December 2004

Andalucia in general, but specifically the province of Málaga, where the Costa Del Sol is located, had the highest level of new build in 2003 compared to population. The number of new properties started in Andalucia was 25 per 1,000 inhabitants, way above the next highest which was the Valencia region with only 18.4 new properties per 1,000 of population. In the Balearics it was only 7.8 new properties started per 1.000 of population. Therefore relative to population the Costa Del Sol was Spain’s fastest growing region in terms of property construction in 2003, and in most of the previous years.

Spanish Property Insight Graph (no longer available)

As you can see new build has gone mad in Andalucia.

According to the local government figures there were 83,274 new properties started in 2003 and 64,787 finished in the province of Málaga. Just looking at the number of properties started that would be more than in the whole of Germany and just under half of the total figure for the UK – all in one province of Andalucia and most of it concentrated on the strip of the coast.

The following table shows how much construction, relative to other areas of Spain, is going on down there. The table shows the number of new properties ‘visados’ which means building licences granted. Málaga province is in the ‘provincias orientales’ of Andalucia. Basically Málaga accounted for something like 57% of the total for Andalucia.

Spanish Property Insight Table (no longer available)

Number / % of Brits who have properties on Costa del Sol

Assuming that in 2003 the British own roughly 627,000 properties in Spain. 35 – 40% of these will be in the Costa Del Sol = 220,000 to 250,000

Of the estimated total of 135,000 Spanish costal properties sold to foreigners during 2003, 45% or 38,500 were located in the Province of Málaga, which basically means the Costa del Sol (vast majority of properties are on the coast). Of this 38,500 properties sold to foreigners on the Costa del Sol, 52% – or 20,000 properties – were purchased by British buyers, with the next largest group of foreign buyers being Germans with 20%. The salient point is that British buyers are half of all foreign buyers on the Costa Del sol.

What is a good investment?
Location was always important, but from an investment point of view it is more important than ever on the Costa Del Sol. There is SO much property for sale, much of it very standard and undifferentiated, that you have to be in a great location to avoid being one of many ‘me too’s’

Given the prices and other negative factors of the Costa Del Sol you have to question whether any property is a good investment (relative to other investment opportunities). However if you could only invest in property on the Costa Del Sol then this is my advice:

In the lower price bracket (200-300k Euros) go for a resale apartment needing renovation in the centre of Marbella or other area that is walking distance to desirable facilities and beach. If you have a bigger budget then go for new build but top location, for instance centre Marbella, Puerto Banus, New Golden Mile. Another option is to go for one of the better Country Clubs – but one that has all important facilities onsite and isn’t too far from things, for instance Santa Maria Golf.

What would be a bad investment?
Buying off-plan to ‘flip’ (sell on before completion). You will be one of thousands doing the same thing, agents aren’t interested in helping you sell on and you will be left holding the baby. This strategy worked (but not always) in the past but it is now over. Having said that agents are still selling this hard so many people will buy without realising that the game is up. Of course they will discover that it is in the end – the hard way.

Avoid buying a standard 2-bed, 2-bath apartment with no exceptional features and 10 minutes from anywhere by car, for instance on the Marbella to Torremolinos strip. The market is flooded with this type of property.

Any bargains?
There are a growing number of distressed investors who need to sell on before completion. Depending upon the level of distress you may be able to pick up a bargain from one of these.

Otherwise prices in general have reached proportions where it is impossible to talk about bargains on the Costa Del Sol. Best bet is to look for run down resales in good areas.

 

Why is the market cooling?
– 1st of all is the market cooling? Yes definitely. Anecdotal evidence suggests that transactions could be down by as much as 50%. This is being reflected in the number of new projects being started by developers. Statistics from the College of Architects for the first 3 months of 2004 show that new building licences dropped by 7% compared with the same period of previous year. A drop of this magnitude hasn’t been seen for 10 years.
– High prices are the leading reason. If prices were half what they are the market would probably not be cooling to anything like the degree that it is.
– Over development is putting buyers off, as it is highly unattractive in large areas of the Costa Del Sol. The infrastructure is very poor as well. When prices rise to the level they have people start thinking about these negative factors.
– The Spanish and the British lead demand. House prices / incomes are now at record (and unsustainable) levels for Spaniards – average house prices in Spain have increased 18.6 times more in real terms than average incomes between 1999 – 2003. There are also uncertainties building in the UK market, with worries about local house prices, and this is bound to have a negative effect on demand for property on the Costa Del Sol.
– Not only are transactions decreasing in absolute terms, but relative to the supply of housing transactions must be decreasing even more drastically as the supply of properties is exploding.
– With British buyers being so important to demand on the Costa Del Sol the Pound / Euro exchange rate is also an important variable.

