Andalusia Market Report From The Property Finders

My annual report about the property market in Spain & Andalucía is always a mix of reviewing the year gone by – based on statistics, reports, and analysis published throughout the year – and my own experiences finding properties for clients, then drawing on both to predict what might lie ahead in the year to come. Obviously, this means that when I start a new report I am reviewing a year which 12 months previously was the focus of predictions and, inevitably, some guesswork but it gives me the opportunity to check how right I was; was I correct to say that the domestic market would continue downwards while the prime overseas sector improved further, that the market would remain very price sensitive, that the banks would still be reluctant to lend? I think I was right on all counts but I also said it was the most positive report I’d written since 2006 and I remain very positive about 2015 although it is a qualified optimism, for while transaction numbers are growing in some sectors there are aspects of the property market in Spain that still give a lot of cause for concern, leading me to the conclusion that a fully recovered market across the board is still some years away. However, at the same time, things are looking much brighter in the prime areas overseas buyers head for and the solid growth seen in 2014 looks likely to increase but as I will try to show in this report, the property market in Spain will continue to be one of contradictions and anomalies in 2015.

As I wrote this at the end of 2014 full year statistics weren’t available and will trickle through in Q1 and Q2 of 2015. I update the report as data becomes available so please do check back for up-to-date information.

Spain – the country with at least two property markets

Throughout the boom years the overseas sector never accounted for more than 10% of the overall property market – the peak year was 2006 at 8.97%, representing approximately 80,000 transactions by buyers from abroad. At the low point in 2009 overseas market share fell to 4.24% or roughly 19,000 purchases. But since 2011, every quarter has shown growth in the overseas buyer sector; in 2014 it accounted for around 20% market share overall and in the areas most popular with foreigners it was even higher. In Alicante province overseas buyers took 47% of the market while in the province of Málaga in Andalucía it was nudging 40% across all price levels but reached an astonishing 75% at the luxury end.

These figures clearly show that the overseas property market is operating completely independently of the domestic property sector and the wider Spanish economy. As a proportion of the overall property market the overseas sector is already more than double what it was at the peak of the boom and I expect full year stats to show in excess of 60,000 transactions carried out by buyers from overseas in 2014, only 25% fewer than at the peak. However, 2014 Q3 figures for the overall market suggest that full year transaction numbers will total something in the region of 330,000 units, of which we know roughly 20% will be foreigners, leaving just 265,000 domestic buyers. Compared to the market peak of 725,000 domestic buyers we can see how severely this sector has shrunk. Consider these figures: in Q3 2014 there were a total of 80,136 transactions across Spain while the best quarter on record was Q2 2006 with 251,649!

And I don’t expect much change in 2015; unemployment remains stubbornly high at around 25% and is even worse in the under 25 age group at around 50%. Unemployed people and those fearing unemployment don’t buy houses and a report by PricewaterhouseCoopers in November 2014 predicted that Spain will not return to pre-crisis employment levels until 2033! Add to that the shrinking Spanish population; the National Institute of Statistics (INE) thinks the population may decline by 2.6 million in the next decade and a recent survey of people aged between 18 and 30 showed 60% plan to move abroad for work. Indeed, hundreds of thousands of Spaniards, often the best educated and well qualified, have already left and many won’t return as they develop careers and families elsewhere. Many others are resigned to remaining in the family home well into their thirties and there were 17% fewer migrant workers at the end of 2014 compared with 2010 so the number of new households set up annually in Spain has fallen from more than 300,000 at the end of the boom to around 80,000 today. Taken together, these statistics paint a grim picture which is not alleviated by small signs of improvement as there is still no consistency – up one month and down again the next.

So, it seems clear to me that there are currently two property markets operating independently in Spain; the domestic and overseas. But I think there’s a third market, as the overseas sector is also divided and there is a marked difference in the performance of what I identify as quality properties in prime locations and the other stuff; inferior spec properties in secondary and peripheral locations, those places that were touted as ‘hot spots’ in the boom but are now in the doldrums and likely to remain so for years. However, there are signs emerging that developers are coming into the market to finish off uncompleted projects or glitz up built-but-never-sold units in these inferior locations and I urge buyers to remember that a couple of minimalist bathrooms and granite work surfaces don’t turn second rate locations into prime ones; there’s a reason that projects didn’t get finished or were repossessed and almost all those that got into difficulties were in the wrong place and worse, but with prime location price tags. With prices back to 2002 levels, even the very best locations are down 40%+ and it’s 60%+ in secondary ones, it should be nearly impossible to make a bad investment in 2015 but get the location wrong and overpay, and I can see signs of that starting to happen already, it will be many years before you break even. Buyers must remember that with Spain’s high buying costs, on average 10% but up to 13% if you are taking a mortgage, and high selling costs in the form of estate agents commissions at 5% and more, prices have to rise at least 15% before you see any profit and make it even more vital that buyers get the location and price spot on.

