Review by market segment
Below we have simplified the Spanish market segments and outlined our view of the different areas and their performance during 2012.
First time buyers interested in smaller apartments
The Spanish first time buyers are suffering the most and the outlook is very bleak. They continue to struggle to buy with many factors limiting their capacity to purchase. This includes record levels of unemployment, lack of job security, no finance, no realistic future capital growth, the need for a 40% deposit, 40 year mortgages, relatively expensive properties from a historic perspective, competition with foreign purchasers, etc.
The properties they are likely to be interested in include small apartments in city and coastal areas.
This sector has shown some sign of life during 2012 but likely to only be limited to repossession bank re-sales, new build and “fire sale” properties.
It should be noted that the local market is also competing with foreigners.
Second time /overseas couples interested in larger apartments /semi detached/smaller houses)
Negative equity and high purchase and sales taxes is a big problem for second homers. Many first time buyers cannot move up the ladder as they have purchased in the boom years and now face owning a less valuable property, often with a mortgage worth more than the house price. In a recent case in Mallorca , couple X bought a 2 bed flat for 275,000€ in 2009 with 115% mortgage, interest only. Their debt is now in the region of 316,000€ and the property is worth around 245,000€. They now have a second child and would like to purchase a three or four bedroom flat. After deducting sales expenses, purchase taxes and fees they would be luck to come out with 200,000€. That would leave them with a debt of about 115,000€.
This is a typical situation for second a time buyers. It is stifling the market. Similarly, other purchasers for this type of property, such as overseas retirees and couples are much more prudent about investing abroad so demand is again week.
This section of the market is also affected by job security and lack of finance.
Established and family owners of large apartments/detached houses
Home owners for 10 years or more are in a fairly strong position. They are likely to have bought when prices were much lower, in pesetas if prior to 2002, and are likely to have repaid a large chunk of the debt.
They may however have job insecurity.
It should be also noted that in rural areas, extended families often do not sell family properties and they are passed on to younger couples in the family to use.
It is often the case that these vendors are not squeezed financially to such an extent that they are forced to sell at any price. They may have relatively cheap mortgages and will prefer to wait than sell badly.
Luxury – Larger Villas and small estates
Large villas and small estates appear to have done better by market segment that expected. These properties appear to attract wealthier investors and although the number of purchasers is down, demand is steady. There seems to be a lifestyle choice for second homes of this type. We are also seeing investment decisions at this end, especially from UK purchasers due to a stronger pound. Many are renting these units as holiday homes, offering some good returns.
Purchasers in this market are unlikely to require finance. We understand keenly priced units are likely to sell.
This market is also attracting new purchasers from Scandinavia, Russia, China, etc.
Prime and exclusive property buyers buying quality properties in prime locations.
Our experience when dealing with this segment appears to be that it is the only market with some life in it.
Spain continue to attract top end purchasers such as sportsmen/women, musicians, bankers and other businessmen/women who continue to thrive financially in spite of the global economic situation with evidence that amongst top-end exclusive properties demand and actual sales transactions remain more resilient, though purchasers are expecting better value and higher quality properties.
To be clear, this market is considered to be those properties between 4m€ and 20m€, usually purchased through tax efficient vehicles, often without the need for finance.
The purchaser is often a cash rich, wealthy overseas investor, often working in the city of London, Arts, Sports or in the entertainments world.
They less sensitive to bank lending restrictions, either as they may not require mortgage finance, or are able to make larger equity contributions.
Similarly, the strength of the German Economy and the arrival of Russian investors has also given a boost to the higher value property market.
With respect to properties and the top end of the market, the premium likely to be paid is difficult to quantify exactly, though it is likely to be similar to 2012 prices due to comparable market conditions.
Vendors are hoping that either a purchaser will be found ready to pay this figure, or the market will catch up with the over-valuation. This confusing open market scenario is exaggerated by foreign purchasers’ lack of knowledge of true market values. Additionally, unscrupulous agents may also not divulge current market conditions. All this has been considered when forming my final figure.
This market should be viewed on a global level. It is likely that the properties in this segment would require international marketing and expert agency advice on how to reach the limited audience who would have the purchasing power to make such an acquisition.
Also of importance is the strengthening of the British Pound compared to the Euro by approximately 20% over the last year. In Mallorca, the British market is significant at this level and such an increase in the exchange rate is likely to increase the pool of potential purchasers.
The possible purchasers needs security, views, quality of build, size, a pool, guest and staff accommodation, entertainment facilities, etc.