By Barbara Wood of The Property Finders
When I started writing this year’s Annual Report, reviewing 2011 and looking forward to 2012, I thought I might be able to re-run last year’s and just change the dates where necessary because so much of what I wrote then still applies today and at the bottom of this page you will find a link to that report if you’d like to have more background about the property market in Andalucía. The sections on unsold stock, the rural market and unrealistic sellers are still relevant and could stand repeating but there are also lots of other issues to discuss.
The key to understanding what is happening in Andalucía’s property market is realising that while much of it remains in a coma, activity levels in the prime locations continued rising during 2011, consolidating the improvement that started in the second half of 2009. It is true that transaction numbers yo-yoed month on month throughout 2011 and in some months were way down compared with the same month in 2010 but part of the volatility can be put down to VAT and tax changes affecting buying decisions and the growing weakness of the Spanish domestic market also comes into the mix. However, as far as foreign investment in commercial and residential property is concerned it increased sharply in 2011 and although well below the peak it was comparable to levels in 2002 and almost three times as much as it was in 1995 as the market bottomed out of the previous downturn. I have long argued that it makes more sense to compare today’s market size and who is buying with that of the mid 1990s rather than with the boom years, as a way of assessing how the market is doing. In 1995 buyers were typically cash rich (and needed to be because mortgage lending to overseas buyers was in its infancy) and they bought in the same places that are bouncing back now, i.e. a few prime locations. During the real estate boom, which in reality only lasted for about five years, the average buyer was heavily dependent on cheap finance and bought in secondary and peripheral locations that have totally disappeared off the radar. You know, those places that the media were hyping as the next ‘hot-spot’! Now, in 2012 the buyer is remarkably similar to the 1995 buyer – cash rich (they need to be as the banks are behaving very strangely, more of that later) and only interested in quality properties in the very best locations.
So even with reduced numbers of deals done it is possible for the property market to be quite buoyant in certain places and moribund in others. I am confident in saying that virtually 100% of all purchases in Andalucía are happening in a handful of prime locations and virtually none are occurring elsewhere so while overall transaction numbers remain low in comparison with the peak of activity in 2006, buyers are returning to the established prime locations in greater numbers and with increasing confidence which is, of course, what always happens as recovery kicks in after a downturn.
As the Marbella area is the hub of all the action on the coasts right now I’ll start with an update of that topic and I am surprised there is so much to say. With the new PGOU (the planning regulations) in force I thought I wouldn’t have to revisit this but there is an important issue that is a direct consequence of the illegal builds that caused so much turmoil in recent years and buyers need to be aware of it:
I think it is not going too far to say that buying a property in the area controlled by the Marbella Town Hall is now about as safe and legal as it is possible to be. The PGOU, ratified and fully operational since 2010, will be the planning blueprint until at least 2018 and all building licences issued between now and then must conform to these regulations. But while those of us who work in the property sector in this area have almost forgotten about the illegal building and corruption that was exposed in 2006 I think we would do well to remember the extent of the damage done, not only to Marbella’s reputation as a first-class location for property purchase but to the many thousands of individuals who purchased in good faith and then had to watch as their investment turn sour. While it is true that many of those buyers could have avoided their problems with a bit less haste and a bit more due diligence, they weren’t helped by those agents and lawyers who knew perfectly well what was going on but chose to say nothing. It is a fact that many reliable estate agents and lawyers did not participate in the feeding frenzy but they weren’t the ones taking huge stands at exhibitions and spending vast sums of money advertising in the property pages. A friend of mine was employed by one of worst of the ‘usual suspects’ at the height of the off-plan boom and some of the tales he has told me about the methods used to suck in the next planeload of people to be fleeced are a revelation. What went on from the late 1990s until the Town Hall imploded in 2006 was truly a scandal and I believe it will be years before the damage done fades from public memory and Marbella is fully rehabilitated. The scale of what went on is still coming to light as the trial which started in December 2010 drags on in the Málaga courts, with a total of 95 people in the dock, including 3 ex-mayors, numerous councillors, lawyers and assorted others and coverage in the press keeps in in public view. From now on everyone involved in property, from the Town Hall downwards, must be perceived to be squeaky clean.