The bottom of the market – are we there yet?

Throughout 2013 and into 2014 many analysts were already calling the bottom of the market; consultants such as CBRE, JLL and Aguirre Newman all published reports to this effect and banks such as Santander, Sabadell and BankInter agreed, in spite of the fact that sales transaction numbers and new mortgages were still showing double digit declines into the first quarter of 2014. In the conclusion to my last report I said I thought it was way too early to be so optimistic, that the data was inconsistent and contradictory and I have to say I don’t see much change one year on. As 2014 progressed, the reports kept flowing and they were notable for their lack of agreement; both the OECD and The Economist reported that data analysis indicated Spanish property was still overvalued by as much as 10% relative to average incomes and Standard & Poors (S&P) agreed, although by a much higher 9% – 18% margin. Others were pessimistic about any upturn, such as the Society of Valuers and API, the realtors’ professional body, and while Tinsa, one of Spain’s biggest valuation companies talked about stabilisation, Citigroup Research could see further price falls between 5% and 10% in 2015 and no recovery in the near future. In Q4 2014 both the European Central Bank (ECB) and European Banking Authority (EBA) suggested a worst-case scenario of two more years of falling prices, as much as a further 5% decline in 2015. And not only were the various agencies disagreeing between themselves, S&P even seemed to contradict itself; in spite of its May 2014 report stating the market was over-valued by 9% – 18% another one in July predicted price stabilisation in 2015 and 2% rises in 2016. As far as I am concerned one of those reports must be wrong.

So, going into 2015 there are contradictory trends apparent in the property market. On the one hand 2014 Q3 statistics showed prices still falling, albeit at a slower average monthly rate of 2.6%, but this figure masked much higher falls in many of the regions that do not attract overseas buyers, e.g., 7.5% down in Navarra and 5.5% in Extremadura. And it also ignores the slight price rises in a handful of places during 2014, most notably in city centres such as Madrid, Barcelona and Seville and the most prime areas of overseas purchases, e.g., Marbella. In Q1 2014 Marbella was the only municipality on Spain’s Mediterranean coast to register a modest increase of 4.8% and I anticipate the full-year 2014 figure will be around that level.

But on the other hand, after fluctuating wildly for most of 2014, transaction numbers finally steadied and showed small increases in Q3 & Q4, as did new mortgage applications after 5 years of decline, although it is worth pointing out that in spite of a few big month-on-month increases mortgages agreed are still below 2013 levels and bank repossessions are still rising relative to 2013. As the domestic market is dependent on banks being prepared to lend, in a way that the overseas sector is not, it is obvious that no sustained recovery can take place until the banks return to lending mode. Now, in 2015 the banks have, for the most part, shifted their toxic assets, either through their own real estate arms or dumping the sorry mess into SAREB, Spain’s “bad bank”. In addition, Euribor, the rate that fixes the interest rate for the majority of Spanish mortgages, ended 2014 at an historic low of 0.329%, a fall of 35% over the year. And, in spite of my earlier comments about unemployment and further price fall predictions, for those in work the average mortgage affordability level relative to gross salary is, at 33%, much better than five years ago. So, with property prices lower than a decade ago, banks seemingly more willing and able to lend, interest rates on the floor, employment edging up as the economy grows and higher transaction numbers, we may have the parameters in place, if they hold steady during the first half of 2015, to call the bottom of the overall market in the second half of the year. However, if this is the case it will still be three years behind the prime overseas market and, in my opinion, fragile enough to be knocked off course by external factors, such as further Eurozone instability. And this matters because of the importance of the real estate industry to Spain, accounting for 12.3% of GDP in 2007 against 5% today. In terms of actual revenue, average quarterly income of approximately €50,000 million in 2014 is back to 1997 levels while in the best quarters of the boom years it exceeded €110,000 million.

