14th July 2019
This is our 22nd Quarterly Report. We keep it brief and specifically relevant to the locations where we are aware that most of our clients, actual and potential, have an interest.
As part of the research, we have identified a number of wider and national property comments.
The Overall Market – the optimism of the first quarter of the year has faded, with most agents, developers, lawyers, FX specialist, etc, reporting that things have slowed, but there is still demand. We at Survey Spain are still getting many enquiries for pre-acquisition building surveys from UK buyers, with an increase in Snagging requests as the off-plan properties start reaching completion. (See new ‘Off Plan Acceptance’ Blog, which will be uploaded shortly)
- “Please don’t waste this time”
The effects of Brexit, which we have been feeling here for many months, are maybe beginning to be felt in the UK. From recent visits, the average ‘man in the street’ appears to be sublimely unaware of the costs in market, currency and reputation that the whole Brexit idea is causing outside the UK, combined with the political shambles at Westminster. “Please don’t waste this time”, said the EU in April and that’s exactly what appeared to have happened at Westminster. Nearly halfway through the extension period, and with August recesses looming, there has been no obvious action or answers to the ‘impossible’ questions. It appears that the arch Brexiteers are just running down the time so that they can make a no-deal’ Brexit on 31st October.
- No Government = Strong Economy?
Politicians in Spain are as guilty of self-serving action and thought, with there not having been an effective central Government in place for many months, and the prospect of yet another general election (in which expats cannot vote) featuring in the autumn. The difference is that the country’s economy appears to be continuing satisfactory without them. Perhaps there is a lesson to be learnt. Certainly, the average voter in many countries is thoroughly fed up with the political establishment, which has led to more support for the extremes of right and left. A deep recession, political extremism and increased nationalism are chilling reminders of 1930’s Europe.
- Trying to Keep Rents Affordable
Where political influence has been seen to affect the market is with the actions taken to try to control the market. These have been clearest in Barcelona, where issuing of rental licences has been stopped, and Airbnb have been obliged to disclose the host data of advertisers, which is certain to have led to many fines and tax investigations. Developers are also now obliged to include a substantial percentage of subsidised housing (VPO) within any new development. This has led to a slowdown in development in the city, which in turn should lead to increased rents for the lesser amount of property available, which is the opposite of what the local government is trying to achieve. As a result, they have placed a maximum on rents that can be charged, linked to the Town Hall’s rental price reference index. Historically, limiting rents only leads to fewer properties being placed on the market.
- ‘Permanent’ Tenants
The same effect will occur with the new national rental law, where tenants, under formal or informal leases, will have the right to remain there for five or even seven years, with new owners and mortgagors still having to comply with the remainder of the lease. Owners will leave the properties vacant rather than take the risk of a vacant possession sale being blocked. Barcelona had tried to levy a tax on empty properties to counter that, but the Spanish Supreme court has declared that illegal.
- The Pound is not the only Failing Currency
Back to house sales, interestingly, despite the rise of demand from Scandinavia, over the last quarter, the Swedish kroner has seen the same volatility in value versus the Euro as the UK pound at about 0.25%, with the Norwegians suffering even more at 0.28%. Those variations, and the much larger variations over the last few years must affect buying decisions, and certainly have led to many Brits dependant on fixed sterling income, deciding that euroland is just too expensive now and selling up. Also, an influence will be the benefit of gaining more sterling for their house sale in euros enabling them to buy better in the UK as the market in many places there is stagnating.
- Statistics Hide the Truth
Overall property in Spain has seen a slight slowdown statistically, with this being most noticeable in the Costas. One reason for this, we are certain, is the amount of demand that is being ‘sucked in’ to off-plan, new build developments, with the number of cranes around our HQ office in Cancelada, exceeding the levels seen in the mid-2000’s. The private contracts for these don’t show in the Notaries or Registrar’s records until the First Occupation Licence is granted on completion of the building, and the buyer meets with the developer’s representative to pay over the final instalment, receive the keys and have the sale notarised. So, we can expect a substantial increase in sales recorded from the second half of this year onwards, when the decisions and legal commitments were made many months or even years before.
- Sell Quickly Before the Buyers Walk Away
The slowdown is evidenced by developers offering agents increased commission, up to 8 or even 10%, with that being paid at the private contract stage instead of waiting for the sale to be finalised. Others are offering house sales to include furniture packages to buyers and even 100% subsidised mortgages, to include the costs so that effectively the house costs the buyer nothing. At least nothing until they try to sell, without the strength of the marketing and incentives behind them, and they find they can only do so at say 30% less than they bought at and are having to pay the mortgage at for the next 30 years. That’s when the buyer has to decide to proceed or just walk away losing their deposit, causing the collapse and chaos we saw in 2007 to 2010. However, some developers are continuing to buy development land and it will be interesting to see if there is a second wave of demand to support their proposed construction.
- Those Who Know are Selling
Over the last year or so it’s been clear that the Spanish banks have been packaging and selling as much ‘bad’ housing and credit card debt as they can, to the large, mostly American, investment funds. The first ones of these, active from say 2014 at the bottom of the market, are also creating smaller packages and selling these on to smaller investment funds, many of which provide the ‘secure’ assets of private health and pension plans. As long as the market keeps going, the value of these is secure, but should there be a collapse, it won’t be the banks that will need to be rescued this time.
“Pending legal changes that could affect property values?”
This will be included when appropriate. However, we stress that we are not lawyers and thus can only comment to the best of our knowledge.
- Where Barcelona leads, others will follow
Where Barcelona leads, others will follow, and it will be interesting to see the longer terms effects of their legal struggles to control the rental market.
- More Relaxed Control
In the opposite direction, Andalucía’s government has changed from left to right leaning, which is likely to lead to more relaxed attitude to development, but hopefully continuing control of development from despoliation of the wilder green and remaining open coastal areas.
- Legitimising Ignoring the Rules
Andalucía have already started framing new regulations that will ‘legitimise’ the tens of thousands of illegal properties built in the Region over the last 25+ years. Solace for the unfortunate buyers, but a bad example to those who benefitted from the illegal sale and building. Apparently, a similar legal pardon was granted to illegal development 30 odd years ago, and it just appears that the perpetrators only have to wait and know that their ‘sins’ will be forgiven eventually.
- Licencing Estate Agents
The previous Junta also proposed legislation to licence estate agents, a much-needed control of ‘cowboys’ and uninformed, who prey on the naïve, wide-eyed buyer, but nothing more has been heard of that.
- Rental Law and Real Estate Credit Contracts
We also refer to the important changes in Rental Law and Real Estate Credit Contracts, in last quarter’s Market Report. https://surveyspain.com/2019/04/23/spanish-property-market-report-winter-2019/