Q3 2016 property market report from Survey Spain including Brexit effect

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EDITOR’S NOTE: The Survey Spain network of chartered surveyors operate in key resort areas of Spain providing building surveys and valuations for home buyers. Their quarterly market reports provide insight into local property markets of primary interest to foreign investors.

Q3 2016 MARKET REPORT BY THE SURVEY SPAIN NETWORK
Published 12th October 2016 by Campbell D. Ferguson, FRICS, Chartered Surveyor in Spain. Director.

As part of the research we have identified a number of wider and national property matters.

The Overall Market – Currency Fluctuations are having a big effect.

• Brexit and the continuing uncertainty and bemusement caused by it, both in the UK based market and throughout Europe, has undoubtedly been the greatest factor affecting the ‘international’ property market in which we largely operate.
• The immediate factor has been the two significant drops in exchange rate, with the latest ‘storm’ perhaps having more psychological effect than previously. Buyers and sellers are realising that sterling is likely to drop further and is reaching a new base level and unlikely to bounce back to what it was before the vote. The full effect of the most recent drop is still to be seen in values, but we expect that it will reduce the number of UK buyers.
• The effect on sellers intending to return and sale price to UK will be mixed. Some may decide to wait for further drops in exchange rates to their benefit, but others will be more nervous at the reduction of buyer numbers. Either way, it’s likely to lead to a preparedness to drop their selling price. This will be especially evident in areas where UK owners traditionally dominate, such as in areas of Almeria and Fuengirola to Torremolinos on Costa del Sol.
• Foreign exchange companies are still reporting that they have experienced a considerable drop in enquiries from UK, but many enquiries from Costa del Sol to transfer funds into sterling.
• However, thankfully for many reasons, the British market is not by any means the only one and thus buyers from other currencies will have found more bargains. This appears to be the case for Nordic buyers who have shown a considerable increase in activity, although the overall EU and Euro uncertainties must still cause the more cautious to reconsider.
• Within Spain, the political situation is if anything more chaotic than before. It appears unlikely that there will be a Government with a secure majority any time soon and the likelihood of a third election is becoming more and more probable. The polls appear to show that there is more likelihood of a return of a right wing Government, though it will still be by a very small margin or possibly requiring an agreement to work with another party. In the meantime, the statistics for the Spanish economy appear to show growth so maybe the absence of government is not a completely bad thing!
• Given that the property markets of the Costas are so heavily influenced by international buyers, the areas where these buyers predominate are largely unaffected by Spanish national politics except with regard to buying costs and general property and wealth taxes. These appear to be increasing and we have had conversations with individuals interested in a home in the sun, but looking at the costs and deciding that it just doesn’t make financial sense.
• There is continuing and increasing concern at the attitude of Spain to Gibraltar. This is likely to be affecting the local market in Sotogrande and around.
• As of 1st October, Bank of Spain, under instruction from the European Banking Authority, is demanding that Spanish banks revalue more realistically their property related debtors. All predictions are that this will force the banks to be more aggressive in selling off these non-performing loans and heaps of slow to shift properties. The only realistic way the banks can do that is by reducing prices. Many of the properties that they’ve already sold at large discounts are to private funds, but these, though they are off the bank’s books, are still on the market. So, we can expect to see prices being affected yet again by bank forced sales. Which, of course, will make everybody’s portfolio of property worth even less. It’s not good news. New buildings are springing up in the best locations, but outside those, where the bulk of the bank held properties lie, we are likely to see a stagnation of prices as the market becomes even more over supplied with bank owners becoming even more desperate to sell so that they can survive the next ‘stress test’.
• The tourist numbers to the Costas this summer were the highest they have ever been, leading to hope that it will have brought many first time and returning visitors who could move on to being interested in acquiring a property here. However, the reverse of that was illustrated by a conversation with a restauranteur who owns a number of established restaurants on Costa del Sol. He was concerned that it had been so busy that the congestion and overwhelmed service people would have experienced would have turned them off the area.