In respect of the wider economy both the IMF and the Bank of Spain raised their 2015 growth forecast from 1.8% to 2%. Exports hit all-time highs in 2014 and business start-ups were at a six year high with 45,000 registered in the first half of 2014, 25% of which were related to the construction industry, a sector which, according to the E.U. statistics office Eurostat, grew faster in Spain in 2014 than any other E.U. country. 1,000 new real estate agencies opened and although I haven’t seen a breakdown by region I suspect most of these are located on the Mediterranean coasts. However, I’m not sure I like this statistic as I foresee a lot of not very knowledgeable start-up agents advising not very knowledgeable property buyers with the disastrous consequences we saw so often in the bubble years. Unemployment statistics show tentative improvement although with Spain’s dependency on tourism it is inevitable that some jobs are seasonal and short–term; in fact, only 9% of new positions created in 2014 came with indefinite contracts. As with other E.U. countries post-crash job recovery in Spain shows an increase of low pay and part-time jobs and more self-employment.

What this means for Prices in 2015

Official statistics and reality have, at long last, converged and the distortion caused by “under the table” payments has finally been washed out of the system. This means that year-on-year price comparisons now actually mean something as the price paid at the notary and registered in the Property Registry is, in almost all cases, the full amount and not, as was the norm in the past, 30%, 40% or even 50% below what the buyer actually paid, the balance bundled up in a brown envelope. There are still a few sellers who will try to persuade buyers to under-declare, those facing a serious Capital Gains Tax liability but the answer, no matter how much you want their property, has to be a firm no. All you will be doing is absorbing their CGT which will fall on you when you come to sell and if you have bought low now and prices do rise substantially over the years that could become a very big number.

To avoid overpaying I urge all buyers in 2015 to take a long hard look at prices per square metre; this is easy in Spain because absolutely every property is marketed stating plot and constructed area in square metres and calculating the price pm2 tells you much more than an asking price figure. Comparing like with like soon sorts the serious seller from the seriously deluded; in one beachside development in the prime territory of San Pedro de Alcántara I have seen pm2 vary from €2,610pm2 to €9,414pm2 in the same building – the lowest might actually be worth looking at (or would be if the development were fully legalised, which is isn’t, but that’s another issue and way too complicated to cover here) while the owner of the highest priced unit clearly needs specialist help. I accept that it is the most luxurious finish possible but even at the peak of the market wouldn’t have made more than €6,000 pm2 so anything over €3,600pm2 is too much.

In the recent past clients of mine purchased a penthouse in a different development in the same area and paid €3,500pm2 and in July 2014 clients bought for €2,625pm2 but I call this the steal of the year for a beachside apartment 200 metres from the sea and unlikely to be repeated in 2015. A four bedroom townhouse in a frontline beach development in Guadalmina cost my clients €2,285pm2. Compare this with the €2,800pm2 for new-build apartments on the wrong side of Estepona with a motorway thundering past the door; they are selling off-plan because buyers are being seduced by a new product on the beach without giving proper consideration to where it is. West of Estepona is a secondary location, nothing will ever change that and prices have fallen by between 50% and 60%, much more than the prime area average of 40%. Nevertheless, buyers have been paying €370,000 for 3 bedroom apartments and if that were the right price to reflect price reductions of at least 50% in this relatively poor location these units would have sold for €740,000 at the peak of the boom, a truly insane suggestion. In my view, these units are about 30% over-priced and do not reflect the price difference between prime Marbella & San Pedro and secondary west Estepona. With buying costs added, the actual investment is over €400,000 and I can’t see buyers breaking even within a decade, if ever. I know of a 3 bedroom apartment close by that was purchased in the boom for €650,000 but recently valued by a bank at €290,000.

Away from the beach, I found a shabby townhouse which even with the renovation only cost my clients €2,000pm2 and compared favourably with an already refurbished but smaller property in the same development which I knew had sold a few weeks earlier for €2,150pm2. Now they have a 3 bedroom, top quality townhouse frontline to one of Marbella’s best golf courses and were they to sell it in a year’s time I would expect them to see a profit. As I was writing this report an e-mail plopped into my inbox with “Massive Reductions Again!!!” in the subject line and, sceptic that I am, I wasn’t too hopeful but opened it to find a top quality apartment right in the heart of Marbella’s golf valley at €2,550pm2 and a 1,800m2 flat plot in the best address in Nueva Andalucía behind Puerto Banús reduced to €186 pm2 with architect’s and other fees already paid. Given that building costs halved during the crisis it is possible to build to an extremely high quality for no more than €1,500 pm2 in 2015 so a 600m2 villa could be built on this plot for a total of €1,250,000. Comparable properties already sell in excess of €2 million in this particular area of Golf Valley.

