Andalucía Property Market Report
First of all, let me explain why I am going to ignore the official Ministry of Housing statistics as a tool to analyse what is happening to prices in Andalucía – they are so unreliable as to be more or less meaningless! In fact, Spain’s Institute of Statistics also sees them that way and recently started publishing their own version so, in time, we may actually get some real numbers that mean something. Meanwhile, this is the official version at the end of 2008; apparently, taking the Andalucía region as a whole prices have risen 2% on an annual basis although the 3rd quarter did show a fall of 1.03%, and of the eight provinces in Andalucía only Málaga registered an annual decrease, a tiny 0.9%. So you could be forgiven for asking how is this possible, given that there is universal agreement that Spain’s property market is reported to be right up there with the U.S. and U.K. in facing something akin to Armageddon.
Depending on how much you already know about Spain, its property market and taxes, you may or may not be aware that historically, the price actually paid for a property and the amount declared in the title deed signed in front of the notary at completion were rarely been the same thing – the difference, 30% was common and sometimes even more, was paid ‘under the table’ in cash. Incidentally, this practice was blamed in the recent revelation by the tax authorities that they suspect that 54 billion €s worth of 500 € notes are tucked away under Spanish mattresses; rather than being in general circulation they just move from property transaction to property transaction! But the fact is everybody did it and the ease with which was done led to Spain becoming a world leader in money laundering via property deals but finally, due in part to the spectacular ‘White Whale’ scandal which erupted in Marbella in March 2005 but also better co-operation and information sharing between tax authorities world-wide, legislation to do away with the practice is now place. Lawyers are now very wary of being involved in under-declaration as they can be held liable and slowly, deals are finding their way to the notary with the full amount being declared and therefore, a higher price is registered than would have been the case previously. So, it isn’t that prices are still rising in Andalucía, it’s just that fully declared prices are so very much higher than the previously artificially suppressed levels but I would suggest it is going to take some time before we can read Ministry of Housing statistics without sniggering!
What we do know
We know that many of the main players during the boom years have disappeared. At the height of the bubble there were approximately 7,000 estate agents in Andalucía; 3,000 had already closed by the end of 2007 and if the regional trend replicates the national trend then about 65% will have gone by 2009 and they won’t be missed. However, the professional, long-established agents will survive, just as they survived the last downturn in the early 1990s. We know that so called investors, those who bought one or more units with the sole intention of ‘flipping’ the contract, that is, selling on during construction, have completely disappeared and will not be missed either. Why so many people thought that they could purchase small, identikit apartments off-plan in a high-density complex and then sell them during construction for double what they paid is beyond me, but thousands did and are now desperate to unload. We know that some of Spain’s biggest developers and property companies, such as Martinsa Fadesa, have gone into administration, and those that are still afloat are no longer in denial although in my view the price reductions they are now offering seem to be too little too late. They would have done better to start the discounting in 2007 and now, 30% doesn’t seem enough. We also know that the fall in numbers of planning approvals and new house starts accelerated in during 2008 and will continue in 2009, indicating that the stock of unsold new properties could begin to reduce quite quickly once completions of those already in construction has fed through. And we know that all of the above has been exacerbated by the credit crunch.
However, I still believe that much of the media comment during 2008, the banner headlines predicting doom, gloom and disaster across the board has been incomplete and somewhat misleading because it concentrated almost exclusively on new-build property development and failed to differentiate between the different property sectors and different regions. It makes for great headlines but not much else. Certainly, there is significant oversupply of certain types of property in some areas but the real problem is that the majority of unsold property is in high-density developments of 100s of identical units, often in undesirable locations with no infrastructure that no discerning buyer would want, at any price. But in the quality resale market it is not so much about over-supply but more a factor of how badly and how quickly does the seller need to get out that is driving the market. For example, in 2008 it took me two months to find just one house to short-list for a client wanting a house at Tarifa and we managed to get just 3.5% off the asking price. The sellers were keen to sell but they didn’t have to sell and there is no surplus stock in this area. Another possible house I viewed for the same client sold for the asking price about 3 hours after I had seen it. Hardly indicative of a market going off a cliff!
Andalucía is Spain’s largest autonomous region, covering nearly 20% of the Spanish mainland and is bigger, in fact, than several E.U. countries. So it should come as no surprise to find differences in the property markets in the eight provinces that make up Andalucía, ranging as they do from the affluent coasts of Málaga province to the less well-off rural interiors of Jaén and Huelva. In effect, there a several property markets across the region and it makes more sense, therefore, to look at the different sectors separately. First of all, let’s get the old chestnut out of the way.
