Deal or No Deal

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  • #56125
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    OK with respect some of the posts on the current thread: Costa’s – when will this market bottom?

    I meet John and Mary, they want to own a home in Spain, they have a budget, let’s call it €200,000 I don’t know if this is all cash, whether they are raising the funds in the bank, from remortgage or whatever, they want to look at property on the CDS and have expressed an interest to also look at a local mortgage and or what might be available in finance to them at this time.

    It is a fairly wide brief, I will try to keep the preamble to a minimum, and answer questions as I go, but we need a background to what happens over their viewing period.

    I show John and Mary quite a few properties and options over several days – let’s face it, there is plenty to see, there is no shortage of supply.

    We have looked at some resale properties 2-3 Bed apartments, in various areas, we have looked at properties priced from €150,000 being below their budget but not up to their spec and requirements, and we have looked at some priced at €300,000 way above their budget but we have heard and read much talk on SPI and the like of 30% price falls etc, so maybe there is a deal to be had with an offer 30% below that would almost hit their budget.

    We have had a good tour around the coast, the properties have all been interesting in their own way, everyone has a story behind it, but John and Mary while knowing the coast fairly well, don’t know it so well that they know exactly which area and urbanisation they want to live in, actually the range of prices has them a bit confused, it seems difficult to settle on a single option. They also wonder if this is really the time to buy, for a couple of reasons:

    Will the market fall further over the coming year or so?
    Should they continue their search with me or other agents and seek to find a better property at a better price?
    Should they take a local mortgage at 70% or should they use their own funds to buy outright?
    No one including me, seems to be able to say – this is it John and Mary, this is the perfect scenario for you – it ticks all your boxes.

    John and Mary want to buy, they have been thinking about buying for over a decade, they didn’t feel they could afford to back in 2000, they took a look at some Property Exhibitions between 2000 – 2006 and were astonished at the price increases over the period and the almost ‘gold rush’ purchasing they saw taking place. They didn’t buy then, and actually now they are really glad they didn’t.

    Now, they want to buy because they want to use the property, for themselves, with family and friends, they want the sunshine and a different lifestyle – their own things around them, but they want to know this time is the right time to buy and that given the market, and all the negative conditions and connotations surrounding it, that someone shows them something that may also turn out to be a really great buy, that not only works now but really works for them in the future.

    OK, I have bored you enough. Here’s the deal…

    As an agent, a developer comes to me, saying look Chris…

    I have @ 12 apartments in an urbanisation where I know you sold in the past for us and indeed for some of the vendors who have resold.

    The urbanisation was originally launched off plan @ 2002-3 period, it sold quite well as it was being constructed from that time to @ 2005 – 6 the prices rose with the various stages of construction and ultimate delivery was I think @ 2007, at that time, the remaining units which included the 12 now on offer, had reached a peak selling price @ €360,000 but the market was slowing down. I, the developer thought OK, we will sit this out, hold on to these units, we might now sell just one a month or even one every three months, and we will wait for the market to upturn or interest return.

    But am here 4 years later, we all know what happened – and cut a long story short am sitting here with 12 units, priced at @ €360,000 so what can I do?

    A good number of units sold at the final selling price, there are @ 150 apartments in the development all occupied with people who bought up to 9 years ago, you Chris sold something like 600 units in various projects in the vicinity, its a nice area but am stuck here, I want to move on, I tell you what I will now give a great discount… I will drop the prices by @ 30% how does that sound – it is a great deal no?

    Today, your clients can get @ €100,000 off the price, a 30% discount, brand new apartment, a development that will stand comparison with any other at that price and within the area, well maintained, occupied, great views, 3 bedroom apartments at @ 150 square metres including terraces.

    I have to say to the developer… So what Antonio?

    I have projects coming out of my ears with those discounts, I have private vendors who can sell for less, as they bought over a decade ago and the currency exchange is favourable, this is no out of the ordinary deal I can tell you. It isn’t that special, it is one of many, and John and Mary my current clients will really like the project, but simply not see anything that shouts this is a great buy.

    Antonio says he knows this, he hasn’t sat on the properties for the past several years without realising that.