However, as a direct consequence of the planning scandal there is an issue that should concern property buyers in Marbella in 2012 and beyond – whether the property they wish to buy is exposed to unpaid fines and if it is what they should do – buy or walk away? And while it would be good to think that with a first-class lawyer on the case it is impossible for a buyer to be unaware of the situation and its implications we all know of too many cases of buyers signing Spanish contracts in the past without even asking for a translation and believing everything they are told for me to be totally confident of that.
A bit of background may help buyers understand why there might be problems. Of the 18,000 illegal properties in the Marbella municipality only about 8% were built on green zone land that was never going to be approved for building. The rest, about 16,500, were either on land illegal at the time of construction or the land was legal but the developer contravened density laws. For example, the licence might have been for 75 apartments but there were 100 by the time the work was finished and infractions of this type were deemed to be less serious. All of these 16,500 properties have been granted retrospective building licences. However, in exchange for legalisation and inclusion in the new PGOU, the developers involved have been fined, either paying a monetary fine or handing over land to the Town Hall, and sometimes both. The fines range from a few hundred thousand euros to many millions and only on payment of said fine will the property be fully legalised but the time of writing many of these fines remain outstanding. There was a bit of a fanfare in November 2010 when the first fines were paid, allowing the legalising of 225 properties, out of a total of 16,500 remember, so no one got too excited about a speedy resolution. During 2011 I viewed a number of properties on behalf of clients on which fines were still unpaid but in October 2011 developers who had broken density rules and overbuilt were given two months to initiate the compensation process otherwise the Town Hall will start proceedings against them. So does this mean that we can expect more cases to be resolved in 2012?
Some of the developers are bankrupt and can’t pay while others won’t or are dragging their feet, no doubt hoping if they do nothing it will go away. But as long as fines remain outstanding property buyers in Marbella should be aware of a potential future financial risk and it is essential to ascertain what this might be. It is also true that existing owners are at risk but that is not what concerns me – I act for the buyer and it is my responsibility to ensure that they are in possession of all the facts so they can make an informed decision about purchasing or not. The big issue for prospective buyers is what happens in cases of non-payment.
Marbella’s mayor, Angeles Muñoz, re-elected for a second four year term in May 2011, is on record as saying that buyers who bought in good faith, which implies everyone, should not be exposed to a future financial risk but the regional government, the Junta de Andalucía in Seville, disagrees and have stated quite clearly that the fines must be paid before properties are legalised and issued with the licence of first occupation. The big, and as yet, unanswered question is whether unpaid fines will devolve to the individual property owners if the developers fail to pay. If the Junta gets its way it is yes, if Angeles Muñoz prevails it’s a no but the Town Hall desperately needs income so it’s best to assume it’s a yes.
If there is a fine outstanding on a property you want to buy it will be uncovered when your lawyer does the pre-contract searches, or at least it should be. In my experience, the best agents are identifying properties affected by unpaid fines before a viewing but many are not and buyers are finding out too late in the process, perhaps even after they have paid a deposit. The community’s administrators may also be able to give a fair estimate of what each unit’s share would be if the charge were paid now although potential buyers should bear in mind that the amount will increase as interest accrues over time. And an individual’s share can be anything from a relatively modest sum to something quite substantial. I understand that owners at Los Lagos de Santa María in Elviria were told at their last community AGM that the average payment would be in the region of €6,000 per apartment but this is a large development and so the fine, which I believe is around €3 million, would be divided between many owners. In contrast, the owners in a smaller development at San Pedro, but with a similar fine outstanding, now know that they could be hit for around €60,000 each if the charge falls to the individual owners and I know of other developments where the share would be in the region of €15,000 if settled now.
