Category Archives: Property Works Mallorca Surveyor’s Blog

Some facts you should know before buying property in Spain.

Borja Mateo (www.borjamateo.com) is a real estate expert and author who believes many people misunderstand the property market, which leads them to make the wrong investment decisions. He recently published an article in the Diario de Mallorca answering some basic questions about the current state of the market. Here we summarise his most interesting points.

The current state of the market can be gathered from the following facts: Prices of real estate have fallen around 48% since their peak. There are between 6.1 and 8.5 million properties which are either empty, under construction or in the rental market. The annual demand for new housing is of 130-170 thousand units, so the existing housing stock will be enough for many years. Current prices still do not reflect this over-supply reality.

“The area in which I am interested is different” This is a common mistake. The drop in real estate prices affects all areas to a greater or lesser extent. Reduced access to credit and the high supply of properties are relevant factors currently affecting all areas. It is true that some areas are less affected than others, but it will be dangerous to believe that a particular area is completely immune to drops in prices.

“Banks are going to start lending soon and prices will skyrocket”. Reality is quite different: banks are not going to go back to previous lending levels anytime soon. The Basel III reform, which has greatly affected the credit market, means in practice that much less credit will be available for families in the near future.

“Lowering the price any further would be like giving the property away”. False. No property owner thought prices would drop like they have, but it happened. Prices that seem bargains today, in a few years may be considered expensive. It is a fallacy that prices will not go any lower. Only when the number of property transactions has recovered strongly we will be able to say that prices have bottomed out: for this to happen, we think prices have to come down even more.

“Nobody is going to sell a property at a lower price than the one they paid for it”. These days, buyers and tenants have the upper hand. The over-supply of rental properties is pushing prices down. Lower rents mean lower property valuations, as their potential rental yield is factored in. This underlying conditions are not going to change for a while.

“The property is being sold at cost price”. The fact that the price of land has dropped by 80-100% from its peak, means building is now much cheaper than during the housing bubble. Therefore, it is perfectly feasible that the current market price of a property is now well below what it cost to build.

“Nobody is going to want to sell at a price lower than their mortgage”. Many people would happily sell just to cover the amount of their mortgage -just ask those who have been evicted. Today’s prices are 20% lower than last year’s, and more expensive than they will be in twelve months’ time.

“In my area, no one needs to sell, so prices will not fall”. An unemployment rate that may reach 28% in 2013 affects everyone. Prospective buyers demand discounts. As general supply increases and demand decreases the decreasing-prices dynamic intensifies.

“The bank is financing it, so it has to be a good investment”. Mortgages are great business for banks: buyers are offering a large asset (the property) as guarantee, plus their own personal guarantee (all their present and future assets), plus often those of a guarantor.

“After a cycle of drops in house prices, there must come one of rising prices.” In the current situation, with an existing house stock that exceeds 63 times the annual demand for housing, this cycle could perfectly last for 20 years since 2006.

“Why rent when you can buy. Renting is throwing money away”. In the same way that rent is an expense, so is the payment of interest -and much more so when it comes to acquiring an asset whose market value is falling. If we compare Mr A who buys a property with transaction expenses of 7%, a decrease in prices of 10% over the next 12 months, and a mortgage at 1.5%; with Mr B, who rents an equivalent property paying a rent priced at 3% of the property’s value, we can see how only during the first year, Mr A has lost 14.3% of the purchase price while Mr B loses only 3%.

So, as a general comment, the best thing now would be to wait as much as one can before buying or renting (or to sell as soon as possible) as prices will fall further in the foreseeable future. 

 

An Energy Performance Certificate for Buildings is now needed to sell or let Spanish property.

The Energy Performance Certificate for Buildings is a European initiative to promote energy efficiency in existing buildings and new constructions that has come into force this year 2013. From now on, potential buyers or tenants of a house, flat or commercial premises, will require from the owner of the property an official energy rating. This classification, similar to that carried by white goods, may influence their decision on the purchase or lease, as it is obviously in their financial interest to buy or rent an energy-efficient building, other than one with high energy consumption levels.

Promoting energy efficiency in buildings is aimed at achieving a reduction in overall energy consumption of fossil fuels, with a subsequent reduction in greenhouse gas emissions and in the country’s energy dependence, as well as, in the medium term, saving money for many families.

In the long term, the energy certification of buildings could also be used by local and central governments to regulate the various taxes, tax incentives, grants, etc., related to the purchase or lease of properties, rewarding more efficient buildings.

A new super association of Spanish property consultants (ACI) is born

Four of the most prestigious property consultants in Spain have joined forces to create “la Asociación Española de Consultoría Inmobiliaria (ACI)”. This is roughly translated as the Spanish Association of Property consultants”

It is made up of Aguirre Newman, Jones Lang LaSalle, Knight Frank and CBRE. They claim they will offer, professionalism, transparency and stability to the property profession in order to avoid many of the errors committed in the past.

One of their aims is to create value in this key industry within the Spanish economy.

In a recent statement, they have challenged the competence of auditors and bankers and suggest a fresh approach is needed, with limited risks, identifying growth over a medium or long-term period. They suggest the market might have bottomed out, and that there is a possible change in the market indicated by serious interest from international investors.

