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Like the rest of you, I am wondering how low the property prices will go in Spain. And in my admittedly amateur assesment, I think we could look at the rental yields to get some idea about where prices will ultimately land.
The Brits are not going to abandon Spain completely. Yes, the property sales have fallen, but the tourists will still come here in droves for vacations. June, July and August will continue to be packed months, and the golfing tourists are not going to go away completely either. There will be a downturn, but well situated properties will always be in high demand for rentals.
If one could invest in a property and get about 5% to 6% annual rental return on that investment would that not be the point where property prices stabilise and people start coming back into the market?
For example, a 2 bed, 2 bath unit that I was looking at around Nueva Andalucia, on the golf course, minutes from Puerto Banus in an established community is listed at 270,000 Euros. A year and a half ago that same unit was listed at 350,000 Euros. Now, let us say it droppped to 200,000 Euros. That unit rents for around 1,500 Euros a week in peak season. After paying your expenses and all that, maybe you would be left with 12,000 Euros a year as your rental return for a yield of 6%. If you had 200K Euros to invest would it not be a wise investment at that point? Would that not be the point where people will start coming back into the market?
Based on current pricing, I feel that property prices will fall another 20 to 30% before the investors start looking at Spain again.
Now this analysis is only for existing units and well sought after locations. All those off plans and other new builds in way off locales are probably a long way from coming back, if ever.
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Don’t, even contemplate buying with a view to rent it out. All the yields etc in Spain are for novices the corruption, inefficiencies, utility companies, unfair treatment of non residents will destroy your academic calculations.
Spain is to enjoy & not a place to invest or to carry on a business activity. The country is not conducive to it. For once I will be happy to be proved wrong.
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@AJSpain wrote:
For example, a 2 bed, 2 bath unit that I was looking at around Nueva Andalucia, on the golf course, minutes from Puerto Banus in an established community is listed at 270,000 Euros. A year and a half ago that same unit was listed at 350,000 Euros. Now, let us say it droppped to 200,000 Euros. That unit rents for around 1,500 Euros a week in peak season. After paying your expenses and all that, maybe you would be left with 12,000 Euros a year as your rental return for a yield of 6%. If you had 200K Euros to invest would it not be a wise investment at that point? Would that not be the point where people will start coming back into the market?
Based on current pricing, I feel that property prices will fall another 20 to 30% before the investors start looking at Spain again.
Don’t you think it is a bit early and overly optimistic to be talking about the market coming up again already?
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@AJSpain wrote:
to 200,000 Euros. That unit rents for around 1,500 Euros a week in peak season. After paying your expenses and all that, maybe you would be left with 12,000 Euros a year as your rental return for a yield of 6%. If you had 200K Euros to invest would it not be a wise investment at that point? Would that not be the point where people will start coming back into the market?
The 12K Euro/year net gain is a nice dream in the current situation (money is scarce and the rental apartments in Spain are in unlimited supply). A 1%/year is a good return.
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@AJSpain wrote:
That unit rents for around 1,500 Euros a week in peak season. After paying your expenses and all that, maybe you would be left with 12,000 Euros a year as your rental return for a yield of 6%. If you had 200K Euros to invest would it not be a wise investment at that point? Would that not be the point where people will start coming back into the market?
first of 6% is quite unlikely. If you manage to find a tenant you would be looking at a long term contract, so no raising hte price during hte summer, etc…
second, considerning the amount of apartments for sale/rent in NA your competition would be fierce, so you would have to lower prices to remain competitive.
For argument sake, lets say you rent for the 12 months and get 1000euros a month. community fees are say 100e a month. next if you do it legal there is hacienda. your now down to around 9000e a year. you down to around 4% rental yield.
You seem to have left out purchase costs from you 200.000 buy. so add 10 to 11%.
In spain tenants are well protected. If you rent to someone for 12 months they have the right to renew by law for up to 5 years. rent only can go up in accordance with IPC.
If they stop paying hte rent you can get them evicted. In practice you have to go to court which can take around 6 months. There is the option of going to a tribunal which is faster, but both parties have to agree to this.Probably can expect the apartment to get damaged a bit. Even if its a good tenant, there will be wear & tear.
in conclusion i think 6% is a tad optimistic
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Finally, a subject close to my heart – yields and capital appreciation!
