The market on the costas has well and truly crashed, but a glut of property and desperate owners make renting a bargain
Sunday Times Home Section, 11 May 2008
If you are depressed by the gloom settling over the British housing market, you might derive some cheer from the news that the situation in Spain is even worse – unless, that is, you are one of the tens of thousands of Britons who have bought property in Spain in recent years. In which case, you might want to put your head in the oven.
After a decade-long boom in which Spanish house prices doubled, the latest data show things going badly wrong. The property market shrank by 39% in March, new sales by developers are down by 60% or more compared with last year, estate agents are closing in droves and the list of developers going bankrupt just gets longer. The bigger the fiesta, the deeper the siesta.
No worse than home, you might say, but there is a crucial difference that makes the situation in Spain more like that in America than that in the UK: the monumental glut of new homes. More than 600,000 a year have been put up in Spain since 2002, compared to less than 200,000 in Britain. At the height of the boom, in 2005, Spain accounted for more than a quarter of new-builds across the EU. What is worse, many of them are on the coast.
Take Marina d’Or, a “vacation city” resort on the Costa Azahar, 60 miles north of Valencia. It is a huge development of densely built blocks of flats that has been marketed to British investors (with the help of a sales office on Oxford Street) as the biggest holiday resort in Europe. With 10,000 flats and five hotels, and plans for three golf courses, 40,000 more properties and a theme park, it has ambitions to become a type of Spanish Las Vegas.
When it comes to the folly of holiday-home developments in Spain, Marina d’Or has form: the owner is under investigation for alleged corrupt and fraudulent practices. The resort is overcrowded in August, but dead for most of the year. And to call it an eyesore would be an understatement. It is a monument to bad taste.
Fortunately for the local environment – if not the local economy – Marina d’Or’s grand plans are now bogged down in planning problems and the market has turned against it. Sales fell by 60% last year, and the developer has laid off 1,000 staff. The way the market is going, sales must be even further down this year, and it isn’t hard to find investors desperate to sell for well below the developer’s prices.
The big problem with second homes is that nobody actually needs one. They are a luxury, reliant on good times to sell. Now, with rising inflation, rising taxes, rising mortgage costs, rising travel costs, falling economic confidence and the credit crunch, demand for holiday homes has taken a dive.
So, what will become of all the unsold or barely occupied new developments on the Spanish coast now the market for holiday homes is flatlining? With them standing empty for most of the year, it isn’t hard to imagine a scenario in which some developments sink into disrepair and ending up as shabby ghost towns.
Properties in a coastal climate need constant investment in maintenance – especially if they were cheaply built. Cash-strapped developers, disappointed investors and occasional-use owners who are struggling to make ends meet are unlikely to keep them in good nick. Left to its own devices, nature will quickly take its toll.
There is another problem: many town halls rely on building licences for financing. With the construction sector in crisis, municipal budgets in some coastal areas are already in trouble. Will skint town halls keep all those deserted developments looking pretty? I doubt it.
Once the rot sets in, it can be difficult to reverse. Roads deteriorate, litter accumulates, graffiti appears – and the only people to move in are undesirable neighbours. There are already stories of some luxury developments in Murcia being used to house fruit-pickers from eastern Europe, much to the displeasure of other owners.
What does this mean for people still interested in buying in Spain? It remains, after all, one of the most attractive countries in the world, and there is certainly no shortage of Britons who would like to own a home there, circumstances permitting.
The best advice, as always, is to stick to quality. The developments most likely to deteriorate will be densely built blocks of indistinguishable apartments in mediocre locations – of which there is no shortage on the coast.
By contrast, attractive developments in desirable spots should consolidate their position in the downturn, as buyers become more choosy, then emerge all the stronger when the market picks up in a few years’ time. There could be a “flight to quality”.
Even if you find a bargain on a good-quality property, now might not be the best time to buy. The outlook for the Spanish market and economy is deteriorating by the day and many market-watchers agree that the worst is yet to come. Vendors will be under pressure to improve their terms for some time.
In any case, why rush to buy when the choice of rental properties has never been greater? Renting before you buy means you can be confident that you’re making the right decision. With so many homes languishing on the market, desperate owners are letting them out to cover costs, pushing down rents in many popular areas. With the market in a coma, there’s never been a better time to rent property in Spain.
© Mark Stucklin (Spanish Property Insight)