However

• We have found that there has been a resurgence in building survey requests, which are now back to the same level as before Brexit, indicating continuing demand.
• We were directly involved in the sale of a substantial villa in Marbella and the level of interest led us to set a closing date for offers. Six offers were received with the highest three being above our valuation, which is comforting. The number of offers also shows that there continues to be a strong interest in attractively located properties offered at a good price.
• There are signs of considerable new construction, from individual villas to smaller flatted developments in prime locations. The rational is uncertain of individuals constructing a new villa at considerable expense and stress, when there are so many completed properties available at discounts on construction costs.
• There also appears to be activity in land purchase, both by developers and investors, although it has to be prime and with all the planning licences in place. The local political uncertainty makes buyers lack confidence in obtaining permission for anything that is not absolutely confirmed.
• There is undoubtedly a great division in the market, with prime locations seeing steady prices and some rising, whilst anything ‘off pitch’ can really struggle to sell, leading to lower prices.
• We also refer you to comments made in the last quarter statement, many of which still apply.

Analysis of Statistics

• Survey Spain is recording prices and valuations throughout our Network. Due to the limited number of properties and the even fewer number of reliable sale figures, we are only able to provide a meaningful analysis of prices and values for some Municipalities this quarter. However, as before, we have commented on the majority of the areas relevant to the Bank, with the opinion sourced from our valuers, agents and other sources in the areas.
• Where we have insufficient information, we have combined information into larger areas.
• As requested and also as this is the area with most activity, we have been able to provide more information on the Costa del Sol market.
• Note that the rates per square metre may be averaged from a small number of properties in some cases. We have continued to supply these as we believe that they will show a trend over a number of quarters, whilst the variation between one quarter and the next may be ‘out of step’ with the perceived trend

Value per sqm for this quarter.

• There is a substantial range over the whole area.
– The average values this quarter were lower than previously, although the property sizes forming the database were much the same as before. However, given the size of the database, this is not necessarily indicative of values dropping. The highest total value was a villa in Marbella, valued at 4,925,000€ euro, and the highest rate per sq m was found for a penthouse in Marbella at 4,659€ euro/sq m.
– The average of all the properties inspected was 1,868€ euro/sq m, which is a little lower than the previous quarter.
– The lowest value, in Alicante, was 655€ euro/sq m for a property that had been held as a bank security, but it appeared that the owner had died and the property had been abandoned for some time and had been seriously vandalised. As so often, it shows the necessity of regular inspection and contact with the client.
• Analysis of all the Asking Prices, Buying Price and Valuations, over the period from the start of our record in 2014, has shown a decrease in the differences and currently indicates the following –
The % difference between Asking Prices and actual Buying Prices
3rd Quarter 2014 was 15.80%
4th Quarter 2014 was 11.41%
1st Quarter 2015 was 18.64%
2nd Quarter 2015 was 10.73%
3rd Quarter 2015 was 8.72%
4th Quarter 2015 was 9.38%
1st Quarter 2016 was 11.68%
2nd Quarter 2016 was 5.69%
3rd Quarter 2016 was 11.97%

We are surprised by the apparent reversal in the trend of lowering margins. This is probably a reflection of having relatively few reliable figures to compare. However, it could also be that it may reflect that sellers have tired of waiting for the ‘ideal’ buyer and, with the uncertainties in currencies and politics over the quarter, they have decided to accept offers below their original expectations. We have also noted a trend where optimism by agents and developers has led to increases in asking prices, with the understanding that buyers are still looking for a considerable discount, which they are able to give and still achieve the net price they require.
Again, the average Asking Price of the properties is substantially higher than the previous quarter, and is higher than the average of the 9 quarters for which we have these statistics.

The market in individual areas

San Roque, including Sotogrande, Jimena and Gaucín.