    So…

    Antonio raises the subject of 100% finance, we have heard quite a bit about it, but frankly it has rarely been true, mostly applied to Spanish residents and has been a ghost scenario that wasn’t deliverable in reality and which really disappoints a lot of folk if their expectations are not met.

    But Antonio tells me, that John and Mary can genuinely – subject to reasonable status and terms – buy his units for the purchase costs and a bit of extra paperwork, but all in all, he is saying that John and Mary can acquire his unit for @ €28,000 cash down, they have the keys to the home they have been thinking about for the past ten years, that €28,000 is their Cost of Entry to the market to owning a home in Spain – today.

    Now surely, that is one helluva deal?

    Surely this is the time to buy for John and Mary against the past, the present and the future can’t get better than this can it?

    It has to be the most outstanding offer that has ever been on the market, in anyone’s memory.

    It has to really start ticking the boxes at a fast rate and be a dynamic option to buy, surely?

    I think I will go ask wiser financial analysts, speculators, investors, market watchers on SPI for their debate and view. Personally, this one, this time, I finally think this is a great deal. But I might be wrong, you guys may well know better.

    Will the nay sayers still say: NO, John and Mary don’t do it…! Or will there be a YES, with conditions. Or a MAYBE?

    Eeeehh guys we gonna have fun with this one – maybe!

  • #103005
    Profile photo of Anonymous
    Anonymous
    Participant

    The salesman as ever coming out in you Chris. 😀

    He is saying that John and Mary can acquire his unit for @ €28,000 cash down

    What I read is that he is selling the property at 30% off peak price (240k??) whereas is is realistically worth less than that and prices are still falling. My firm belief is that prices in general will have to be at 50% off peak before the market stabilizes. Given this they’d be paying 60k over the odds.

    They’d still have to service 200k worth of mortgage. Could they manage that if base rates started going up? Even as high as 10% which some are forecasting?

    In my circumstances I’d certainly say ‘No deal’. For them, if they could comfortably afford the payments on their place in the sun and they fully understood the consequences of what they were doing I’d say ‘Phone a friend’.

  • #103006
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @brianc_li wrote:

    The salesman as ever coming out in you Chris. 😀
    .

    Never… 😮

    What peaks John’s interest somewhat is this…

    He knows that back in the day, people bought these units and literally tens of thousands of others, at the final selling price or some 10% less, and their Cost of Entry at the time was 30% down for the developer Mortgage and 10% purchase costs.

    He figures that at just off peak projects like this would have cost @ €310,000 being €95,000 for the mortgage and €30,000 purchase costs, all told €125,000 to buy and get the keys — he is looking at a unit at €220,000 elsewhere, not as a good a unit or location or size or well presented — and figures if he takes the local mortgage offer of 70% he will be paying some €66,000 down and and €22,000 for the purchase costs so all told there €88,000 Cost of Entry… he’s thinking some other things too, but when he thinks Cost of Entry against what he knows buyers in the same development paid some 5 years ago already at €125,000 to enter, he’s starting to think about that… he’s thinking for a minute.

    Forget the purchase price, I can now buy this property at 80% less (edited) Cost of Entry, than those out bought a pre peak some five years ago… and how is that going to benefit me in five years time.

    I have to let the salesman in me out sometime, and I like John’s view that this is 80% lower cost of entry than 5 years ago! 😉

  • #103007
    Profile photo of Anonymous
    Anonymous
    Participant

    Why don’t we just ‘Ask the audience’ and see what they think of your logic? :mrgreen:

  • #103008
    Profile photo of katy
    katy
    Spectator

    Many Developers and banks are offering similar deals, some supposedly with 50% off the price. I think many of these were so vastly overpriced that it still wouldn’t look a good deal. Developers were pushing up their prices around 7% (and more) with every new phase, just because they could. If the 12 that are remaining are from the last phase then there will be apartments for sale on the development individually for much less as there was a 3 year timescale. The first phase are always the best built anyway.

    My advise to John and Mary would be to have a look at resales on that development, particularly the first phases.