The Marbella Story, cont’d….
The fall-out from the damaging corruption and illegal building scandal that broke in early 2006 continues but seems to be reaching its conclusion. The new schedule of planning laws, the PGOU or Plan General for short, has been agreed at local level and is slowly heading for ratification by the regional government in Seville. It was the lack of regional approval for the many revisions of the 1986 Plan General submitted by the former mayor in Marbella, Jesús Gil, during the 1990s that led to the chaos in the first place; when his revisions were rejected in Seville, he just granted building licences anyway, although the projects clearly contravened the planning regulations as they then existed, usually in respect of development of green zone land and density levels. The new planning regulations will set out how the western Costa del Sol develops for the next decade and beyond.
We now know that the overwhelming majority of the estimated 30,000 illegally built properties are to receive retrospective licences but uncertainty still hovers over approximately 500 and there may yet be some symbolic demolitions. Also, in return for legalising the illegal properties the Marbella Town Hall is seeking compensation from the original developers who benefited and there is concern about what will happen if this is not forthcoming if, for example, the developer has gone out of business. The worry is that the authorities will then make financial claims on the residents of these developments. So the story still has some way to run, but the worst is over for the majority.
Andalucía has 900kms of coastline, 600 of which face the Mediterranean and 300 on the Atlantic side. Some coasts are very densely developed, others are barely touched. In most coastal areas there are two distinct sectors in the property market; firstly, the high density new-build developments, secondly, the quality resale sector and in my view they will continue to perform very differently in 2009.
The new-build developments first. There are still too many of them but, as already mentioned, the unsold stock will probably start diminishing during 2009. Properties are going to auction or being repossessed by banks while some developers are moth-balling future phases. If you are dealing direct with the developer I would urge caution and unless you are able to negotiate a very substantial discount then it may be advisable to hold off until at least 2010. However, we have had similar building booms in Andalucía in the past and buyers can be certain that the overhang will get mopped up, stability will return and prices will rise again but any buyer of a new-build property in 2009 must be absolutely convinced that the price is right, that the building licence and bank guarantees are verified by an independent lawyer and that they can finance the purchase without depending on rental income. However, buying a new-build doesn’t necessarily mean dealing with the original developer as I am finding a lot of what, at first sight, look like resales are, in fact, brand new. These are coming about because of the purchase of multiple units by one buyer, the so-called ‘flippers’ and having been unable to sell on during construction now find themselves servicing one or more Spanish mortgages they hadn’t bargained for. The properties may have been finished 2 or even 3 years ago but they are ‘as new’. In general, I find such sellers are desperate and more flexible than the developers.
Now, as for the resale sector, one thing that is always immediately evident in a market downturn is that there is a flight to quality and in this respect one needs to recognize that the coasts of Andalucía are not all the same; prices are much higher in some areas for very good reasons and in today’s market conditions buyers need to focus on the prime areas; in secondary areas you can expect prices to fall further and recover more slowly.
Costa del Sol
On the western Costa del Sol the prime area centres on Marbella and extends about 15kms to the east, to Las Chapas, and about 15kms to the west, as far as Estepona. Two big infrastructure improvements worth noting; already underway, the San Pedro underpass will relieve severe traffic congestion on the approaches to the town and the Ronda road junction, and the proposed rail link between Málaga and San Pedro, mostly underground, is the most ambitious project ever considered for the Costa del Sol. The golf industry is vital to this area; the spending power of the golf visitor far outweighs that of the summer tourist and it give the western Costa del Sol one of the few, genuine 12-month seasons in Europe. There is no ‘low’ season anymore.
On the eastern Costa del Sol, Nerja is considered the prime resort but the lack of golf infrastructure means that this is primarily a summer resort and is noticeably quieter in the winter months. However, it does have the same wonderful winter micro-climate as Marbella and, over time, I can see Nerja developing into more of a year-round destination, particularly if the €33,000,000 marina with 500 berths and waterside shops and restaurants, is completed as planned by 2011.