Gaucín, one of the quintessential 'pueblos blancos’ of Andalucía property for sale

Gaucín, one of the quintessential ‘pueblos blancos’ of Andalucía

– The evidence relates to country villas, villas and apartments within Sotogrande and the surrounding areas, including Jimena and Gaucín.
– Rate per square metre for all property types – 1,965€ euro per sq m, which is a reduction of the previous quarter, but reflects more of an influence from property type and location rather than market change.
– Within this ranges from 1,305€ euro per sq m to 2,351€ euro per sq m, which is much narrower than the previous quarter.
– As reported last quarter and confirmed from political and business concerns in Gibraltar, there is an increased level of nervousness in the area due to Brexit, and the belligerence of the Spanish Government’s attitude to Gibraltar, as many of the owners and tenants are Gibraltarian and/or work in Gibraltar.
– Having said that, there are still signs of construction of individual villas in the area.
– As before, we anticipate that prices will remain at the current level, but may reduce due to hesitation by potential buyers.

Manilva and Casares
– Insufficient numbers for meaningful statistics.
– The area is still popular with good services and facilities, but largely at a lower level of value.
– The market here appears to be steady and there are significant signs of building activity by developers.
– However, there is still a substantial amount of property on the market and we consider that the Manilva area especially is likely to feel the effects of currency and economic uncertainty.

Estepona and Benahavís (The Western section of the Golden Triangle and the New Golden Mile)
– Interest remains strong in this area and there are a number of new developments underway and being considered.
– Rate per square metre for all property types – 2,828€ euro per sq m, which is marginally higher that before,
– This ranges from a villa with problems at 1,624€ euro per sq min Estepona to a villa in Zagaleta, Benahavís at 3,710€ euro per sq m.

Marbella

marbella property market recovery costa del sol

Marbella

– As ever, Marbella provides the bulk of our statistics.
– The planning situation is largely unchanged, with it proving a brake on any development in the Municipality. It does mean that property and development sites with full permissions is at a premium.
– However, this area did see the largest discount from Asking to Buying price at a drop of 26.64% within a developer owned urbanisation. We also note that there are some niche developers in prime locations who are asking very high prices and we expect, with the number of properties available probably exceeding the number of true purchasers, that the actual selling prices may show a considerable discount.

Mijas and Alhaurín el Grande
– As before, there is still a substantial amount of secondary property available, which is restraining the market, despite the popularity of the location.
– Rate per square metre – reduced to 1,305€ euro, but most probably due to the restricted number in the study rather than a fall in the market.
– As before, the range of values is relatively narrow, from a low of 974€ per square metre for a large villa out of place with the lower value property around it, to 1,863€ for a coastal villa in a good location.

Fuengirola and Benalmádena
– There is a shortage of data for this area.
– As with most areas in the Costas, there are signs of construction activity, but the market is still hesitant, especially in the ‘Little England’ areas.
– However, demand is strong in other areas where Nordic buyers predominate.
– Rate per square metre – at 1,443€ euro per sq m, it has shown little change from the previous quarter.

Costa del Sol East, ‘Inland Spain’ and Granada.
– Again a shortage of statistics making analysis meaningless.
– However, reports indicate that the market continues at the same level, with lifestyle buyers and those at a lower level of finance.
– Pockets of high value, such as La Herradura are still seeing demand, but buyers are also offering at considerable discounts on Asking Prices.

Almería, South Murcia and Alicante South

Murcia, La Manga Club property for sale

Murcia, La Manga Club

– The bulk of the property in these areas are relatively small low value properties. These are the ones where potential buyers are more concerned by the vagaries of exchange rate and thus there has been considerable hesitation.
– There is also a strong preponderance of British buyers in Almería, South Murcia and the South Costa Blanca and as such these areas will be more particularly affected by the general matters as discussed above.
– The average rate per square metre is slightly higher than previously at 1,576€ euro, from a range between 892€ again for a small apartment, to 2,293€ euro for a villa that may be affected by the coastal law.
– Our local valuer states:
• The noted smallish increases in prices seem to have stalled somewhat, although not dramatically. More international locations are still doing well, but more British ones are starting to feel the effect of the dramatic lowering of the Pound.
• As for the future, this all depends on the exchange rate. Still early days, but my gut feeling is that as long as the Pound doesn’t fall too far, things will stay much the same as they are!