    Wouldn’t say don’t buy but 100% mortgages….DON’T DO IT. If you must, read the small print…..at least 3 times :mrgreen:

    One here that Mark put on

    http://www.spanishpropertyinsight.com/buff/2011/02/18/santander%e2%80%99s-plan-revital-promo-with-discounts-up-to-58pc-%e2%80%93-interesting-opportunity-in-menorca/#more-5673

  • #103009
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @katy wrote:

    My advise to John and Mary would be to have a look at resales on that development, particularly the first phases.

    Mary has trawled the web and asked many agents about resales, she hasn’t found one to compare, nobody is selling so low, this is pretty much a happy development, people not looking to get out, and even if someone were selling at a further discount, she also likes the idea that they buying now, their home in Spain for only €28,000 and that is just the purchase cost.

    She figures it may take another 5 years of mortgage payments to match the Cost of Entry of others who bought, or even if she spent her money on a resale unit today.

    Mary quite likes the idea of keeping her money in her purse, and is getting excited that this truly is a deal that she just couldn’t have imagined when she and John almost bought at an exhibition five years ago.

    Jeeze she hears you Katy, she is asking the audience Brianc_li… but so far its still ticking her boxes!

  • #103012
    Profile photo of Anonymous
    Anonymous
    Participant

    As I understand the deal John will be getting a 150 m2 3 bedroom apartment in what he feels is a prime location and gives Mary and him the lifestyle they are looking for, as only really prime properties are selling, for +/ €250,000 with a 100% mortgage, which again you assume John more than qualifies for, leaving John only to pay the costs of buying of €28,000. Therefore the Cost of Entry is excellent, subject to one big proviso …… is the apartment worth this selling price on a comparable basis on the marketplace?

    If you calculate the cost per m2 which would be now at €1,667/m2, how does this compare to what it would cost to build now, including the land, common area and infrastructure costs?

    The danger is that John could be buying into a negative equity situation straight away but I believe this is when lifestyle choices come into play – John can get a lot of usage from the apartment whilst using up the difference in the Cost of Entry of the other apartment that Mary likes – €88,000 – €28,000 = €60,000.

    Is this an investment in the true sense of the word, the answer would be no because you have to add the cost of the mortgage, community fees, IBI, property taxes and selling costs to calculate the selling price whenever that occurs.

    If the property value continues to drop then John is in for a lost on his investment. If that is the feeling then my advice would be rather rent it with an option to buy at a later date if he so wishes, less the renting costs.

  • #103013
    Profile photo of katy
    katy
    Spectator

    Can’t see the point of taking out a 100% mortgage just because you can. Said in the news today that the rise in the Eurobor will increase a mortgage of 100,000 by 29 euro per month this year.

    http://www.diariosur.es/rc/20110228/economia/euribor-bate-record-201102281150.html

  • #103016
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @PhilipN51 wrote:

    Therefore the Cost of Entry is excellent, subject to one big proviso …… is the apartment worth this selling price on a comparable basis on the marketplace?

    John is not sure about the selling price being worth it, there is an awful lot of choice at that price and in many locations. But he is figuring it could be five years at current rates before he spends what others did in the same complex just as a Cost of Entry, let alone their mortgage and other payments since then.

    He’s figuring, after five years of use and paying his mortgage, he is potentially going to be looking at a mortgage repayment of somewhere around €220,000 putting aside his other costs, he is asking can he sell his unit at that price in five years time.

    Given that five years ago, others paid €310,000 and will certainly be hoping that what will be 10 years of ownership for them from peak to sell out 10 years later, they are believing they will see that figure or more as a sales price at that time.

    He’s figuring, he may well himself be able to sell in 5 years for what people paid 5 years ago – but he doesn’t think, the property will have fallen to less than its purchase price today in 5 years time.

    He’s figuring it makes more sense at the minute to use other peoples money to fund his purchase.

  • #103017
    Profile photo of logan
    logan
    Participant

    Stripping away all the selling hyperbole you are selling a flat for €240K plus the buying costs, annual community charge and taxes.
    Why is this apartment so special? Is it for instance in one of the most desirable areas which everyone craves? 240-250K seems expensive and the price they were originally selling for has no relevance except as a tool for someone trying to sell and market it.
    A 100% mortgage will place the debtor into an immediate negative equity position which will increase as rates rise and values fall.
    Cost of entry may appear cheap at first glance but in the long term it never is.
    I have seen deals such as this all over Spain. It’s a pure marketing technique which I would not touch with a very long pole.
    Ask your developer how much cash he would take for a dozen apartments. My guess is enough to get the monkeys off his back.
    Its only ever sensible to use other peoples money to fund a purchase which will produce a substantial return in a short period of time. This example will not.

