Dear Overseas Property Mall,
I am a little confused about the state of the Spanish property market. I read conflicting reports and projections about Spain all the time and the newspapers are filled with doom and gloom alongside glowing projections. Should I invest in Spain or not ?
Confused in Coventry
Dear confused in Coventry,
Your confusion is understandable. Several small and medium sized Spanish property developers have recently run into financial difficulties, some of the smaller ones taking deposits from customers with them.
The most recent casualty, Colonial, saw it’s shares plummet 40% in 2 days, seemingly for no reason other than worries that the Spanish property boom is over. The president and largest shareholder, Luis Portillo quit after this drop.
This follows on from two other medium sized casualties. Astroc saw their shares drop 85% in July last year causing the founder, Enrique Banuelos to quit and Llanera, a developer based in Valencia, filed for credit protection a few months later.
The Financial Times has a more in-depth look at these casualties here.
So, is the boom over? Almost certainly, but is there a bust on the way? Unlikely. Most of the companies in recent difficulties were and are over-extended debt wise. Riding high on the wave of the last ten years during which time property prices have increased by 300%, the philosophy seemed to be borrow, borrow, borrow and buy as much as possible. The latest credit squeeze is likely to put an end to that practice for the foreseeable future.
Spain has been over-built. In the last five years alone, 800,000 units a year were constructed more than the combined build of France, Germany and the U.K combined. It is unrealistic to think this could continue forever and things have now come to a head. There will doubtless be more casualties, and we would suggest they will be amongst the recently most successful, faster growing developers who over extended themselves.
So, should you buy in Spain?
Yes- If you are looking for a comfortable, less expensive than the U.K. place in the sun to retire to, or a long term, partially pay for itself second home that you plan to let out during the summer and visit in the winter. Despite the recent issues with developers, the sun still shines, the seas is still blue and most of the features that attracted British buyers to Spain in the first place are still there although all those annoying waiters who couldn’t speak a word of English now probably speak it better than you do.
No – If you are looking for a quick in-and-out, buying a property off plan with a minimal deposit and flipping it within six months for a large profit. The chances are, quite a few of the current planned developments will not be built at least not this year. The boom is most definitely over, but that doesn’t necessarily mean a bust will follow. No – If you are looking for a tax free income from a buy-to-let villa or flat. The partial trigger for the current situation is the recent aggressive behaviour of the Spanish authorities in collecting rental income tax. Spain is no longer a tax free zone as far as this is concerned.
So, dear confused, the answer is, it depends what you are looking for. The other thing to consider is that some of these problems you see advertised in the media are local, or confined to a certain sector of the market. As with the rest of the Global markets feeling the squeeze, Spain’s top echelons property values seem to be doing just fine, thank very much and some parts of the country are weathering the current crisis better than others. The International Herald Tribune has an article discussing this aspect here.