Firstly, ask yourself this question: Is this purchase for enjoyment or investment purposes… or a bit of both?
If you answer this question you can then use the tools to measure the success of the purchase.
If you opt for the former (enjoyment) then the ‘price’ is what you pay for something whilst the ‘value’ is what you get in return.
However, if you are only concerned about the latter (investment) then the ‘value’ in this instance is a monetary measurement and therefore determined by the price paid. Which leads us onto the discussion of yields and returns.
Without concentrating on your example, yield return (rather than capital appreciation) is the forgotten element of investment. We’ve been concentrating on capital growth for so long that, naturally yield returns from rental income were nominal.
But times have changed. So what’s a good return for the investor? Well, my advice would be to look for a yield that delivers a lot more than 6% for taking on the risk of the investment. I can get 6% sitting my money in a risk free bank account and sleep at night. So where’s the incentive to buy at 6% if for investment purposes only?
In these riskier times (rental demand for holiday lets down) I would want yield returns in the region of 10%. This may seem high, especially with falling interest rates, but with the potential for letting voids, no capital growth for 8 years, costs of management and finance, maintenance etc.
So why get involved at 6%… !? Oh yes, the enjoyment angle.
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I have a friend who has a property on Los Naranjos Golf. Maybe around the same price range. They do not charge as high as that and it is still empty for many months as are others. Just too many apartments to rent.
Someone else I know has been looking to rent, long term. He has been looking at 900 euro range. With the exception of a couple all have been wiling to drop to 700. In one development there was a choice of 9 apartments with just the one Agent.
BTW It’s Los jardines de Santa María anyone know anything about it?
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AJSpain,
If you need to rent out in order to buy you are taking a huge gamble, particulally if you are based in the UK. Letting agents take a huge slice for management and cleaning and then you have to pay tax on the net income.
My wife and I have rental properties in our home city and are forever replacing ovens, fridges, washing machines etc, we even had a 30 year old guy die in one of our properties following an epileptic fit where he swallowed his tongue. Are you ready for all of this happening in Spain whilst you are in the UK, it would still be tasking if you were located in Spain?
My research tells me that it’s the luxury apartments located on swish complexes that are taking the first big hits. 30% reductions off top of the market prices are common place, but they will only reduce to the level of the debt outstanding on them until the banks realise that they have billions of euros worth of white elephants on their hands.
And don’t bank on a recovery to the prices that were being achieved when times were good. Daft money was paid for Spanish property based on the ever increasing value of UK property, there are folk that are now suffering negative equity, both home and away.
Having said all this the wife and I thought that we had missed the boat in respect of finding a luxury apartment on a quiet complex located close to the sea for a reasonable price. They were wanting as much for a 2 bed apartment as our detached house on the edge of The Peak National Park would fetch. My guess is that apartments that were on for 400,000 euros at the top of the market will halve in price, they only have to drop a further 20% to achieve this.
However, remember that when a euro was worth 65 pence a 400,000 euro purchase cost £260,000 plus extras, now a 200,000 euro purchase will cost £168,000 plus extras, based on the euro being worth 84 pence, and the extras are now more expensive due to the weak pound. We need Spanish prices to continue to fall and the pound to strengthen against the euro to obtain a real bargain.
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Our 2 bed apartment has been let to holidaymakers and long stay winter holidayers for 4 years.
Rent has varied between £5,000 and £7,000. Say £6,000.
Spanish tax is 24% so that’s £3,500 after tax.
Running costs are at least 30% of rent (say £1,800)
So after tax and costs we are left with £1,700. That just about pays for our 5 return airfares and 12 weeks of car hire. So i’m happy ‘cos i love the place, and we get some great holidays in a lovely village.
However were i to buy from a purely commercial view i would view it very differently.
To net £1,700 a year I would want to pay no more than £30,000.
If the Spanish allowed you to claim expenses before paying tax my net return would be about £3,000. I might then pay as much as £50,000 (including all purchase costs) for a fully furnished ready to let 2 bed apartment in the village.
However, interest rates are moving down – quickly. It may be that i should then lower my required rate of return. Even so I doubt whether i would be snapping hands off unless 2 bedders in my village came down to £70,000 to £80,000 (fully furnished, ready to let and with all purchase costs included.)
Thats a way to go yet…
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I don’t think buy to let in Spain is the way to go for non-residents.