Costa Blanca North

North Costa Blanca property for sale

North Costa Blanca

– As stated last quarter, the unexpected Brexit vote appears to have hit demand in this area, but it the North Costa Blanca many natural advantages and is always likely to be popular.
– The large fire around Javea is unlikely to have a significant effect on the market other than to properties immediately affected by it.
– The average rate is 1,541€ per square metre, with a narrow range from 655€ for an inland townhouse in need of reconstruction, up to 2,985€ for a coastal villa.
– Comment by the local valuer for Costa Blanca North:
– The market on the Costa Blanca and the Balearic Islands is increasingly developing into two speeds: Prime properties in good locations have shown some significant price increases over the summer, especially in areas where there is demand from all nationalities. Secondary areas, and some areas particularly popular with UK buyers, have seen stagnating prices and some continuing price falls. Demand from UK buyers continues to be very subdued with uncertainty over the exchange rate and conditions of Brexit. The Costa Blanca and Balearic Islands had a bumper tourist season in 2016, increasing the pool of potential purchasers.

Balearics

Mallorca property for sale

Mallorca property. Picture credit Engel & Völkers

– We have not been involved with a sufficient number of properties in the Balearics to provide meaningful statistics.
– However, these islands remain popular to a wide range of nationalities thus are less likely to be affected by Brexit and sterling currency fluctuations. However, as stated by our colleague in Costa Blanca North, there is bound to be some nervousness felt throughout the EU, which could have a detrimental effect upon demand.
– The local valuer states:
• Overall, Mallorca’s property market has been in recovery since 2014.
• The market is however split, between properties in demand by overseas investors and those that are not. These might be, for example, lower value village or town apartments.
• The later remains depressed for many reasons, including high unemployment, stricter lending, increased poverty and lower wages. Prices have crept up, but remain well below 2007 levels when they were at their peak.
• The upper end of the market continues to make progress with above average investment (compared to the rest of Spain) from German, UK, Sweden, France and Denmark. Non-EU investment is also positive with Chinese, Russian and Middle-east purchasers.
• Properties in demand are usually high quality apartments and detached dwellings with “premium” characteristics such as sea views, large gardens with facilities or prime locations.
• The Brexit vote has caused the UK market to stutter, but lifestyle purchasers continue to buy.
• Demand from other nationalities remains strong though value for money is usually sought.
• Puerto Pollensa is undoubtedly considered a premium location and continues to attract purchasers.
• Properties can usually achieve a sale relatively easily if priced and marketed correctly.

General
• Brexit is still the dominant factor, with related currency fluctuations affecting many currencies and certainly confidence for medium term future.
• As always, the natural assets of climate and close proximity to northern Europe will continue to attract potential residents.

END OF REPORT

Campbell-Ferguson-survey-spainCampbell Ferguson is a FRICS Chartered Surveyor in Spain, runs Survey Spain SL Chartered Surveyors created in 2003, and helped set up the Survey Spain Network in 2009, an association of 10 independent RICS chartered surveyors living and working in all the coastal areas of Spain, the Balearic and Canary Islands, the Portuguese Algarve and Gibraltar. Survey Spain is the administrative centre of the Network, providing a ‘one stop’ contact. Survey Spain forwards and ‘peer reviews’ work instructions to the members of the Network. The Survey Spain Network carries out valuations for many international banks and other worldwide finance houses and directly assists UK Government departments. www.surveyspain.com

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