So, whatever you are looking for my advice is not to pay too much attention to asking prices and calculate price per square metre as the best way to work out if a property is correctly priced for where it is. For the best Marbella and San Pedro locations think in terms of up to €4,000pm2 for beachside apartments and up to €3,000pm2 for beachside townhouses although shortage of stock may push these figures higher during 2015. Away from the beach prime area apartments should be between €2,000 – €2,500pm2 and townhouses in the range €1,750 – €2,250pm2. Although they are becoming harder to find there are still great deals to be had in 2015 in the very best areas and it makes no sense to pay the same price per square metre, or even more, in an inferior one. You should be able to see a difference of between 15% and 30%. Don’t be swayed by a couple of smart bathrooms and a slick kitchen in a secondary area as you may never get your money back. And don’t be deterred by a renovation; builders are still desperate for work in 2015 and a well-planned, well-managed project will go smoothly in 4 – 6 months for the average apartment or townhouse. And while a new-build project for a house is likely to take 18 – 24 months, from land purchase to finished product, it still makes good sense in 2015 as even in the very best locations €2,000 – €2,500pm2 is more than enough to include the land and highest possible specification, against the €4,000+pm2 that developers are bringing into the market in not the greatest locations.

So, if you are intending to buy in 2015 the most important fact to remember is that during 2014 prices in all but the very best areas were still falling and while data for some months indicated a slowing down of falls y-o-y other months contradicted that trend. I expect to see further falls in 2015 in all but the prime locations on the coasts where overseas buyers prevail and the major city centres. And even in the prime areas there are still deals to be had although later in 2015 I expect the shortage of quality stock will start to put pressure on prices.

A Statistical Footnote.

One of the biggest problems any observer of the Spanish property market has had in the past was making sense of wildly inaccurate statistics and the contradictory figures published by the various agencies. Not only was it irritating for people like me but it also meant that central and regional governments didn’t have the first idea about what was actually happening and it must be hard to make policy on that basis. It got so bad that Spain’s Institute of Statistics completely gave up on the official Ministry of Housing figures and started compiling and issuing their own from 2009. Any potential buyer trying to source reliable data would have been disappointed and probably deterred, but even now, all is not as it should be and contradictions still muddy the waters.

In my opinion, as all property transactions in Spain are completed in front of a notary and statistics are compiled monthly the most reliable data about transaction numbers and price trends, property type and mortgages come from the College of Notaries; these are the ones I pay attention to. If you see contradictions in the statistics issued by the Institute of Statistics (INE) it is because there are not comparing like with like. Data from the notaries reflect what happened in any given month or quarter based on the date of completion of the sale but the INE compile data from the Property Registries and there can be delays of weeks and even months between the date a sale actually occurred and the inscription of the sale in the Registry. So, a sale completed in June may not appear in the Registry until September (in fact, almost certainly won’t, given the long summer shut down) and would fall into Q3 statistics from the INE while it was a Q2 sale as far as the College of Notaries was concerned. Even worse, a December completion counted by a notary as a 2014 sale will almost certainly be a 2015 transaction for the Registry. Far from ideal but for an accurate reflection of what’s happening month on month stick with the notaries.

Another perplexing issue for buyers is when contradictory information about the same property comes to light during the conveyancing process. The Property Registry issues a description of the property when last registered, i.e., after the most recent sale, while the municipal Catastral Registry often has conflicting and incomplete details that haven’t been updated for years. In an effort to reduce this kind of discrepancy the central government has brought forward draft legislation to facilitate the secure exchange of data between the two registries. If it works it should be a big time-saver for buyers as reconciling discrepancies can delay a purchase by months, never mind the arguments about who is to pay for it. Of course, it should be the seller but it can become a point of dispute.

Who, What, Where and Why?

Who?
As far as the overseas sector is concerned, who is buying didn’t change much in the last year; foreign investment was predicted to end 2014 in excess of €7b, up 16% on the year and doubling in just 5 years. Big investors such as George Soros, Blackstone and Goldman Sachs remained active; at the tail end of 2014 Goldman Sachs bought a mixed commercial and residential portfolio from Bankia, one of the nationalised banks, for €355m and it was confirmed in October 2014 that two U.S. private equity funds, Cerebus and Orion, paid €225m for Sotogrande, which, with its world class golf courses, polo facilities, hotels, residential and commercial land, is the largest privately-owned development in Andalucía. But institutional investors are increasingly complaining about the lack of quality product in the right locations and correctly priced so we may see fewer headline deals in 2015. The big question going forward is what these investors are planning to do with their portfolios because we can be sure they’re not it for the long haul and if they start dumping stock as soon as a rise in prices is spotted another downward spiral may be triggered.