  • #103018
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @PhilipN51 wrote:

    The danger is that John could be buying into a negative equity situation straight away but I believe this is when lifestyle choices come into play – John can get a lot of usage from the apartment whilst using up the difference in the Cost of Entry of the other apartment that Mary likes – €88,000 – €28,000 = €60,000.

    Mary is good with that too, they have been looking, thinking, researching a long time, they have a strong lifestyle change urge to buy, they both see friends / colleagues coming back and forth to Marbella right throughout the year. My son just picked up my own wife who has been away for four or five days, enjoying 20 degree weather while we have been cold and rained upon the last few days.

    They have always wanted a home in Spain, this seems to be an incredibly easy solution and the deal they asked me to show them, that was a real opportunity… now is the time to buy kind of deal.

    @PhilipN51 wrote:

    Is this an investment in the true sense of the word, the answer would be no because you have to add the cost of the mortgage, community fees, IBI, property taxes and selling costs to calculate the selling price whenever that occurs.

    They are not looking for investment in the true sense of the word, they have made considerable money on property in the UK over the years, they have their pensions such as they are, Mary has a successful business of her own and John has IT skills and interests. They know there is a cost for their lifestyle but again, it intrigues them and me quite frankly… that actually this could turn out to be a good investment if there is any kind of recovery in the market over the next five years… when all their ongoing costs and entry funds could be returned and then some, which to their mind and on balance makes it look a good investment risk overall, even though that is not the priority.

    @PhilipN51 wrote:

    if the property value continues to drop then John is in for a lost on his investment. If that is the feeling then my advice would be rather rent it with an option to buy at a later date if he so wishes, less the renting costs.

    Renting and hotels is something they have done for a long time already, too long in their view. They love the thought of getting to the airport as I do myself in 25 minutes on both sides of the journey, of having just cabin baggage, of being able to stay in touch with their business and work as easily as if they were on the South Coast of England, and of coming and going as and when they please and having personal belongings and effects around them

    They want this, they know people who have it, who have had it for the past five years, even having bought at peak who are relaxed and happy in their choices and costs, who are regardless not looking to sell now either. This is what John and Mary want.

    Still seems like a good deal for them to me. They also don’t want to put their rental money into someone else’s pockets, they even thinking of getting some rental income themselves to help defray the costs their is a great trastero with the unit to take their personal effects if they want to rent out, and actually they don’t much fancy the heat of August so… they could get some real income.

  • #103020
    Profile photo of Anonymous
    Anonymous
    Participant

    Similar deals to the one quoted have now been around for a while, with even lower entry costs. In a still falling market, it guarantees negative equity from day one.

    If John and Mary have already waited ten years before their move to the sun, they should wait at least another year before making their move. If they are desperate to make the move now, they should rent for a year first; there are thousands of rental properties available to them, and it won’t be ‘lost’ money, the almost guaranteed fall in value of the 200K apartment will see to that.

    Any Spanish mortgage at this dangerous time should carry a health warning.

    I don’t doubt that there will be John and Mary’s to come along and sign up for such a deal, I hear that people are still buying time shares in Morocco.

  • #103155
    Profile photo of Anonymous
    Anonymous
    Participant

    Similar deals to the one quoted have now been around for a while, with even lower entry costs. In a still falling market, it guarantees negative equity from day one.

    If John and Mary have already waited ten years before their move to the sun, they should wait at least another year before making their move. If they are desperate to make the move now, they should rent for a year first; there are thousands of rental properties available to them, and it won’t be ‘lost’ money, the almost guaranteed fall in value of the 200K apartment will see to that.

    Any Spanish mortgage at this dangerous time should carry a health warning.

    I don’t doubt that there will be John and Mary’s to come along and sign up for such a deal, I hear that people are still buying time shares in Morocco.

  • #103021
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @logan wrote:

    Ask your developer how much cash he would take for a dozen apartments. My guess is enough to get the monkeys off his back.