Anyone who has been caught up in summer traffic on the old coast road between Nerja and Almuñécar is unlikely to want to repeat the experience; however, the motorway extension is now open as far as La Herredura and once completely finished, the journey time between Málaga and Almuñécar will be reduced to about one hour. This coast is extremely popular with Spaniards because of the easy access from Granada and Almuñécar is the prime resort, with great beaches and the chic marina, Marina del Este. In the Punta de la Mona area, wealthy Spaniards have been building their summer homes for the last forty years. Salobreña is a smaller resort but the time you get to Motril this coast becomes flatter and less desirable. As is the case in any area popular with the Spanish market, out of the main high season months things can be very quiet with not much going on.
This, in my opinion, is the least attractive coastal option in Andalucía. Although there are some great beaches, much of the province is very barren and dry. And perhaps the greatest deterrent for the property buyer in Almería are the plastic greenhouses covering thousands of hectares across the province, including coastal areas. These have been very successful in increasing agricultural yields but are turning much of this part of Andalucía into a wasteland causing damage to the environment and hardship to small farmers who can no longer sell their crops. The buyer should be beware; a pretty view can very easily become an eyesore.
Costa de la Luz
Finally, it seems that the Costa de la Luz, with its stunning beaches, is coming into its own for the overseas property investor. Good access is vital for any property market and after lagging behind the Costa del Sol in terms of upgrading infrastructure there is now real improvement.
The important thing for potential property buyers to realise is that this is not the Mediterranean coast and the Atlantic influence makes for some differences. The winter climate is less balmy and often there is a wind that takes the edge of the temperature. In addition, as so many Spaniards own second homes for the summer on this coast many resorts have an abandoned feel out of the high season, and some bars and restaurants close at the end of summer. This can adversely affect letting potential so if there are still buyers out there who are looking to finance a mortgage with rental income they should be very sceptical about some of the occupancy claims made by estate agents and developers.
This western coast of Andalucía has always been popular with Spanish buyers, precisely because the climate is cooler and therefore, quality property in good locations is not cheap. In addition, very tight planning controls should limit further development in the prime coastal areas so prices should hold up well. Where development is allowed the result can be very high density. The prime resort on this coast is El Puerto de Santa María where prices are not much below those of Marbella, followed by Chiclana, Conil and Vejer to the east and Chipiona and Sanlúcar de Barrameda, famous for the horse races on the beach, to the west. Tarifa, which ten years ago was a relatively unknown shabby town, is now the hottest wind and kite surfing destination in Europe, totally unique in atmosphere, and with some of the most breathtaking views imaginable, across the Straits to the African coast.
The infrastructure improvements of the last decade have demonstrated quite clearly that better access to an area drives property markets forward and impacts on property prices. Indeed, in % terms, the biggest prices increases of the last five years have not been on the coasts but in the most accessible country areas of the interior and the cities of Seville and Granada – on average doubling and even trebling in the very best locations. But, as with the coastal markets, the interior of Andalucía is not just one property market but several; in all, Andalucía covers about 87,000 square kilometres and it is inevitable that some areas have performed much better than others, some have really lagged behind and these differences will continue going forward.
There are still hundreds of rural properties to renovate all over Andalucía and it’s easy to find inexpensive houses if you do not mind being miles down mud track, halfway up a mountain and facing north, with no chance of water and electricity being connected anytime soon. Finding well-located houses with good access, electricity and water and close to a pleasant town or village is more of a challenge but it is essential in the market conditions of 2009 to focus on good properties in prime areas.
The upgrading of Andalucía dilapidated roads and railways, barely touched during the Franco years, had to start somewhere and once the money started to flow after E.U. accession in 1992, this is region that benefited first. It is hard to overstate the impact that the road upgrade programme has had on property prices in the areas that have been opened up by improved roads, for example, the towns 20 – 30kms inland from the Costa del Sol such as Coín, Monda, Alhaurín el Grande and Álora, or those reached by the motorway heading north out of Málaga in the direction of Antequera. Journey times to villages such as Villanueva de Tapia, Iznájar and Villanueva de la Concepción have quite literally been halved.
Antequera, the geographical centre of Andalucía and at the crossroads of the Seville – Granada and Málaga- Córdoba mortorways, looks set to become an even more important regional hub now the Madrid – Malaga high speed AVE rail service is operational for which a brand new rail station has been built just to the north-west of town. I expect continued strong demand for property of all types in Antequera and surrounding countryside from both the Spanish and overseas sectors. In the case of the Spanish market, Antequera will be easily commutable to both Málaga and Córdoba while at the same time, businesses are moving into the area bringing with them the need to relocate staff. For the overseas buyer, easy access to the coast, the great inland cities of Seville, Granada and Córdoba and skiing are a big plus, while the growth of the area is bringing more amenities, e.g. golf, to the doorstep. Next, from the hub in Antequera, the AVE will extend to Ronda and from there, on to Algeciras, Spain’s largest port and the second in Europe only to Rotterdam. Currently the journey time Antequera – Algericas is in excess of 5 hours and will be reduced by more than half. Work is also underway on the Antequera –Granada section which will mean a journey time of only about 25 minutes.
