Without fail, amongst every client´s list of preliminary questions when they first make contact with us is this one:

“What´s happening in the Spanish property market at the moment?”

We wanted to put together a concise overview of our thoughts on the current state of the market, and highlight any areas for concern, together with details of how to take advantage of market conditions if you are thinking of buying in Spain.

Greed & Fear

Any market is governed by greed and fear. Just look at what has happened in the banking sector recently, where years of greed and risk-taking have led to the market being gripped by fear, to the point where nobody wants to trade with anybody else, and nobody wants to invest in the market.

The property market is no different. For instance, although there is a shortage of housing stock in the UK, prospective buyers are reluctant to enter the market whilst fears exist of a further downturn in values and prices. Until the fear subsides and confidence is restored, the market is likely to stall.

Certainly in the Spanish property market, sales volume is well down on previous years, but the interesting thing to note is that ENQUIRY LEVELS are substantially higher than last year, leading us to believe that there remains a genuine desire to purchase property in Spain.

Demand & Supply

Although demand for Spanish property is still high, this is not being translated into sales volume, due to 3 key things:

• Fear. Confidence in the market has evaporated as the media has reported on falling house prices, unscrupulous developers, and tales of vendors unable to sell their properties.
• The Credit Crunch. Generally, a Spanish holiday home is a luxury purchase, so as potential buyers tighten their financial belts, the dream of owning a second home in Spain slips down the list of priorities in the short term. In addition, as the supply of cheap and easy credit has dried up, this has affected those buyers seeking to heavily finance their overseas purchase.
• Exchange Rate. Certainly for buyers from the UK, this has affected sales volume, with some buyers preferring to wait until sterling recovers some of its lost ground against the euro. But buyers should bear in mind that some UK-based vendors have already reduced their prices as they will benefit from transferring the proceeds of their house sale into sterling.

Surely with all this negativity, the market must be on its knees? Not quite.

´Distress´ means ´Opportunity´

Due to the oversupply of Spanish property in certain areas, some vendors are unable to sell at the prices they expected. Although not every vendor is desperate to sell, some of them are. Remember that a large proportion of these properties were purchased as 2nd homes, meaning that they were bought as a luxury item. So as the economic climate for owners becomes more gloomy, it is these luxury purchases that are often the first to be cashed in.

Every prospective buyer that we speak to is after a ´bargain´. Bearing in mind the high ´demand´ from prospective buyers seeking a bargain, I wouldn´t be surprised if within the next 6-12 months, there will be more and more people ready to enter the market, as the opportunities become simply irresistible. The danger for buyers is that this can then lead to a ´free for all´, with a large volume of buyers chasing the same deals, and ultimately feeding off the scraps. As an analogy, I´m sure we are all familiar with the frenzy that can be created when a high street store in the UK begins its 50% sale by opening its doors at 5am, with promises of massive discounts on all merchandise – “everything must go!” In this scenario, the shoppers who normally bag the best buys are the ones who have already made the effort to research the available stock, have identified what they want to purchase, and are ready to buy at the earliest opportunity during the sale. The rest of us end up with that ill-fitting suit or the lurid orange t-shirt that nobody really wants, all in the name of a bargain.

Where can I find the bargains?

To find the Spanish property bargains, you really need to identify a vendor´s motivation to sell. The media has ´advised´ prospective buyers that every vendor is open to offers, and that you should make aggressive offers when interested in buying any property in Spain. Whilst some vendors are willing to sell their property at a discount, this doesn´t apply across the board. A lot of vendors have no inclination or desire to drop their prices to what they perceive is an unreasonable level. This is where you need to work with your agent/broker to identify the reasons why a property is on the market, and the level of likely discount available (if at all). Some buyers have lost out on some great opportunities simply because they have chosen to heed the wrong advice and to negotiate in an inappropriate manner.

In assessing the most likely ´targets´ for a bargain, these three categories of vendor are worth closer scrutiny:

• Those vendors who have owned their property for more than 6 or 7 years, meaning that they purchased before the rapid price increase during the boom years. These vendors will probably still be sitting on a decent amount of equity in their property. Of course, these people may not need to sell, but if they do, there is plenty of margin in the deal before you hit their ultimate bottom-line. The downside to this is that you may need to update the property to bring it in to line with more up-to-date tastes and trends.
• Recent investors who have been badly stung by the credit crunch and the general downturn in market conditions. Some of these vendors have no real interest in owning in Spain – perhaps they had planned to sell before completion, or perhaps they are unable to complete, having purchased off-plan at the height of the market, and now unable to secure finance or to service an existing debt on the property. Some of these vendors may decide to ´cut their losses´ to simply get out of the deal. You may not have the large margins to play with as in the first example, but you will be buying a brand new property at a discounted price.
• All developers need cash in the bank, some more than others. The key is to target nearly completed Spanish developments where the developer needs to sell the final units, and is prepared to do so at a discount. You may not end up with the best-located units on the project, so try to secure a decent discount and negotiate the best financial package. The best developers to target will be those relying on volume sales, but be careful that you are not investing at the start of an off-plan project – if you do, make sure that you have bank guarantees in place in case the developer runs into problems and can´t afford to complete the property or project. Of course, there are some well-financed developers who are content to lower their sales targets and to ride out the current storm, so don´t expect massive discounts from all angles.

Location, location, location

Of course, all of this advice can be superfluous if you are after a property in an area of high demand and low supply. Just as in any town or city, there are areas of Spanish resorts and towns that have such a strong reputation and such minimal availability that vendors can dictate terms. For instance, in the Marbella area, there are waiting-lists of prospective buyers for some beachfront developments in the most popular areas, so prices are holding firm and stock is in limited supply. There will be no 50% discounts available on these properties! Yet still, many buyers think that the whole of Spain is for sale at a huge discount, without examining the nuances of the supply and demand within a particular micro-market, or even a particular street. Again, this is where a good, reputable agent/broker can help in steering you in the right direction.

For instance, there are some great deals available from developers and vendors in the hugely popular areas of the Costa Blanca and Costa del Sol, while the market on an island like Mallorca is rather more sedate, as it has not been the scene of vast development during the last decade.

Be Prepared

With lots of interest from prospective buyers and some great opportunities for buyers on the horizon, the best way of ensuring that you are the front of any queue for the best bargains is to be prepared. If you will be looking for finance, our advice is to speak to a mortgage broker to get a good idea of exactly how much you can comfortably afford so that you are prepared to act before other prospective buyers, i.e. your competitors in this market scenario.

And it is competitive – after all, we are all after the very best that´s available for the very lowest price.

For details of our Spanish property bargains, please click here