There was a time when foreigners bought holiday homes in Spain; now everyone just seems to be buying off-plan investments. No doubt fewer property investment opportunities in countries such as The UK and Ireland have encouraged this trend by forcing investors to look further a field for enticing opportunities. You could also argue that diversifying geographically is a key part of building a balanced portfolio and therefore a good thing. However I am starting to wonder whether investors don’t erroneously believe Spain to be some kind of Shangri-La for off-plan property investors. When this belief becomes widespread you know that trouble is lurking around the corner.

Some of the biggest estate agents in Spain targeting foreign buyers are playing a leading role in creating the problem. They are busy aggressively selling off-plan investments to naïve buyers without the slightest concern for what will then become of those buyers. The almost complete lack of reliable, independent information available to potential investors exacerbates the situation. Whilst estate agents convincingly reel off well-rehearsed arguments and numbers to show why you would be mad not to buy 3 units off-plan at the ‘hottest’ development on the coast, making hefty risk-free returns in just 12 months (you only came out to buy one small holiday apartment), you have no information whatsoever to contradict their claims. They can be very convincing indeed and many a buyer has fallen for it.

However off-plan property investing in Spain should be approached with caution. I doubt whether it was ever as universally successful in the past as has been claimed and I expect that it will only get more difficult to pull off successfully in the future. I would certainly not argue that off-plan investing in Spain is a bad idea per se but I do think that many investors need to be better informed before investing off-plan and should take more care about whom they buy from. To this end I am preparing a briefing on the subject of off-plan investments in Spain which will be made available at the Spanish Property Insight website. In the meantime I recommend that anyone considering buying off-plan in the Costa Del Sol read a couple of excellent articles recently published by The Sunday Times. They can be read online at The Sunday Times website

MARK STUCKLIN

BBVA Research predicts fall of 4.5% in number of property sales for 2004

The research department of BBVA – one of Spain’s leading banks – forecasts a 4.5% decrease in the number of Spanish properties sold in 2004 compared to 2003. Despite this decrease the forecasted number of property transactions is set to remain above the 10-year average and Spanish property prices are expected to increase by 10% in 2004.

Foreign buyers of second homes expected to overtake Spanish buyers by 2008

The number of foreigners buying second homes in Spain is expected to overtake the number of Spanish buyers by 2008 according to Luis Perales Asesores. They forecast 116,000 holiday home sales in Spanish coastal regions during 2004, of which 60,000 will be bought by Spaniards and 56,000 by foreigners. By 2008 they expect the number of holiday homes sold to have risen to 148,000 of which 72,000 will be sold to local buyers and 76,000 to foreigners.

600,000 new properties to be built in the Valencia region by 2011

According to Rafael Blasco – the minister for housing of the Autonomous Region Of Valencia – 600,000 new properties will be built in the Autonomous Region of Valencia between now and the year 2011, of which 350,000 will be used as second homes. In recent years 180,000 second or holiday homes have been built in Spain each year, 50,000 of them in the Valencia region. Many of these properties are expected to be converted into permanent or semi-permanent homes as increasing numbers of foreigners retire to Spain. Over the same period the population of the Valencia region is expected to increase from 4.2 million to 5.2 million.

24,000 new millionaires in Spain thanks to rising property prices

According to a new study by Merrill Lynch and Capgemini the number of Spanish residents with a million Dollars or more in liquid assets (excluding property, jewellery, art and other fixed assets) has risen to 129,000, up by 24,000 since the year 2001. In terms of number of Dollar millionaires Spain is in 6th place compared to other European countries, behind Germany, The United Kingdom, France, Italy and Switzerland. Experts attribute this rise in the number of millionaires resident in Spain to profits gained from property sales.

Euribor rises for 3rd consecutive month to 2.04%

Euribor – the Euro zone base rate used to calculate mortgage interest rates in Spain – has risen for the 3rd month in a row, reaching 2.04%, up from a historic low of 2.014% in June 2003. The new rate implies monthly payments will rise by 22 Euros to 630,20 Euros on the average 20-year mortgage of 120,000 Euros.

Further mortgage interest rate rises expected

A recent report by PriceWaterhouseCoopers reveals that many experts predict further increases in the Euribor interest rate over the coming months. Any further increases in the Euribor rate are likely to have a dampening effect on Spanish property prices, which some commentators believe are already over-inflated.

New tax breaks for foreigners working in Spain

Based on article 9.5 of the Income Tax / Impuesto Sobre Personas Fisicas regulations (as amended effective 01 January 2004), foreign expatriates living in Spain may be able to apply for a 25% flat income tax rate on their employment income, given that certain conditions are met. The law actually gives the expatriate the option to be taxed under (1) the resident tax regime, in which the progressive tax rate applies, or (2) the non-resident tax regime, in which the expatriate may avail of the 25% flat tax rate on employment income. In order to qualify for the latter option the following conditions must be met:

• The expatriate has not been, at any time, a tax resident of Spain, within the 10 years prior to expatriation (to Spain).
• The expatriation (to Spain) is a consequence of an employment contract.
• The work resulting from such employment is effectively performed in Spain.
• The work undertaken is for a Spanish resident company or entity, or a permanent establishment in Spain of a non-Spanish resident entity.
• The employment income from such work is not exempt from the non-resident tax regime.

The 25% flat rate tax shall only be allowed during the first year of expatriation and the 5 years following thereafter.

Largest number of Costa Del Sol property sales takes place in July

It is estimated that 20% of all property sales on the Costa Del Sol take place in July. However the sale cycle usually begins in the winter months when prospective buyers first request information. Visits to view properties then take place over the Spring months and sales are concluded in the early summer.

The Spanish spend more of their income on property than any other European nation

Despite low levels of savings the Spanish spent on average 15.5% of their income on property in 2003, encouraged by the cheap cost of borrowing. The Spanish spend more than any other Europeans on financing property purchases, just ahead of the British with 15.2%. However some other European nations have much lower levels of spending on property, for instance Germany with 1.1% and France with 4.3%.

75% of Spanish mortgages cancelled early

In 2003 the average mortgage sold in Spain had duration of 20 years but due to early cancellations the average duration of all mortgages was only 7.3 years. According to these figures the average duration of a Spanish mortgage has fallen back to levels not seen since 1999.

Spain 2nd highest in European rankings of owner-occupiers

According to the European Mortgage Federation Spain has the second highest level of household owner-occupation in Europe (pre-enlargement) with 81.8%, behind Greece (83.6%) but higher than Italy (81.5%), The Republic Of Ireland (80%), Portugal (76%), The UK (69.1%), Belgium (67.3%), Sweden (60%), France (56.4%), The Netherlands (52.7%) and Denmark (50.9%). In Germany only 40.5% of families own the property they live in.

4 regions account for over 60% of the new properties started in Spain in 2003

According to research by Analistas Financieros Internacionales 62% of the 690,206 new properties started in Spain in 2003 were located in just 4 Autonomous Regions – Andalusia, The Autonomous Region Of Valencia, Catalonia and Madrid. The remaining 38% of new properties started in 2003 were shared between Spain’s 13 other Autonomous Regions.

© Mark Stucklin (Spanish Property Insight)