Even with more realistic asking prices in 2009 the bargain days are over in this area, although very occasionally I will stumble across a good ruin under 100.000 €. For a large village house to renovate you will need from 150,000 € and allow at least 75.000 € for a quality refurbishment. Farmhouses to renovate start at 200,000 €, and recent refurbishment estimates for clients are coming in at 125.000 €+. To install a swimming pool, budget 20,000 € for 8m x 4m and 25,000 € for 10m x 6m. Property buyers of inland property should be aware that Spanish banks are much more cautious about lending when it comes to rural property and valuations generally come in very low. In the prevailing credit famine you can assume it will be a real struggle to finance a rural purchase.
Very high quality country houses can be found in the Coín, Monda and Alhaurín el Grande areas. However, a house that might cost 1.5 million € on the coast would be priced around 50% lower in this area, with no compromise on quality. For buyers who cannot find what they want within budget on the coast this area would be my recommendation as the best alternative.
Infrastructure improvements have come later to this part of Andalucía but across the region the benefits are now really kicking in. The inland motorway to Jerez has improved access to pretty towns such as Medina Sidonia and Arcos de la Frontera and the airports at Jerez, Seville and Gibraltar are alternatives to Málaga. Within five years the high speed AVE rail network should be in western Andalucía with the line from Ronda to Algeciras. Well-located property, with documentation in order, remains in short supply and prices are holding up very well; maybe sellers are a bit more negotiable but don’t go here expecting major discounting, particularly if you want something with that amazing view across the Straits to the African coast.
The countryside is much greener than the rest of Andalucía and is an important centre of bull and horse breeding, plus the vineyards around Jerez. This part of Andalucía is where some of the grandest families in Spain built their country estates and in general, country properties in this region have much more land than in other parts. Therefore they do not come cheap and expect to find large houses to renovate with several hectares of land. The small farmhouse with 1,000m2 really does not exist in western Andalucía. In my opinion a buyer needs a budget of at least 500.000 € for a renovated property or good villa and upwards of 200.000 € plus renovation costs of 150.000 € if it is unmodernised. However, this is already a relatively expensive area much favoured by top-end Spaniards and buyers will be disappointed if they go looking for budget property – it is not there.
In general, this is the poorest part of rural Andalucía although there are pockets of growth, for example in the Granada area, but many isolated mountain villages have yet to see the benefits of major infrastructure improvements. It is an area of high unemployment and many small communities are in decline as people, particularly the young, move to the coast or the cities for work. Consequently, property prices are much lower relative to the rest of Andalucía. However, it is now much easier to access some of the more remote parts of Granada and Jaén by using Granada airport which now has routes to Girona, Stansted, Liverpool, East Midlands, Bergamo, Bologna and Frankfurt (Hahn). In addition, work is already underway on the high-speed rail link from Antequera.
This the most mountainous region in Andalucía, dominated by the Sierra Nevada, the highest peaks of which are over 3,000 metres above sea-level. Unsurprisingly, this has an impact on winter weather and throughout the Sierra, the Lecrin valley and the Alpujarras, winters are long and cold. Unless a buyer is a skier and actually looking for snowy conditions I always recommend that property viewing in this area should be done during the winter months. Far too many people have bought in this area after only visiting in the summer months and the first winter can come as a real shock. The altitude of the ski resort, base level 2,100 metres and top station at 3,300 metres, means that it is often one of the first, and sometimes the first, resort to open in Europe; in 2008 it opened on November 15th and there is usually good skiing well into April.
Across Spain, cities and provincial towns are being improved, helped by E.U and regional government funding. For property buyers seeking a city destination with some history, great street life, elegant architecture and a quality of life second to none then Andalucía can offer some of Europe’s best, e.g. Seville, Granada & Córdoba, all of which have excellent rental potential in both the cultural tourist sector and the long term Spanish market.
The smaller city of Jerez is also growing. With its own airport and excellent road connections in all directions it is easy to get to and superb beaches are only 15 minutes away at Sanlúcar de Barrameda. It has the feel of the Seville of 25 years ago and prices right in the historic centre are about 20% lower than Seville at present.