    Are you suggesting that I should tell John and Mary they should make an offer to the developer to buy the 12 units instead of the one home they have been looking for?

  • #103157
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @logan wrote:

    Ask your developer how much cash he would take for a dozen apartments. My guess is enough to get the monkeys off his back.

    Are you suggesting that I should tell John and Mary they should make an offer to the developer to buy the 12 units instead of the one home they have been looking for?

  • #103022
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @logan wrote:

    A 100% mortgage will place the debtor into an immediate negative equity position which will increase as rates rise and values fall.

    Hang on a minute, we are talking about a development where a number of people genuinely did buy at peak prices of €360,000 and the vast majority were sold at @ €310,000 Mary and John are not buying it to sell it tomorrow.

    Furthermore the interest they have been offered on the mortgage is 2%.

    John might have bought 5-6 years ago for €310,000 at 4.5% interest like his friends had…. had he been offered the unit back in the day when not a single penny was offered in discounts anywhere, and 4.5% was seen as a very good mortage rate, if he had been offered the unit with €60,000 off plus 2% mortgage, well he may very well have thought about buying 12 of them! Good job Mary has more sense than John methinks.

    Neither he nor I see this mid to long term purchase ending up in negative equity, that much I can say to both Mary and John with a fair degree of certainty, if nothing else, one would expect inflation to take care of that issue wouldn’t one?

    @logan wrote:

    Cost of entry may appear cheap at first glance but in the long term it never is.

    Are you sure about that? This is €28,000 down and I think something like €850 a month mortgage. I have never in 20 years seen a deal like it, I really value your opinion because I want to understand this across all the views myself, but I find that comment a bit glib.

    Also, this is not some distressed bankrupt stock bank sell off. These are really good, in fact handsome units, just look at the size of them. I also have seen a lot of talk about 100% finance but most of it I don’t believe and the rest of it is a likely distressed sale rip off, I wholeheartedly agree with Katy, and I would say to Mary and John, you absolutely don’t take 100% finance just because you can, that’s no the answer, you take it, if it really, really works in your case – that is all. Besides…

    This developer is renowned, is continuing in business and profitably so, and just so happens to have an excellent relationship with his bankers who are very keen to help him see the project off and they both move on. That’s why they put the package together.

    He thinks it is very funny, that somebody thinks they could come in and just make him a knock down offer for all twelve units, he says he has heard all that before himself, but this is not 2011 not 1977. He reckons such talk is all smoke and as tired as some of my old sales pitches often are in his book.

  • #103159
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @logan wrote:

    A 100% mortgage will place the debtor into an immediate negative equity position which will increase as rates rise and values fall.

    Hang on a minute, we are talking about a development where a number of people genuinely did buy at peak prices of €360,000 and the vast majority were sold at @ €310,000 Mary and John are not buying it to sell it tomorrow.

    Furthermore the interest they have been offered on the mortgage is 2%.

    John might have bought 5-6 years ago for €310,000 at 4.5% interest like his friends had…. had he been offered the unit back in the day when not a single penny was offered in discounts anywhere, and 4.5% was seen as a very good mortage rate, if he had been offered the unit with €60,000 off plus 2% mortgage, well he may very well have thought about buying 12 of them! Good job Mary has more sense than John methinks.

    Neither he nor I see this mid to long term purchase ending up in negative equity, that much I can say to both Mary and John with a fair degree of certainty, if nothing else, one would expect inflation to take care of that issue wouldn’t one?

    @logan wrote:

    Cost of entry may appear cheap at first glance but in the long term it never is.

    Are you sure about that? This is €28,000 down and I think something like €850 a month mortgage. I have never in 20 years seen a deal like it, I really value your opinion because I want to understand this across all the views myself, but I find that comment a bit glib.

    Also, this is not some distressed bankrupt stock bank sell off. These are really good, in fact handsome units, just look at the size of them. I also have seen a lot of talk about 100% finance but most of it I don’t believe and the rest of it is a likely distressed sale rip off, I wholeheartedly agree with Katy, and I would say to Mary and John, you absolutely don’t take 100% finance just because you can, that’s no the answer, you take it, if it really, really works in your case – that is all. Besides…

    This developer is renowned, is continuing in business and profitably so, and just so happens to have an excellent relationship with his bankers who are very keen to help him see the project off and they both move on. That’s why they put the package together.