In the private market, it’s pretty much as you were. E.U. citizens still account for more than 60% of all purchases by buyers from overseas, of which the British continue to make up the largest single group and, based on Q3 2014 figures, seem to have increased their market share in this sector during the year to around 20%. Ministry of Development data indicated that y-o-y, foreigners spent 36% more on property in 2014, perhaps a hint that as well as transaction numbers increasing prices are also edging upwards. Among other overseas buyers, most eyes in 2015 will be on the Russians and Chinese. The Russian market was edging towards 10% overseas market share but with the rouble down 50% against the US$ and 35%+ against the € in 2014 we may be playing spot the Russian in 2015. Certainly, after years of growth, the number of Russian tourists declined in 2014 and anecdotally, I heard that the phones were no longer ringing in Russian agencies in the Marbella area in the second half of the year. Of course, it could go the other way, with many trying to get funds out of Russia before it gets even worse but I think purchases in the lower and middle price ranges will shrink noticeably, with just the seriously wealthy top end remaining relatively unaffected. Indeed, data out of the U.K. property market in December 2014 seemed to point to precisely this scenario.

In the case of the expected surge in Chinese buyers following the October 2013 introduction of residency visas for non-E.U. property investors spending more than €500,000, well, that was the non-event of 2014. The first seven months of the scheme saw just 72 Chinese citizens purchase at or above the minimum price, a much lower number than attracted by similar schemes in Portugal and Malta. In comparison with the Portuguese system, which allows visa holders to look for work, use public health and education and apply for citizenship after 6 years, Spain’s scheme looks restrictive and there have been calls for a more relaxed approach. However, stricter implementation of currency export regulations in China, aimed at reducing corruption and money laundering, make it very unlikely there will a surge of buyers in 2015 irrespective of any changes to the scheme and may well impact the number of Chinese buyers entering all overseas markets. The rules state that the Chinese can only buy up to US$50,000 per year, although once they have their RMB in US$ they may export $50,000 per day. Exceptions may be granted in the case of education fees and medical expenses, for example, but overseas property purchase is not on the list. Of course, some people will find a way around these restrictions but it seems unlikely that anything that could be described as a surge of buyers is going to happen in the year ahead.

A very big majority of overseas buyers have the cash. Figures from the notaries indicate roughly 85% of 2014 purchasers from abroad did not take a mortgage and not all that did actually needed it. I’ve had several cases recently in which my clients opted to take one as a hedge or for currency reasons, maintaining their capital for other purposes and this figure shows clearly how the overseas sector has been able to grow strongly in spite of the inability or unwillingness of the banks to lend.

What?
As so much of Spain’s unsold new stock is of poor quality and in locations of no interest to the cash-rich overseas buyers who dominate the current market it is not surprising that throughout 2014 new home transactions fell and second hand property sales rose; in some months the split was as much as 85/15 in favour of resales, a complete reversal of the how it was in the boom years when the new-build market dominated. Given the paltry amount of new stock coming through this trend is likely to continue in 2015 for two main reasons. Firstly, even in prime areas building license applications are a tiny fraction of what they were in the boom; taking Málaga province as an example, if we extrapolate first half 2014 figures of a total 284 units approved, which includes apartments in complexes as well as individual houses, I would estimate full year licenses will be fewer than 600, about 60% less than in 2013 and about 97% below the boom years when approximately 21,000 approvals went through each year in just this one province. As it takes time for a new project to go from the drawing board to availability for sale there clearly isn’t going to be an increased supply of new product before 2016 at the earliest. But, secondly, in my opinion there’s not going to be another building boom in prime areas because a) there is relatively little well-located land left and b) because the tighter lending criteria requiring developers to partially fund projects at start-up should screen out the cowboys responsible for the worst excesses of the boom. There will be an element of new construction of course, but nothing that could remotely be described as a boom. Certainly, in the case of individual houses, the best plots have had houses on them for years so my advice to buyers is to tear down or renovate an older property while construction costs remain competitive and in the case of second hand apartments or townhouses, they will be more spacious than new or recent builds and better located. So, from my perspective, quality property in prime locations is a market of resales and that’s what buyers in 2015 should focus on, not new-builds.