Córdoba and the surrounding area has remained off the radar for most overseas property buyers because it is relatively difficult to get to; although there is a small airport there are no international commercial flights in or out and even with the motorway up from Málaga finished, it is still a 200km drive. Now, with the high speed AVE rail service to Malaga operational, a property owner can fly into Málaga and let the train take the strain – journey time will be an hour to Córdoba, about half what it takes to drive. So get out at Córdoba and hire a car there. Prices are about 30% lower than in Seville.
With more than 7,000 kilometres, Spain currently has more kilometres of high-speed rail lines planned, under construction or already operational that any other country in the world and Andalucía has about 30% of that total. As Spain’s largest autonomous region, covering about 18% of the Spanish mainland, getting around will become much easier. Improved access usually means higher property prices and by 2013, all of Andalucía’s provincial capitals should be linked by high-speed trains.
Prices were very slow to fall in the last prolonged downturn in Spain which lasted from 1990 to 1994; there was a long period of denial which drifted into four years of reductions at the end of which prices were on average 40% down from the peak. This time around it all seems speeded up; we have gone from denial to discounts of up to 40% in a matter of months while some sellers seem to have missed out the denial phase altogether! One explanation is that prior to the earlier downturn most buyers had bought with cash; mortgages for overseas non-resident buyers were very restrictive, 60% LTV over ten years at best. However, during the boom years since 2000, what had been a market of mostly cash purchases became a market of mostly mortgage-funded purchases; previous restrictions on non-residents loosened to the extent that loans of 80%+ became the norm with 100%+ not unknown and far too many buyers were relying on rental income to support some, if not all, of the repayments. So in this cycle, most owners don’t have the luxury of playing a waiting game, holding the property is going to be expensive and I think this is one reason for amazing reductions appearing so quickly. Another reason, I am sure, is the fact that prior to this latest frenetic period it was unheard of for people to make multiple purchases but thousands have done it in the recent boom years, always with the intention of selling during construction, and having failed to do so, now find themselves servicing more than one mortgage they hadn’t bargained for. Complicating matters still further, promises of rental income levels that would more than cover mortgage repayments, in the ‘very unlikely’ scenario that flipping was unsuccessful, were often made by over-excited estate agents and developers to encourage people into multiple purchases. In the event, these ‘promises’ have turned out to be way off the mark, so renting is not an option. So, there are now a significant number of sellers who just cannot sit it out and this is producing some quite extraordinary offers. And let’s be clear, I am not talking about identikit apartments in a development of 2,000 units in some out of the way place with no infrastructure. I mean top-quality property in prime locations in one of the most sought-after destinations in Europe and in my opinion, the best deals will be found in the resale market, not with developers.
Here are a few examples of what I mean by discounts. Currently, I can find well-located apartments near Puerto Banús and Marbella for under 250,000 € and would expect to be able to negotiate further. At the other end of the market, I have seen 1 million euros come off the asking price of a brand new house in La Zagaleta and a 2.2 million € reduction on a 7 bedroom house, with heated pool and home cinema, near the beach at Los Monteros. Then, from someone who did buy more than one unit off-plan, the original asking price on two 2 bedroom apartments, beachside near San Pedro, 2kms from Puerto Banús, was €360,000 each; he would now like to sell them together for a ‘job lot’ €500,000, i.e. 250,000 € each. An identical apartment sold at the beginning of 2008 for €400,000.
No doubt there are still some interesting times ahead but after 25 years in the Andalucían market, involving several cycles of highs and lows, I have never seen anything quite like this – so many sellers needing to sell so urgently and a buyer with cash, or finance arranged, is now seeing prices that I almost can’t believe. But as with the January sales the quality items sell first and the stuff that isn’t really going to look like a bargain at any price is all that is hanging around at the end, and it’s no different in property markets; in the quality sector deals are already being done at levels that will show capital growth as soon as the market starts to move off the bottom while at the other end, the over-built, poorly located developments may never look like a bargain at any price and this sector will take years to shake down. Of course, there will be some owners who don’t ‘have’ to sell or say they don’t although I would question why anyone would put their property on the market in current conditions unless there was a real need to sell. The trick for buyers right now is to hunt down serious and motivated sellers and ignore all the others. From the buyer’s point of view conditions in Andalucía right now are the best they have been for 15 years so take advantage.