Some good reasons already mentioned and tax being one of them also high acquisition and disposal costs.
Also the place is flooded with rental properties which means occupancy levels and rents are in serious decline.
I have seen 2 situations in recent weeks.
1. tenant paying EURxxx pm wants a reduction to EURzzz pm on the basis there are lots of other property available at lower rents. (Spanish landlord so the answer was NO!).
2. UK owner unable to make mortgage payments because not getting the rental weeks or rent promised etc and does not have funds to remit from UK so serious matter!!
So unless you are really in the highly sought after locations than it’s not even worth considering.
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1. tenant paying EURxxx pm wants a reduction to EURzzz pm on the basis there are lots of other property available at lower rents. (Spanish landlord so the answer was NO!).
This is what happened to my Friend. He asked me to call two owners (both in Madrid). Both firmly refused to reduce from 900. One said she would rather it be empty! However there were lots of identical apartments that would accept 700.
Spain is not the place purely for investment. Don’t think it ever has been. Far too many dodgy Management co’s and bad tenants. Spanish property is high maintenance too. Not being on the spot means everything carried out is overpriced.
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@AJSpain wrote:
Based on current pricing, I feel that property prices will fall another 20 to 30% before the investors start looking at Spain again.
Now this analysis is only for existing units and well sought after locations. All those off plans and other new builds in way off locales are probably a long way from coming back, if ever.
If you have money to invest in property, why don’t you purchase in your own UK city?
it is much easier to keep things under control and solve problems.What would oyu do if the water pipoes break in a possible Spanish apartment that you own and rent to others? Would you fly to solve the problem or trust some local people who might overcharge you?
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Katy, this what I posted. “Don’t, even contemplate buying with a view to rent it out.”
I did not go into the details as It would have taken me at least three pages besides, I was sure that others would post comments, covering the various downsides.
I cant see any upside or have ever seen one. Even if one looked at the capital increase of the early days of the boom period. any increase in value would have been eaten up by the high cost of sales & agents commission, void period, prolong period in selling as agents chased the high earnings selling off plans.
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@Fuengi wrote:
@AJSpain wrote:
first of 6% is quite unlikely. If you manage to find a tenant you would be looking at a long term contract, so no raising hte price during hte summer, etc…
I am not talking about long term contracts. I am just talking about holiday lets. I agree that renting it out to the Spanish and dealing with long term rental contracts is a hassle. If you have a well situated property, why would it not be reasonable to expect that it would be booked solid for the summer?
Btw, in my example, I was not really talking about buying a property purely as a rental investment. Personally if I were to purchase, it would be for dual use. My own and some rentals when I am not using it.
My example was more theoretical, trying to gauge at what point an investor would jump back into the market. Maybe even an investor who does not have as much information as many on this forum. If this person has 200K in his bank account, and wants to invest it, at what point would this person look at Spain again. This is in turn would have an overall knock on effect on prices and might signal the bottom of the market. Right now, we don’t know where the bottom of the market is, my example was more of a way of trying to gauge the bottom, rather than saying that I want to do this.
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@katy wrote:
I have a friend who has a property on Los Naranjos Golf. Maybe around the same price range. They do not charge as high as that and it is still empty for many months as are others. Just too many apartments to rent.
And that is why I prefaced it by saying that the location would determine how well my example holds. The apartment that I mentioned in my example is located in la quinta, a very established, up scale development, surrounded by multi million dollar homes and overlooking the golf course. If that property fell to $200K euros would it become an attractive option to the average investor? 150K Euros? After all, the cash flow from renting it out over the holiday season has to have some investment value to an inverstor looking for returns.
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@marcoloco10 wrote:
In these riskier times (rental demand for holiday lets down) I would want yield returns in the region of 10%. This may seem high, especially with falling interest rates, but with the potential for letting voids, no capital growth for 8 years, costs of management and finance, maintenance etc.
So why get involved at 6%… !? Oh yes, the enjoyment angle.
😉Agreed, purely from an investment perspective, 6% is not enough of an incentive to invest. So, if we were to say 10% returns on a property investment, the price of a standard 2 bed, 2 bath apartment in a well situated area needs to fall to around 120K Euros at least, to make it worth a look. But, since a lot of property buyers are looking at it for their own enjoyment as well, maybe a 150K euros figure for the 2 bed, 2 bath might signal the bottom.
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