Where?
In Spain, around 62% of all purchases in 2014 occurred in just four regions: Andalucía, Valencia and Cataluña, the 3 regions most popular with overseas buyers, followed by Madrid and in every month Andalucía led the transaction numbers by between 20% and 40%. Within Andalucía, nearly 40% of all 2014 purchases occurred in just one province, Málaga, and this statistic show very clearly how it is possible to have a buoyant market in one province while it remains moribund in others. And within Málaga province, the majority of activity was on the coast in just two municipalities, Marbella, covering Marbella & San Pedro, and Benahavis, the area just behind San Pedro which includes the luxury urbanisations of El Madroñal and La Zagaleta. In the section above, I said that just 284 building licenses were granted in Málaga in the first half of 2014, down 60% on the year. However, a breakdown of that figure showed that 191 of those 284 licenses were just for the Marbella municipality, representing a 24.8% increase annually, so once again we see national, regional and provincial falls continuing while at the same time there’s a contradictory upward trend in the heart of a prime area.

So where’s prime in Andalucía? I think most people are familiar with the term The Golden Mile in respect of the coastal strip between Marbella and Puerto Banús but perhaps The Golden Triangle more accurately describes the 5* area of the municipality; the stretch on the coast between Los Monteros and Guadalmina and inland to Benahavis. Join the dots and you have a triangular area which incorporates Marbella and San Pedro de Alcántara, Nueva Andalucía and Puerto Banús, all the best golf courses and the prime beachside locations, as well as the most luxurious developments in the hills behind the coast. Outside the triangle the only other development on the Costa del Sol of similar prestige is Sotogrande, about 40 kms to the west, but it is some distance away from the micro-climate that The Golden Triangle enjoys and is noticeably cooler and quieter in winter.

If I am advising clients looking for spectacular sea views and an authentic Spanish environment I always recommend heading to the east of Málaga city, to a small stretch of the Costa Tropical between La Herradura and Salobreña. While it’s true that there are great sea-views to be had in the Marbella area, if you are not in a super-expensive front line position then the best views of the Mediterranean are from the hills several kilometres inland. But, with the mountains coming right down to the coast between La Herradura and Salobreña, panoramic sea views can be had while being just metres from the coast. This area enjoys exactly the same micro-climate as Marbella, on south facing bays and with the mountains behind giving protection from winter winds. There’s only a couple of golf courses so it’s not really an option for the manic golfer but there is year-round scuba diving at Marina del Este and great access to the ski resort at Granada, plus excellent hiking, rock-climbing and mountain biking, and good horse riding in the Sierra. And the sea views are as good as you can find anywhere in the Mediterranean. The only other prime coastal areas are on the Costa de la Luz; Tarifa is one of the world’s top wind and kite surfing destinations and the Atlantic beaches are superb. However, legal properties are at a premium on this coast and buyers need to proceed with care. Obviously, as the climate is influenced by the Atlantic it is not the ideal choice if you are looking for a warm winter location and most resorts are all but abandoned out of the main summer months.

There are prime locations inland too; places such as Ronda & Gaucín, Antequera and Iznájar, and the Ojén, Coín and Alhaurín area but the rural market is not what it used to be and in my view, shows no signs of returning to anything other than a niche market. That’s what it was before the boom years, a tiny part of the market for a certain type of buyer who wanted nothing to do with the coast. Then it became mainstream, as those priced out of markets on the coast took the only other option – head inland, not by choice but out of necessity but many found they weren’t suited to country life. Now, with low prices on the coasts for the foreseeable future only those who are actually seeking a lifestyle purchase inland will do so and the numbers are small, perhaps 2% – 3% of the total overseas market. And in the best places it was never a cheap option; a good country property in the locations mentioned will be a similar price to an equivalent one on the coast.

Why?
All the usual reasons; the outdoor lifestyle is relaxed and easy-going, safe and child-friendly, and the micro-climate areas of the Andalucían coasts have the best winter temperatures on the European mainland. Spain’s beaches and marinas have more Blue Flags than any other country in the northern hemisphere with a total of 681, of which 98 are in Andalucía. The countryside is stunning, with some of the highest mountain peaks in Europe in the Sierra Nevada and of the 6 most visited cities in Spain 3 are in Andalucía; Seville, Granada and Málaga and the latter was placed 2nd on the list of the 10 best cities to visit in 2015 by Rough Guides. Across the country there are 44 UNESCO World Heritage sites, putting Spain in 3rd place worldwide, only behind Italy (51) and China (47), and by region, Andalucía has the highest number with 6 sites.