Most of the properties involved are in multi-unit developments of apartments and townhouses built between 1998 and 2006 and to date I haven’t come across a single case involving an individual house so it depends on what type of property you are looking for as to how likely it is that you may hit a problem. In an ideal world buyers should be aware of an unpaid fine before a viewing; in this case it can be made part of the negotiation and for some sellers this comes as a bit of a shock as it is the first they have heard of it. But it is not an ideal world and plenty of buyers will only find out after they have decided to buy, negotiated the price and perhaps even paid a reservation deposit. In these cases you could try renegotiating the price to take account of possible future costs and if that doesn’t work, go ahead anyway or walk away and lose the deposit. Some buyers are taking the view that they are getting such a good deal at today’s greatly reduced prices that the risk is worth taking and even if the fine is eventually levied on their property it still makes financial sense. In other cases, the seller is consenting to put an agreed amount in an escrow account for an agreed period, out of which the fine is paid if called for; if not, the funds are returned to the seller. So while there are different views about how best to handle this situation the key point is to be aware of what might come back to bite you then at least you can take an informed decision and of course, the overwhelming majority of properties available for sale in the Marbella area are totally unaffected.
In last year’s report I said that I looked forward to a time when I wouldn’t need to comment on meaningless official statistics about Spain’s property market but 2011 wasn’t it and sadly it is not 2012 either. Personally, my eyes glaze over whenever I see another headline about Ministry of Housing figures referring to price falls but I feel I have to continue addressing the issue because the media and market commentators report make such a big deal about statistics. Some do hint that they may not mean much but they don’t say why.
My reasons for describing Spain’s property market stats as meaningless remain the same; the figures from valuation companies such as Valtecnic and TINSA are subjective opinions which can, and do, lead to wildly differing valuations on the same property and the official Ministry of Housing figures are not comparing like with like. By this I mean that today the price declared in a Title Deed is, in almost all cases, a truthful statement of the actual price paid whereas at the peak of the market it was still normal practice for the price in the Deed to be under-declared, often by a substantial amount. So after four years of falling prices we have reached the stage where the official figures are showing falls since the peak in the region of 24% across the board while the Developers and Constructors Association give 26% for new developments from the peak but this is a gross underestimate precisely because of under-declarations in the past. For example, a property bought in 2006 for €500,000 of which only €400,000 was officially declared, and a 20% under-declaration was quite normal, would, according to Ministry of Housing statistics, have fallen only 20% if sold in 2012 for a fully declared €320,000. But the seller paid €500,000 so is, in reality, taking a 36% hit and in my opinion, official statistics are underestimating peak to present price falls by at least 15 – 25% in respect of property likely to appeal to overseas buyers. This puts them way behind the curve; prices are not back to 2005 levels as was claimed during 2011, they are right back where they were in 2003 when the undeclared element is taken into account.
When buyers from overseas look at headline statistics about the property market they also need to bear two issues in mind; firstly, price fall statistics are averages and secondly, that they are really describing the internal Spanish market. Even at the peak overseas buyers only accounted for about 10% of all purchases; today that figure is hovering around 5%. Spain has two property markets which are for the most part completely separate, a national one driven by the internal economy and consequently weak and getting weaker, and an overseas one which depends on how other economies are doing. For example, at first glance the figures showing the number of transactions done in the 3rd quarter 2011 look dire; a 16.8% fall compared with the previous quarter and down 6.3% year on year. However, if the purchases by overseas buyers are separated out there is a year on year increase of 24.7%. But given Spain’s internal problems, such as the highest unemployment in the E.U., mortgage drought and lack of growth it seems highly likely that the internal property market will stagnate for several more years and hoping that the overseas sector will kick-start an improvement is wishful thinking. And because the statistics refer to a market that is 95% an internal Spanish market, they will be dire for years to come and tell the overseas buyer more or less nothing.