Euros / Pound
1st September 2000 = 1.66530
1st September 2004 = 1.45710
% appreciation of Euro over period = 12.5%
This means that property it costs a British buyer who has all funds in Pounds 12,5% more to buy the same property than it did 4 years ago.

Two bed terraced house in Casas Mallorquinas development in Estepona (La Duquesa) on market in 2000 for £87.5k (off plan), now valued at £218k- 228k – 260% increase in 4 years.

Estepona has some charm but La Duquesa is devoid of it and in the wrong place. Large and overdeveloped and not a good place to buy if you can avoid it. The property might be ‘valued’ at 228k but lets see if it sells for that!

Istan on the market in 2000 for £83.5k. Istan townhouse at 83.5k; 5 bedrooms, bathrooms, two receptions, roof terrace, sun balcony, patio and garden (no current value as yet).

Istan is a bit out of the way but it is still 95% Spanish and that is attractive. Still relatively reasonably priced. Upmarket new country club on the lake at Istan should also be a positive influence.

Two bed flat in La Maestranza Development (off plan) for 87K in 2000, two bathrooms, communal pool, kitchen, parking, large reception off plan, now valued at £186K (270k euros) – 213% increase in value in 4 years.

Poor quality construction, ugly architecture, mainly East or South East facing which is far from perfect, most blocks on this development look onto each other and so views are poor. Those with the best views face onto the road, which is noisy. This development was finished 2 years ago but there is still something like 10 apartments for sale from original investors who bought off-plan and can’t get rid of them. They were good to get out when they did.

Detached Villa in La Cala de Mijas, 2000 on market at £85k, now valued at £175k-£180K. 200% increase in value in 4 years

Depends where about in La Cala de Mijas it is. La Cala de Mijas is one of the more attractive, old-world-charm villages on the coast but the development around it has been horrendous. If it is in the centre, up to 5 minutes walk, then fine. Otherwise it is in the wrong part of town.

Property in Nagueles?

It’s on a good, upmarket development in a good location. Therefore t if the market gets ugly, which I firmly believe it will, quality will at least hold its value more than others. If one were to sell a property here for a reasonable price now then I would recommend doing so because I don’t see much more appreciationin the medium term. 2,500 Euros monthly rental looks excessively optimistic unless it is something special.

What’s the rental market like in Marbella?
Demand for long-term rentals seems to be holding up. However yields will be low given prices.
Short-term rental are another story.

Number of tourist visitors to The Costa Del Sol has stagnated or even dropped this year for the first time in at least a decade. Number of passengers passing through Malaga airport dropped for first time since the new terminal was built in 1992. At the same time there are more hotel beds and tourist apartments for rent than ever before, and of course there are new competing destinations being opened up by the low cost airlines. It’s a buyer’s market on the short-term rental front. Don’t believe a word that estate agents say about rental potential.

What’s the market looking like for 35 year old, renovated detached villas 500 m from the beach in Atalaya? Does it look like it might be a good investment?

It all depends upon the surrounding area / what’s next door. But in principle it sounds like a good buy. Even in a difficult market if you go in at the right price and get something desirable then you should be able to make a decent profit out of it – assuming your profit expectations are reasonable and not hysterical (as they have become in the Costa Del Sol property bubble).

If there is any money to be made in property on the Costa Del Sol over the next few years it will probably come from finding resales in need of renovation and in good areas at good prices. The problem will always be finding agents to help you get your product to market. However when the off-plan investor hype collapses agents might start being a bit more helpful on this front.

© Mark Stucklin (Spanish Property Insight)