And it’s affordable, not just in terms of property prices; in 2014, statistics from Eurostat, the statistical office for the E.U., showed Spain’s food and drink prices below the E.U. average, making it one of the most affordable places in which to have a good time. If the budget doesn’t matter Spain has 3 restaurants in the world’s top 10 while London and New York only managed 2 each and Italy 1.

The Banks

The overall property market in Spain cannot return to sustained growth until the banks are behaving like banks again, rather than estate agents (which they were rubbish at) and there were signs during 2014 that this is happening. Most banks have either sold the real estate service arms they set up in the wake of the crash to handle their toxic waste or dumped it into SAREB, the bad bank. But although SAREB took in properties worth more than €60billion it didn’t absorb everything and Bankia, one of the nationalised banks, who transferred some assets to SAREB while retaining others, announced an end of year fire sale, bringing 6,000 properties to the market for which they guaranteed a 50% discount on 5,000 of them. Of the total, 783 were in Andalucía, with prices ranging from €28,000 (yes, I do mean twenty eight thousand euros) to €250,000.

Based on first half 2014 figures SAREB was on course to break its full-year target of 11,000 sales and the full year number could exceed 16,000. In addition to the €100m already set aside by SAREB for demolition of unsaleable properties a further €100m was allocated in 2014 to complete and bring to the market 3,000 properties in 130 unfinished developments, 50% of which are located on Mediterranean coasts. However, that still leaves another 520 unfinished projects in the portfolio so with many thousands more properties still to hit the market from just this one source it is unlikely that there will be any upward pressure on prices in most locations in 2015. And I hope this will persuade vendors to be realistic when selling a property and not assume that just because prices are showing signs of increases in prime locations it is the same everywhere. It isn’t.

Broadly speaking, an overseas buyer will get a 60% LTV mortgage without difficulty in 2015 and in the best of circumstances up to 70% might be achievable. However, buyers should be prepared for detailed scrutiny of status and have the ability to meet repayments without dependence on rental income. Low valuations remain the norm so even though an offer of 70% LTV may look tempting, be prepared for a miserable valuation. My view is that if you really need a mortgage in 2015 otherwise you can’t buy you may be disappointed; if you already have the capital sum but like the idea of a loan without actually needing it, you’ll be fine although right now there are no interest-only products available so it will be a repayment mortgage. Be prepared for the process to take a few weeks as most decisions are no longer taken by the local branch manager and are referred as a matter of course to the bank’s head office. So if you intend applying for a mortgage it makes good sense to make enquiries well in advance of looking for a property and at least get an offer in principle. In 2014 clients of mine were under-bidders but the opposition needed a mortgage and we were cash so our much lower offer was accepted. If the others had arranged their mortgage in advance it might have been a different outcome but the vendor wasn’t prepared to run the risk of waiting several weeks only for them to be turned down so she took the lower offer and my clients completed the purchase in 15 days.

Overseas buyers should always ask if there is an existing mortgage that might be transferable. This was very common in Spain before the crash although the bank will want to renegotiate terms, rather than do a straight transfer of existing terms as before. However, the advantage to the buyer can be considerable as it will remove the need for a valuation, avoiding the risk that the value might come in too low, and also save up to 3% extra costs. It might take a while but it could save you thousands.

General News

When work on the San Pedro tunnel started in 2008 it was supposed to be a two year project but the recession extended that to nearly seven but finally, work on the 55,000m2 above the underpass finished in December 2014. The two halves of the town are now linked by a leisure area with play zones, exercise areas, skating, cycling and jogging tracks, green zones and water features, plus an open-air amphitheatre for 800. A food market is still to open but already there are lots of places to sit for a drink and tapas. I believe that property prices within walking distance of this wonderful amenity are bound to increase.

Everyone who knows Marbella and San Pedro loves the 15km promenade, the paseo marítimo, and there has been lots of talk about extending it further. Now, an ambitious project is underway to make a walking and cycling path along 185kms of coastline between Manilva and Nerja, effectively linking the whole of the Costa del Sol, and in November 2014 work started on a 23km stretch in the municipality of Estepona. Fourteen coastal municipalities are involved and initial works are underway in several but no completion date has been suggested as yet.

