Sunday, August 10, 2008

Spain - Will the last one turn the lights out?

Well Spain indeed! What is going on there? We have to be a little careful with this one on the account of a certain company that likes to sue, So we will ask that you read between the lines on this one!

The Costas have long been an investment hotbed for the Brits, all being cajoled into jumping on planes, leaving their brains at home, and then badgered in to buying way more than they can afford with the temptation of cheap mortgages and the "certainty" that it will all continue to rise in price, everyone will sell the 3 extra villas they bought using the equity in there family home and all will be good.

Now if you said that to a prospective buyer now, they would know you are on drugs, and probably beat you half to death.

You only have to stroll down any one of a number of streets on any of the Spanish Costas and you will see the empty agencies, and not just the small ones, some of the monsters of days gone by, Viva Estates, Ocean Estates and numerous Spanish ones too.

Where have they gone? Pretty simple, bankrupt or liquidation! Not all is doom and gloom though, and it isn't just the "Credit Crunch" that has bought this on, the reality is straight forward when you look at it.

Many of these companies were set up at the beginning of the boom, around 10 or 15 years ago, bear in mind Spain has almost no legislation in the real estate industry, even now. The government has tightened up the local laws, and insisted that anyone listing property now, must have the escritura for it. (the legal paperwork basically) This has meant the larger agents with thousands of listings have been facing 4000€ fines if they don't have them, and a mass of expense to get them.

Then we saw every company, their mother and their dog going to the UK every weekend to host exhibitions and property seminars, advertised to death as "independent" when all along every company is connected. Exhibitions aren't cheap especially when you have to fly all the staff from Spain put them up, move them around and so on.

On top of all of that, there are massive overheads in offices, admin, phone bills, fancy cars, advertising ad so on, as well as paying for the clients to come over, wine and dine them.

The novelty wore off last year, and everyone had been to one of these exhibitions purely because you literally couldn't go out for the Sunday paper without falling into one, and then the demise of the US economy started (Like no-one thought that would happen?) then we saw the rise of oil prices, rising interest rates and shaky stock market.

The major turning point? the moment that the developer shares started to dive after low profits. From there the people at the top started to get concerned.

Once upon a time, getting a mortgage in Spain was easier than getting sunburn in the Sahara, if one bank wouldn't lend to you, they would simply have another bank underwrite it for you, basically the banks would all just borrow from each other. Once the developers weren't making the big money any more, that stopped. All the over valuations and dodgy paperwork in the world won't get you a mortgage in Spain now.

On from there came the dive of the Pound, as much as selling all the gold off through the Bank of England seemed like a good idea at the time, bet you wish you had that now Britain!

Will it recover in Spain? and what of the enormous "Investment Property" agents?

Spain will recover, but it will take time, it certainly isn't going to get back to the growth it once saw, but we have gone past a very critical point that places like Cyprus and Portugal are still suffering from. The point in question is the local market. The Spanish are finally taking less than the "Bank Valuation" and pricing their properties sensibly and have finally realised that jonney foreigner isn't as gullible as they once were.

The Property agents?

Well this remains to be seen, some as I said have already gone and those in liquidation don't seem to be likely to return, even of they do, it won't be on the scale of before. Many of the smaller agents have upped sticks and moved to Brazil or Dubai to get on that bandwagon.

What should you do? and how can you take advantage of it?

If you have cash, hunt around, compare prices on the internet. There are a lot of portals around these days, just check to see that things are up to date. When you do find an agent, go for one that isn't too big that is well established, you can usually find these through portals. Niche agents are generally very good, usually with no more than 100 or so listings. Companies like this will normally give you a far better service, and be a lot more honest with you because they don't have corporate crap to hide behind, and they don't have massive overheads to support.

If you need a mortgage, get one offshore. Japan at present will give out mortgages between 3% and 3.5%, a serious saving when you look at it over the life of it, and if Japan suddenly spikes, you can always move it.

Bottom line, there are some serious bargains to be had in Spain right now, they wont make you a millionaire in a week, but they will rise solidly over the next few years. Avoid off plan that isn't built, many may well not get built, and most developers are having some serious sales right now. For example, 2 bed, 2 bath, 150,000€ key ready today if you know where to look on the Costa del Sol.

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