As regards price falls, when overseas buyers started to reappear in Andalucía in 2009 it quickly became clear that the level of price reduction that was necessary for a deal to be negotiated was in the region of 30 – 40% from peak prices, although this only refers to quality property in prime locations. Prices have not fallen further since then; they are bouncing along about 30 – 40% below 2006 prices and it is completely misleading to suggest that they have been falling a few percentage points each year; they fell like a stone at the outset and vendors either went all the way or they have been nibbling away over time until they reached this floor. It is always possible that the Ministry of Housing statistics are an accurate reflection of price falls in the internal market and 24% may be spot on, but as regards the quite separate overseas sector it is an underestimate and by quite a margin. So, as far as I am concerned, the headline figures of annual price falls explain nothing. And even digging deeper into regional and provincial differences or separating out the internal and overseas markets doesn’t really help as you will still come up against the under-declaration issue that continues to muddy the water.
Without doubt, more scrutiny and tighter controls against tax evasion and money laundering have greatly reduced the practice of under-the-table cash payments in property purchase. Lawyers, agents and notaries are all at risk in transactions involving under-declarations and buyers should be extremely wary of anyone suggesting such a move. The main beneficiary was never the buyer, who saved a relatively small amount of purchase tax, the real winner was always the seller who stood to avoid their Capital Gains Tax liability, in effect passing it on to the new owner who, in turn, had to find a buyer also willing to pay part in cash, and so the merry-go-round continued. Ministry of Housing statistics will only mean something when they reflect sales of properties fully declared at the point of previous purchase and fully declared on resale. Then we can say they are comparing like with like but that is certainly not the case today. In the meantime, statistics about the Spanish property market, from whatever source, should be taken with a very large pinch of salt.
Contrary to what you might think Spanish banks are lending but I find many of their decisions somewhat perverse. For years they happily granted mortgages on overvalued property of indifferent quality in sub-prime locations and lent to people who couldn’t really afford it. Now they seem reluctant to lend to people who can afford it and want to buy a quality property in a prime location at a greatly reduced price. Many banks are not lending at all on property that is designated rural but if that same buyer applied for a similar loan on a similar property with an urban classification there is every chance it would be granted. The few banks that will consider rural property bring in valuations so low as to make it virtually certain that the purchase will fail.
In general, overseas buyers who need finance should do their calculations on the basis that they will be offered a maximum of 65% of the valuation or the price agreed, whichever is the lower, and unless a phenomenal price has been negotiated the valuation will be the lower and the result may be a loan insufficient to bridge the gap. But in situations where the buyers have the wherewithal and the bank is happy with the transaction a mortgage will be available and it may only take a couple of weeks to organize. I negotiated a purchase for clients at the end of 2011 in El Madroñal, one of the best urbanizations near Marbella. The original asking price was €1,400,000, but that was some years ago and by the time my clients were in the market it was on offer at €850,000. We secured a deal at €730,000 which I would rate as the best purchase negotiated in El Madroñal in many years. The bank valuation was superb, €903,000, and in the good old days the loan offered would have been a percentage of that figure. But, as explained above, it is the lower of either the valuation or the price agreed on which the loan will be based today and two banks were keen to lend, one at 60% and one at 65% of the purchase price.
I am often asked if buyers should consider bank repossessions a good way of entering the property market in Andalucía but on balance I think the answer is probably no. Firstly, the overwhelming majority of what the banks hold is frankly unpleasant and I can count on the fingers on one hand the properties that have been worth a second look. All the major Spanish banks have become estate agents and run web sites with their offerings so take a look and be amazed at how bad most of it is. Secondly, I think it essential in current market conditions for buyers to be in full possession of the facts before making a buying decision and when it comes to the banks we just don’t have the full facts. Without doubt they are holding a lot of properties on their balance sheets but even if we knew the real figure it would be irrelevant because they are manipulating the situation to suit themselves by holding off repossessing properties in serious arrears in order to keep the numbers looking manageable. This means that there are probably thousands more properties out there that under ‘normal’ conditions would have already been repossessed but for the time being the bank chooses to leave them with the owner. In the past, arrears of three months were sufficient to trigger the repossession process but during 2011 I reviewed several properties for clients that were between 12 and 24 months in arrears but still had not been repossessed. By massaging the figures in this way it is easier for the banks to hold their position on prices, for while there discounts have been available since 2009 in too many cases these were held around 20% for way too long and it was only during 2011 that they started coming through with more realistic 40 – 50% reductions. However, I would argue that if all properties more than 3 months in arrears were repossessed the total numbers involved would be so great that reductions would have to be much larger than what is currently on offer to accurately reflect the banks’ weak position. The real stumbling block for the banks, and the main reason they remained in total denial for so long, is that the way-over-the-top valuations that they actively encouraged and the 80 – 100%+ loans that were on offer mean that they are in negative equity big time but the longer they hang on to their toxic assets the worse the situation will become.
