of 93m2 in Manresa (near Barcelona) for 166,000 Euros.

Banco Sabadell
Property portfolio largely comprised of building land, rather than housing. Selling to professionals through property division Solvia Gestión Inmobiliaria.

Banesto
1,3000 new builds all around Spain, with prices that “reflect the market situation.” Selling through 20 agents, including Knight Frank, to general public, offering preferential financing terms of Euribor +0% for 40 years. Reported to be closing more than 100 sales a month; star product 2-bed flats in Ensanche de Vallecas (Madrid) for 164,500 Euros. Setting up own real estate portal Casaktua.

La Caixa (Spain’s biggest savings bank)
2,000 resales all over Spain, largest selection being 320 resale properties in Murcia. Offering discounts of 25% minimum, and 5% on top for good clients. Selling through own real estate division Servihabitat, branch offices, and select estate agents. Best ‘bargain’ 76m2 flat in La Latina (Madrid) for 205,200 Euros.

Caja Madrid
1,000 properties primarily located in big cities and on the coast. Biggest selection in Madrid (244), Valencian Region (276), Catalonia (177), and Murcia (91). Offering discounts of up to 40% and financing of Euribor +0.5% with no opening commissions. Selling to general public through website and auction house Reser. Best ‘bargain’ 67m2 flat in historic Old Town of Barcelona for 152,500 Euros.

Bancaja
800 resales at prices “adapted to the times” but no across the board discounts other than “3 properties at give away prices every week” available from its website. Half of stock located on the coast, Valencia (240), Alicante (134), Castellon (59), Murcia (24). Best ‘bargain’ 90m2 flat in Barcelona for 225,000 Euros, down from 290,000 Euros.

Caixa Catalunya
Stock of 3,600 properties all over Spain, 1,700 on offer with discounts of up to 30%, and 1,800 properties available for rent with option to buy. Selling to general public through real estate division Procam, promising to repurchase property if buyers run into problems paying the mortgage. Best ‘bargain’ 85m2 flat in Chueca, the ‘gay’ district of central Madrid, for 157,500 Euros or 540 Euros/month in rent.

CAM
2,500 properties (not all residential) with discounts of 20% to 50%, sold through real estate division Mediterranean Inmobiliaria with auction and bidding system online. Best ‘bargain’ 98m2 flat in Elda (Alicante) for 35,610 Euros.

Though a thoroughly unpleasant experience for the investor, he ended up making money, and doing vastly better than he would have with his money tied up in a blue-chip British banking stock like, say, RBS, or even in an index like the FTSE.

It goes to show that, in times like this, even a Spanish property investment gone wrong can turn out to be a good investment, relatively speaking.

It also shows the importance of using a good lawyer in Spain, and being well prepared when it comes to exercising a Spanish bank guarantee. Banks know that most people will give up, rather than fight to the end. If you want the bank to pay up, make sure you send the right signal from the start.

Mark

Just to tell you that I judge that I am one of your very few subscribers to have managed to exit a four year property investment in the Valencia area at a profit.

In what was indisputably my worst ever property investment, I bought into a development in Xeresa, near Denia (Valencia) in 2004, being built by a large developer (I expect you know them) specialising in golf resorts. My lawyers were Del Valle Associates in Marbella (so you see I chose pretty well all round). I bought two properties off-plan in 2004, on the basis of a contract which looked OK to me at the time but which I subsequently discovered was seriously flawed. I paid deposits of around 30%. The whole process got off to an extraordinarily slow start, but construction finally began in early 2005, though, according to my builder’s start of works certificate, not officially until November, seven months later. This was very difficult to deal with at the time.

I had by this time parted company with Del Valle and found a new lawyer through your website (Juan Bertomeu of Iuris Consulting). It was soon clear to both of us that if I wanted to get out (which I by then did) it could only be done by claiming on the bank guarantee for non-completion in the required time. Given the force majeure conditions in the contract, we established the earliest date in May 2008 by when the claim could be lodged. It was apparent from my site visits (when we were never allowed actually to enter my own properties!) that they would not be completed by the date we’d defined.

Despite this, I was advised in mid 2008 that the properties had been completed (and that this stage payment and that stage payment were now due). Our claim had not at that time been lodged because my/our view was that every duck had to be in the proverbial row, in terms of documentation, before we did so. We finally lodged the claims on both properties in early September.

These were rejected by the bank because the properties had been “completed”.

To cut a very long story short, we made 12 different submissions to the bank , all of which had to be notarised etc. The bank made an endless succession of what we believed to be wholly unreasonable and non-contractual demands. My view was that however unreasonable the demand we would meet it as quickly as we could, and so we did. One notarised submission we made in November, relating to the unfinished state of the apartments, ran to 25 pages.

Finally, miraculously, the first guarantee was finally paid into my Spanish bank one week before Christmas and the second one week later. I received four years interest on my capital deposit. Additionally, of course, I was repaid in Euros, which were around 30% more valuable on the day I got paid than they were when I’d made my deposit.

In broad terms, therefore, I have in sterling made around 10% per annum on my four year investment (net of legal fees of some 13,000 Euros and my personal costs of 3,000) which, so far as I can see, is tax-free. This is far better than any of the parallel UK investments I made over the same period.

The fact that this profit arose through entirely unintended means does not lessen the feat of genius it represents.

So you see, it can be done!

The lessons (for me at least) are as follows:

Firstly, read the bank guarantee very carefully, on the basis that you might well have to use it. Start with the assumption that they will be extremely reluctant to pay.

Secondly, remember that the developer will seek to give himself more room against his own commitments than he is entitled to, especially at the start of the contract when non-completion is the last thing the buyer is thinking about.

Thirdly, before signing or paying anything, visit the site with your lawyer. Within 5 minutes of my doing so, unfortunately by then well into the contract, my new lawyer, on seeing the proposed layout, told me – accurately as it turned out – why the project would end up years behind schedule due to difficulties in obtaining further permissions not yet sought or agreed.

Keep up the good work!

Andrew

At one point he runs through the reasons why property is a flawed investment for most people: “It’s a one-way, unhedged bet on one asset, with a lot of leverage”. Can’t argue with that.

He doesn’t go into it, but the only reason, other than the tax code, why property has been a good investment at times in the past is because it’s the one asset that most people can use to borrow heavily against. Take away the lending, as now, and it’s a seriously problematic investment. Illiquid, high maintenance costs, high transaction costs, et al.

Mark