    He thinks it is very funny, that somebody thinks they could come in and just make him a knock down offer for all twelve units, he says he has heard all that before himself, but this is not 2011 not 1977. He reckons such talk is all smoke and as tired as some of my old sales pitches often are in his book.

  • #103169
    Profile photo of logan
    logan
    Participant

    @Chris McCarthy wrote:

    Are you suggesting that I should tell John and Mary they should make an offer to the developer to buy the 12 units instead of the one home they have been looking for?

    You either missed my point or you are role playing the devils advocate. 👿
    My point is the developer has had so many unsold units in this development for some time. I can only guess at his new build and land costs plus tax expenses. Lets say his costs work out at 75K per unit and with 15 unsold that’s around 1.125 million less the properties already sold, since each sold unit reduces his outstanding costs. The losses on the balance sheet will reduce his tax liabilities but not his interest payments to the bank on whatever outstanding financing arrangement he has.
    Lets say he is paying 5% on an overdraft facility then his interest costs are around 56k per annum. His company may well be able to absorb this costs on other projects or selling 1 -2 units per annum and maybe not. Either way if he can off load all these unsold units at cost it will save him money.
    The likelihood of selling them retail in today’s market at 240k is somewhere close to 5%. That’s why I suggest he finds an investor willing to take on the risk attracted by a very low price. Cash in the bank is king.
    However any investor will be faced with the same difficulties as the developer and in my conclusion it’s simply not worth doing.
    I have been presented with many variations on this same theme and in this financial climate the risk is too great.

    My point about cheap buying in costs and a 100% mortgage is in a falling market negative equity appears from day one. Add to that his interest payments over 5 years which are about to increase, community charges and taxes over say 5 years. Even given an optimistic scenario the property is likely to be worth no more than what he paid for it in five years time.
    So five years expenses puts him in a very poor position plus he probably can’t sell it and recover his outgoings.
    Yes he will have enjoyed the property for holidays but given his level of cost he could stay in the local five star hotel every year and come out with change.
    Sorry Chris but whichever way you look at this it’s a dead duck.

  • #103027
    Profile photo of logan
    logan
    Participant

    @Chris McCarthy wrote:

    Are you suggesting that I should tell John and Mary they should make an offer to the developer to buy the 12 units instead of the one home they have been looking for?

    You either missed my point or you are role playing the devils advocate. 👿
    My point is the developer has had so many unsold units in this development for some time. I can only guess at his new build and land costs plus tax expenses. Lets say his costs work out at 75K per unit and with 15 unsold that’s around 1.125 million less the properties already sold, since each sold unit reduces his outstanding costs. The losses on the balance sheet will reduce his tax liabilities but not his interest payments to the bank on whatever outstanding financing arrangement he has.
    Lets say he is paying 5% on an overdraft facility then his interest costs are around 56k per annum. His company may well be able to absorb this costs on other projects or selling 1 -2 units per annum and maybe not. Either way if he can off load all these unsold units at cost it will save him money.
    The likelihood of selling them retail in today’s market at 240k is somewhere close to 5%. That’s why I suggest he finds an investor willing to take on the risk attracted by a very low price. Cash in the bank is king.
    However any investor will be faced with the same difficulties as the developer and in my conclusion it’s simply not worth doing.
    I have been presented with many variations on this same theme and in this financial climate the risk is too great.

    My point about cheap buying in costs and a 100% mortgage is in a falling market negative equity appears from day one. Add to that his interest payments over 5 years which are about to increase, community charges and taxes over say 5 years. Even given an optimistic scenario the property is likely to be worth no more than what he paid for it in five years time.
    So five years expenses puts him in a very poor position plus he probably can’t sell it and recover his outgoings.
    Yes he will have enjoyed the property for holidays but given his level of cost he could stay in the local five star hotel every year and come out with change.
    Sorry Chris but whichever way you look at this it’s a dead duck.