Nevertheless, banks are disposing of properties but it won’t surprise anyone that the terms appear much more favourable to the bank than the buyer. Firstly, they establish the sale price and get a valuation to back it up. They sweeten the pill by offering up to 100% mortgages at lower interest rates and over longer terms than they make available for properties not their own. While this may seem very tempting at first sight buyers need to be absolutely certain that they are paying no more than the true market price otherwise they will be in negative equity from day one, a situation which may endure for years. In my view, overseas buyers should be very sceptical about what the banks are offering – by all means take a cursory look and then concentrate on the resale market, negotiate hard and then shop around for a mortgage.
The Good News Section
For Marbella the best news of 2011 was the announcement of the €400 million project to renovate and extend La Bajadilla Marina on the eastern edge of town. Due for completion in 2015 the proposal increases the number of berths to 858, including moorings for mega-yachts, but perhaps the most exciting part of the plan, and one which will put Puerto Banús somewhat in the shade, will be the 220m quay for cruise liners, allowing passengers to disembark into the heart of Marbella, a huge boost for the local economy. The signs are good; the principal investor is the Qatari Sheikh Abdullah Ben Nasser Al-Thani, who already owns Málaga Football Club, and the project is described by the Mayor as the single most important development in Marbella’s history. But we have been excited by similar plans in the past which have come to nothing so I shall be looking for serious progress on this project during 2012 before I get too emotional.
Can it really be four years since work began on the San Pedro tunnel? The original 2009 completion date came and went; funds dried up as the economy worsened, two exceptionally wet winters and design modifications stopped work on occasions and many local businesses in the vicinity of the construction site have been devastated. But finally there really does seem to be a light at the end of this tunnel and although there is still no definite opening date there is real confidence that it will be in the first half of 2012. The benefits to San Pedro will be many; the town will no longer be cut in two by the coastal highway, all through traffic will disappear into the 1km underpass and the congestion at the junction of the coast road and the Ronda road will be history. And the green spaces being created over the tunnel, to the tune of €6 million, will be a welcome public space at the centre of the two parts of San Pedro – the old town to the north and the beachside to the south.
Also several years behind schedule, but expected to open in 2012, is the second runway at Málaga airport. Construction is complete and the certification process is underway. Once open the airport’s capacity will be doubled to approximately 21 million passengers annually and at the same time rail links from the airport into Málaga city have been improved. Early in 2012 road access into the airport should be much improved with the opening of the new road from the A-7 at Guadalmar so hopefully crawling the last kilometre to the terminals will be a thing of the past and there will be alternative road access from the north of the terminals. Two other important road projects were finally opened to traffic at the end of 2011; the second section of the outer ring road which connects the coast to the A357 is expected to ease much of the existing traffic congestion around Málaga city and improve access to nearby towns such as Churriana and Alhaurín while the new northbound toll motorway, the AP-46, going up through the mountains behind Málaga to Las Pedrizas, is not only anticipated to take about half the traffic which currently uses the A-45 but also reduce the journey time by half, down to 15 minutes. Behind schedule after a funding crisis stopped construction for a year, this road is something of a technical achievement. As anyone who has used the existing A-45 knows the climb through the mountains is steep and winding and is used by a lot of heavy transport vehicles. Although the new road covers the same terrain, with an 800m drop in altitude in only 25kms from Las Pedrizas to the coast, the 18 bridges, some of which are 100 metres up in the air, and 3 tunnels, one of which is now the longest in Andalucía at 1,400 metres, fly over or go through the mountains. The result is a road with a less than 3% gradient overall and crawler lanes in the few places where it is nearer 4% on the northbound side. The toll for cars has been set at €3.05 for low season and €4.60 during high season periods.