Spain’s “Bad Bank” is pushing property prices up

Spain’s “Bad Bank” or SAREB (sociedad de gestión de activos procedentes de la reestructuración bancaria) is selling some of its properties at prices which are higher than they were before these same properties were passed on to this nationalized entity.

Investors looking out for bargains have been disappointed to find that prices have not gone down significantly and, in many cases, have even gone up. Often, the price advertised is the one the property fetched in 2008.

A SAREB’s spokesman said that the entity is looking to get the highest price possible for its assets.

Link to article in Spanish:

http://www.idealista.com/news/archivo/2013/02/07/0575687-el-banco-malo-sube-de-precio-algunas-de-sus-viviendas

A Daily Bulletin article on unsold properties in Spain

Number of unsold homes in Spain increases
 

Home prices in Spain have fallen steadily ever since, by five to ten percent each year.
Jones Lang LaSalle published a report in November last year according to which the real estate industry had recorded a thirty percent decrease since the economic bubble burst in 2008.

The market is expected to fall by thirty percent more by 2018.
The bad debts of several Spanish banks which comprised mainly of mortgages to property developers and home buyers also grew steadily, reaching almost 730 billion euros as of September 2012.

Debt inflation cannot be halted by Spain as the nation is part of the Eurozone. The unemployment crisis has added to the country’s woes as the current real estate stock is deemed horribly excessive.

Over 800’000 used homes remain for sale while developers have an additional 700’000 newly completed units that they are waiting to sell off.
Around 300’000 homes have been deemed as foreclosed properties while another 150’000 will be in the same state following the completion of foreclosure proceedings.

Around 250’000 new homes are still being constructed.
RR de Acuna and Associados’ Vice President, Fernando Rodriguez de Acuna said that the situation is crazy at the moment. He added that there has been barely any progress during the past five years with regard to clearing the real estate stock.

As a result, homeowners and those interested in selling their Spanish property are facing the cold truth about the market’s real condition. Consequently, prices are free-falling as sellers have given up hope of acquiring a fair price for their properties and accept some of the ridiculously low offers made by greedy investors from overseas.

Barbara Wood, a consultant with The Property Finders, a real estate agency in Andalusia said that the main feature of the past year was the growing number of sellers in the country who had come out of denial. She said that property sellers in Spain were now accepting offers that they had previously been turning down. This has increased the volume of sales to overseas investors by around 20 percent as compared to last year. Several investors from outside the Eurozone have been sizing up Spain as the ideal destination to have a second home. Many of these individuals have raided the Spanish real estate market for some truly beautiful properties at significantly discounted prices.

In efforts to ease the mounting pressure on its banking sector, Spain’s government decided to establish a bad bank which proved to be a bad idea.
Having accumulated toxic properties with the intention of future sales for profits, the bad bank has found it increasingly difficult to sell those properties and is therefore forced to let them go for incredibly cheap prices.

Bank of Spain proposes valuers are independent from banks

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The Bank of Spain has finally proposed that valuers are independent from Banks and separate from the lending institution.  This has been a long time in the coming and considered a contributing element in creating the property bubble. It is common that Spanish banks own a percentage of the valuation company carrying out their appraisals.

In a report issued to the banks and their valuers, they also suggest, very sensibly, that

loans should not be over 80%

that banks use more than one valuation company

They should view any previous valuation before making a lending decision

The banks also states it doesn’t not believe in massive, desktop valuations and that the valuer should always visit the property, including an internal inspection.

 

 

OJO! If you have not voted for more that 15 years and resident in Spain you lose your vote for ever!

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James Preston, a Spanish resident, and UK citizen has lost his appeal to allow British ex-pats to vote after 15 years of absence from the UK.

it is estimated that the ruling will disenfranchise up to 5 million British ex-pats.

British ex-pats continue to fight the 15-year voting rule

Ironically, this is occurring while the EU is trying to force the UK government to allow the prison population to have the vote.

It seems rather short-sighted of the government to reject this generally conservative voting group.

The government argues that ex-pats are out of touch with the UK. However, in our view that it is likely to have the reverse effect, making ex-pats more proactive and involved with British events and issues.

to sign the online petition to support this cause please go to:

 http://votes-for-expat-brits-blog.com/category/voting-rights/james-preston-case/

Latest news on the mortgage ground clause or “clausula suelo”

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It appears there is light at the end of the tunnel for the thousands of mortgage holders with a ground clause.

This clause basically sets out minimum and maximum levels of interest payments. A typical clause might state a 4% minimum payment and a 15% maximum.

Various court cases, including recent judgements in Sevilla and Mallorca, consider this clause illegal.  the key seems not to be its existence, but the be the disproportionate distance between the ground and ceiling levels.

At present most standard mortgage rates are calculated using Euribor average over 12 months plus a percentage of perhaps 0.75% or 1%.

The Eurobor is at about 0.60% so if the bank charges 1% on top of that, the rate is 1.6%.

With interest levels at such a low level, the interest payments differential might be 2.4% in this case. Over a 30-year mortgage, that might make a difference of about 250€ per month. Quite a significant difference.

if you are affected by this clause and for more information on these judgments you should contact you local citizen advice office. You can also try the  association of bank and building society users ADICAE

www.adicae.net