When the renovation and extension of the La Bajadilla marina in Marbella was announced in 2011 the completion date was supposed to be 2015, instead of which it hasn’t even started. This project, which would allow medium size cruise liners to dock right in the heart of town, has become something of a farce. The Qatari consortium awarded the €400m project has done nothing but prevaricate and delay, missing contractual payments and deadlines. At the end of 2014 the group was granted yet another extension to a deadline missed in September 2014; now they have until September 7th 2017 to start work and although it states that this extension cannot be renewed and all parties are on record as saying they hope it will start much sooner, who knows. A bit of a worry is that since the contract extension was granted a proposal to increase the number of parking spaces from 400 to 5,000 has been turned down by the regional government and on past performance when the consortium doesn’t get what it wants things stall. It’ll be wonderful if it happens but a speedy resolution doesn’t look very likely.

Andalusian Property Market Conclusions

I think the contradictory nature of the property market in Spain, as shown by the data given in this report, will continue through 2015; there will be some good signs and some bad ones and at times it will be very confusing. For example, although the rises in the number of properties sold and mortgages granted first seen in Q4 2014 seem likely to continue through 2015 they have to be set against still declining prices in most regions. Seems to me there’s a clear link there; the lower prices go the more buyers there are, even for some really unattractive property, but it’s amazing how sellers have resisted making the inevitable but necessary price reductions. And while the overhang of unsold properties has declined in the last two years we can already see more stock coming through, as abandoned projects are completed, built-but-not-sold developments are cleaned up and marketed, plus the occasional brand new product entering the system. In addition, there is the possibility that SAREB and institutional investors will start dumping at some stage and all of these factors could increase downward pressure on prices. Except, of course, in the handful of prime locations where shortage of quality stock will be the biggest concern throughout 2015 and beyond.

So, in most regions the 2015 real estate market will remain one of trying to dispose of the “left-overs” from the crash while in the prime areas of interest to overseas buyers, such as Marbella, it will be one of very little new product with all the attention focused on quality resales with perhaps, some upward pressure on prices if demand continues to grow as it did in 2014. This looks likely as Spain’s overseas tourism figures were on target for another all-time record in 2014, up about 5% on the year at 63.5 million, making Spain the 3rd most visited country in the world. Property buyers in Spain start out as tourists so as tourism grows more people are exposed to the possibilities of purchase. And these numbers are also very good news for property owners who want rental income because about 40% of all visitors do not stay in hotels; gross rental yields between 8% and 10% were achieved in 2014 for the right properties in the right places.

Buyers should focus on the long-established prime locations and not be tempted to stray into a secondary one by slick marketing of a new development. There was too little differentiation during the boom years between the real prime locations and the secondary ones which tried, and in many cases succeeded, in convincing buyers they were all one and the same thing. But 40 kms away is not “near” Marbella but already I am seeing marketing ploys like this trying to deceive the unwary and if that product “near” Marbella is priced at more per square metre that one that is actually in Marbella, then you are overpaying. Although they are getting harder to find there are still deals to be done in the best areas and it makes no sense for buyers to be paying more per square metre in an inferior one just because it’s a new product. And don’t make the mistake that thousands made in the boom when anything, anywhere, sold, and sign a contract without being absolutely certain what’s in it. It seems astonishing that people haven’t learnt the lessons of the recent past but this kind of thing is already happening again, for example at a new development in Marbella for which the developer’s contract does not definitively stipulate the finished specification and I wonder at what stage the buyers will realise that the rather sexy external glass elevator is not included in the price but is an extra; certainly, from the marketing material most people would assume it was standard. Items such as the kitchens haven’t been priced and as the developer’s costs rise, as they inevitably will, he will trim on quality. It will not end well, it never does, but there are already several sold.

Don’t buy anything that is blighted; if there is a motorway thundering past the entrance you can be sure it will only get busier. If there is a mobile phone mast in the vicinity you can assume there will be more as the tendency is, once a site is established, for them to mate and multiply. Make sure any property gets good winter sun and if there is empty land nearby which, if built on, could block a wonderful view then find out with absolute certainty what could go there. It seems so obvious but these issues are some of those that made so many properties virtually unsaleable in the downturn. And these are just a few of the things I consider when sifting through hundreds of properties to identify the real gems for my clients to ensure that whenever they come to sell they will have something for which there will always be demand, irrespective of market conditions. And finally, I think 2015 will be the last year when even someone on quite a limited budget will be able to buy in the most prime areas so make the most of it.