The Not So Good News
Wealth Tax, suspended in 2008, is reintroduced from 2012, supposedly for a temporary period of two years. We shall see. It will be levied on net assets over €700,000 on residents and non-residents alike.
The corruption scandal uncovered in Marbella in 2006 opened a can of worms which I think has even shocked the Spaniards themselves with most being unaware that it was carried out on such an industrial scale. If you are thinking about buying somewhere other than Marbella, which as I have already pointed out is about as legal as it is possible to be, be aware that corruption in Spanish Town Halls continues to be uncovered, including in Andalucía. As recently as September 2011 the police swooped on Ronda, one of the most desirable country locations in the region, and marched off with the ex-mayor, several councillors, town planners, lawyers and various others in handcuffs. The charges look broadly similar to those in Marbella and include corruption, bribery, and embezzlement, money laundering and urban planning offences. Whichever location you are considering you need to ascertain the status of the relevant PGOU: is there one, when does it date from, is it due to be renewed in the near future or is it already under revision and it is also worth finding out if anyone from the Town Hall has been arrested or is under investigation? If there are judicial proceedings underway or the PGOU is undergoing a revision, buyers should be aware that Town Hall activity will be frozen and any building licences or other permission required will be a long time in coming.
My View of the Market in 2012
At the time of writing the Eurozone crisis dominates all other economic issues and with such a level of uncertainty I am sure I will have to revisit this section on a regular basis during 2012 to update and revise it. I guess this is what it must feel like to get stuck in quicksand – the harder you struggle to get out the deeper in you go.
Leaving aside this issue for the moment let me try and give a sense of how the market performed during 2011. Remembering that I am only referring to quality property in prime locations 2011 was a year of consolidation, building on the increase in sales seen in 2010. Buyers were predominantly able to buy in cash while those who required finance were looking for around 50%. The short term mentality has disappeared and those buying now are life-style purchasers with a medium to long term perspective. However, there is little sign of emotion in the market, it is still all about the price being right and in last year’s report I said I thought the single most important factor that would hold the market in check and limit growth in 2011 was unrealistic sellers and their daft asking prices. During 2011 I carried out a property search for clients whose criteria were broadly similar to those of clients who purchased in 2009 and I was not pleased to see that many of the houses I reviewed then were still for sale, often at the same price or only slightly reduced. Most of them had been on the market for a couple of years when I first viewed them so we are talking about properties on the market for five years! However, I am confident that this situation has finally changed, particularly since the end of summer 2011; asking prices are being reduced in greater numbers and by larger amounts and the trend seem to be accelerating. This is bang on target as far as I am concerned; the last time Spain experienced a property downturn in the early 1990s it took around five years for sellers to get the message and adjust asking prices accordingly. The fact is that the majority of property owners in those areas that overseas buyers head for are not forced sellers, particularly those who own a quality property in a good location, and I think this is one reason that many resist reducing prices for so long. But finally, there comes a moment when people just want to move on with their lives and I think we have reached the tipping point.
Nevertheless, there are still sellers completely out of sync with the market; a good example of this is a price tag of €999,500 on a three bedroom bungalow in El Paraíso in Estepona, reduced from €1,400,000 at the end of 2011, and while it appears that they have made the 30% reduction the market requires I want to know what on earth a three bedroom single storey house in El Paraíso was doing on the market at €1.4m in the first place. It doesn’t matter how nice it is, it is overpriced for the location, which is secondary and not prime. Even at the reduced price this property is being undercut in 2012 by larger properties in better locations and compared with deals being done right now in better locations it is not worth more than €650,000. This is all about relative prices; properties in secondary locations have to be priced at a level relative to those in prime locations, in other words, less. There are still too many sellers who don’t realise or won’t accept that the location of their property is non-prime and in the case of places such as El Paraíso or Elviria and El Rosario that means being around 20% lower than a similar property in a prime location such as Nueva Andalucía, where I could easily find a selection of similar three bedroom properties for less than €999,500, in some cases a lot less.
