There is a ‘floor’ for prices. It is the level where the rental income return, after costs and taxes is greater than the long term cost of borrowing to buy – plus a margin.
I can borrow against property for about 5%. I would be happy with 3% on top of that as i’m not greedy and reckon the market will recover over the next 15 years.
So i’m looking at generating a post cost and tax return of 8%.
I can get £6,000 a year for holiday rentals on a 2 bed unit in my area. Costs and Spanish tax take 50% off that. My net return is therefore £3,000 a year. So, at about £40,000 – fully furnished, a 2 bed unit is a buy and any capital growth is in for ‘free’. In my area i reckon that would mean another 60% decline!!!!
I don’t think prices will come anywhere near that low.
I would probably be tempted in at £60,000 if i was a cash buyer and also using for family holidays (the usual buying scenario). So that would probably be a realistic floor. In my area a 2 bed unit, fully furnished for £60,000.
For someone who evades spanish tax (unlike me but like most UK owners) i would probably push the price to £80,000 – £90,000.
There, for what its worth, is my view of the various ‘floors’ in prices.
If the Spanish government allowed non tax residents’ interest and costs to be deducted before paying tax my ‘floors’ would rise accordingly.