  • #103183
    Profile photo of Anonymous
    Anonymous
    Participant

    I think the issue for John is by saving €60,000 on the cost of entry now this can be offset against the costs he will incur over say the next 5 years, even if the current value of the apartment drops. Costs like community fees and property taxes taxes should in reality be strip out because these are lifestyle costs and John will be enjoying the usage of the apartment in that period, so his rental costs can also be offset against these costs. As John is going to continue visiting CDS regardless if he buys or not.

    If John can fix the interest rate at the 2%, say for 5 years, then he is in a win win situation because cost of borrowing is only going to go one way, upwards. But whether John pays cash or uses the mortgage is really a separate issue, as you should really only look at what would the €278,000 earn in interest, less tax, if deposited somewhere over the 5 year period. Whatever this amounts to should be added to the overall numbers.

    So when you re-look at the numbers John is spending €250,000 purchase cost + €28,000 buying costs + interest (on €278,000 @5% annum over 5 yrs.) €70,000 = €348,000 added to this would be the selling costs of say €18,000. Is this a good deal really depends on one question, what will the property sell for in 5 years time and this is when a person becomes either a speculator or a reserved safe banker using only historical facts to make his decision. I have also ignored inflation which could easily be in the 3 –6% bracket over this period.

    If we all believe that there will not be any major changes on the CDS over the next 5 years then property prices of A class stock will probably remain the same as today but Central Government could change that in a number of ways because they have to boost jobs here to reduce unemployment. So why not just set up development zones for large businesses to move to the area or just give tax concessions because everything else is in place, roads, rail links, major airport, docks for container ships. Tourism and everything linked to it will always be the main stay of revenue on the CDS, but there are many other types of clean businesses that would be attracted to this area especially R&D Facilities etc. Outside of Europe this method is used all the time and Spain has only one choice now and that is to boost foreign investment into Spain – just look at the latest trade missions that have been visiting Spain just this year.

  • #103034
    Profile photo of Anonymous
    Anonymous
    Participant

    I think the issue for John is by saving €60,000 on the cost of entry now this can be offset against the costs he will incur over say the next 5 years, even if the current value of the apartment drops. Costs like community fees and property taxes taxes should in reality be strip out because these are lifestyle costs and John will be enjoying the usage of the apartment in that period, so his rental costs can also be offset against these costs. As John is going to continue visiting CDS regardless if he buys or not.

    If John can fix the interest rate at the 2%, say for 5 years, then he is in a win win situation because cost of borrowing is only going to go one way, upwards. But whether John pays cash or uses the mortgage is really a separate issue, as you should really only look at what would the €278,000 earn in interest, less tax, if deposited somewhere over the 5 year period. Whatever this amounts to should be added to the overall numbers.

    So when you re-look at the numbers John is spending €250,000 purchase cost + €28,000 buying costs + interest (on €278,000 @5% annum over 5 yrs.) €70,000 = €348,000 added to this would be the selling costs of say €18,000. Is this a good deal really depends on one question, what will the property sell for in 5 years time and this is when a person becomes either a speculator or a reserved safe banker using only historical facts to make his decision. I have also ignored inflation which could easily be in the 3 –6% bracket over this period.

    If we all believe that there will not be any major changes on the CDS over the next 5 years then property prices of A class stock will probably remain the same as today but Central Government could change that in a number of ways because they have to boost jobs here to reduce unemployment. So why not just set up development zones for large businesses to move to the area or just give tax concessions because everything else is in place, roads, rail links, major airport, docks for container ships. Tourism and everything linked to it will always be the main stay of revenue on the CDS, but there are many other types of clean businesses that would be attracted to this area especially R&D Facilities etc. Outside of Europe this method is used all the time and Spain has only one choice now and that is to boost foreign investment into Spain – just look at the latest trade missions that have been visiting Spain just this year.

  • #103177
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    Fascinating answers from Logan and Philip51, I can’t add anything further because am up to my ears today, and I need to give it some thought, but thanks to you both for the detail and analysis. I will come back later, but it’s really interesting stuff to me at any rate.

  • #103031
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    Fascinating answers from Logan and Philip51, I can’t add anything further because am up to my ears today, and I need to give it some thought, but thanks to you both for the detail and analysis. I will come back later, but it’s really interesting stuff to me at any rate.

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