So, on the one hand we have many more sellers at the right price than at the same time last year while some remain adrift from reality although I think this is now the minority. It matters a lot that asking prices relate to today’s market because price confusion deters buyers. I heard reports during 2011 of buyers making offers 50% below already reduced asking prices and then being upset that the offer was rejected. However, in 2012 I believe buyers can be more confident that most asking prices are a good indicator of what the right purchase price is, with an element of flexibility for some negotiation, and we are way past the stage when buyers can expect to be taken seriously if they make offers 50% below the asking price; perhaps it might work in the case of a sub-standard holiday apartment in a dubious location but not at the quality end of the market.
I argued in last year’s report that it was perfectly possible for there to be growing activity in prime areas on the coasts and inland while there remained hundreds of thousands of unsold properties elsewhere. I believe I was right and Spain’s unsold property stock will remain irrelevant during 2012 as regards what happens in the places where discerning buyers want to be. I still can’t get my head around who was supposed to buy all these properties. On average 350,000 new households are formed each year in Spain, although that figure is falling in the worsening economic outlook, while at the peak Spain was building around 800,000 units annually, more than France, Germany and the UK combined. As already mentioned, even at the high point of the cycle in 2006 when 900,000 units were sold, the overseas market represented only about 10% of buyers so the notion that buyers from overseas will come to the rescue of is way off the mark, particularly as they currently only account for 5% of purchases. I don’t think it can be said too often: Spain had a stable overseas property market centred on a handful of special places for 40 years before anyone thought about a mass market, off-plan sales, flipping contracts and the like. Yes, there were cyclical moments, as there are in all property markets, but for most of the time and for the majority of buyers, owning a property in Spain provided good capital growth and a great lifestyle. The lifestyle is still great, in fact it is better than ever, given the huge improvements to infrastructure, accessibility, amenities and facilities in recent years and prices in 2012 are at a level that I believe make capital growth in the medium term a certainty. But not for a very long time, if ever, will the numbers of overseas buyers return to the levels seen at the peak of the bubble, either in terms of actual numbers or as a percentage of transactions and how long it takes for the unsold stock to be absorbed will be much more a function of the internal Spanish market than the overseas sector.
As regards predicting market behaviour in 2012 the great unknown is how much confidence is affected by the economic and political uncertainty in the Eurozone and beyond. Confidence is an essential component in property markets but it is a very subjective ingredient and two people can look at the same situation and reach different conclusions. I expect some buyers who were ready to buy will stay on the side lines until they perceive more stability while others will reason that they have an even better opportunity to secure a great deal. It is a fact that property markets in certain locations function differently when compared to the wider market, seemingly affected less, or not at all, by what is happening generally and I believe that the handful of prime locations in Andalucía that have for decades attracted International buyers of top quality properties make up one of those markets. I regularly attend the bi-monthly property auction in Marbella and it was very evident throughout 2011 that cheap, poorly located property was of no interest to anyone; at the November sale a renovated village house in the wilds of Jaén province failed to find a buyer even with a guide price of only €9,000. From that same sale, 12 lots were sold either prior to the auction or on the night, with a total value in excess of €10 million and in every case the price achieved represented a minimum 30% reduction from the bank valuation and in some cases more than 50%; a large country house outside Seville with a bank valuation of €1.8 million sold for €600,000. So, somewhat perversely, at the height of Eurozone uncertainty this sale attracted buyers for the most expensive lots and was by some distance the most successful auction of 2011. It seems to indicate that if the price, location and quality all stack up there is a buyer and I believe 2012 will be more of the same; the internal Spanish market and the overseas market in secondary locations will remain in very poor shape while purchases of quality properties in prime locations consolidate the progress made during 2011.
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