This is an odd time for Britons as far as Spanish property is concerned. The massive fall in the value of Sterling against the Euro, over the past two years, has really complicated everything. This is as true for those currently owning property in Spain who want to sell – as it is for anyone who wants to buy a Spanish property.
The conundrum, of course, is: what will Sterling do in the mid-term? This may seem an esoteric question but any significant change in the strength of Sterling could be profound for both Spanish property buyers and sellers alike.
At the moment, the fall in Sterling for current owners of property in Spain has been a mixed ‘blessing’. The bad news is that Sterling’s fall against the Euro has reduced any UK derived income by around a third (if we take 1.40 Euros to the £ as the old ‘benchmark’). This has devastated the finances of many people, particularly those relying upon a fixed Sterling income.
Indeed, Sterling’s weakness has made continued life in Spain almost impossible for some Britons – who have been forced, often reluctantly, to place their Spanish property for sale. This is, invariably, so that they can return to the UK and regain the purchasing power of their Sterling income or re-enter a job market less shattered than Spain’s.
Obviously, the sheer amount of Spanish property for sale on high density British estates has also acted to reduce the sale prices of all the surrounding properties. This is the cruel operation of the ‘law’ of supply and demand and has acted to further exacerbate the position of any desperate Sterling seller.
Within all of the bad news for British sellers of Spanish property, there is one factor that is good news – although it has an obvious danger. The Euro is now strong. Indeed, a British seller (intending to return to the UK) can drop his sale price by around 30% with impunity (unlike his European and Spanish counterparts) – given that the Euros he will receive upon his sale will (depending upon when he bought) make up for this price drop.
In other words, if someone bought a property in Spain for 300,000 Euros with Sterling at 1.40 then it cost them £214, 285. Now, give or take, they can sell the same property for around 235,000 Euros and still get their money back – leaving aside taxes and expenses etc.
However, of course, this situation will last only as long as Sterling remains weak against the Euro. If Sterling starts to rise then a British seller’s unique latitude to drop his price ‘artificially’ will be eroded. Of course, the purchasing power of his UK derived income will rise but, in my experience, once someone wants to sell then their mind is made up. Indeed, few people remove their Spanish property from the market once embittered by a life in Spain that simply did not work out – irrespective of the fact that the main cause was the volatility of exchange rates.
That said, for a Briton who wants to buy Spanish property, the strength of the Euro has not been helpful. As the example above shows, in effect, there has been no price change at all – if someone tries to sell his property at 235,000 Euros now instead of its 300,000 Euros price tag a couple of years ago. Whilst the price reduction may look good – on a closer analysis, to a Sterling buyer, it amounts to no drop at all, despite the property crash. So, most Britons can still find Spanish property to be expensive, unless it has been discounted by a seller way beyond 30%.
Of course, the ‘winner’ in all of this is a non Sterling European (with cash) who wants to buy Spanish property. He is in as favourable a position as his Euro compatriots, trying to sell their property in Spain, are disadvantaged. Indeed, Euro sellers must be appalled to see the sale price decreases the British can afford to make!
So, what does all this mean?
Well, as a British seller, intending to return to to the UK, it means that you must keep an ‘eagle eye’ on the respective strength of Sterling and the Euro – and then be proactive to change your sale price continually, as appropriate.
Certainly, if you really want (or need) to sell your property in Spain then you must take advantage of the Euro’s strength right now. This just may(!) be a golden opportunity for you to be able to drop your price (on the face of it) to absurd levels – without suffering too badly. Indeed, my ‘gut’ instinct is that you should act fast and decisively to do this, because Sterling may just go up and hold its position. If this happens then you may have lost an almost unique chance to sell on price alone – which, at the end of the day, is what tempts most buyers.
On the other hand, if you have Sterling and want to buy Spanish property then this is possibly a time to ‘watch and wait’ to see if Sterling strengthens. Alternatively, it is the near-perfect time to look for property in Spain on high density ‘British’ estates. These, for the reasons stated above, are far more likely to have superb distress prices than their Spanish or European counterparts.
Finally, what will Sterling actually do over the mid-term? Frankly (as of early 2009), I have no idea at all! That really is an esoteric question and probably a puzzle to us all. All I know is that its movements have very significant implications for us Britons and property in Spain…
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Mr Mervyn King's policy of quantitative easing, to increase the money supply, effectively printing more money has had a devaluing effect. The UK has purposefully devalued the pound in order to strenghen exports and stimulate recovery from the crisis. My guess is that the treasury would like to peg the pound at about 1.2 Euros, but I'm not a currency speculator.
Most commentators agree that Spanish property prices are still falling steadily, and therefore if you plan to sell it is better, as Nick suggests, to drop your price to get a quick sale rather than wait.
Will, thank you for that – comments well made. Certainly, here the current crisis is far from played out and sellers must be wary of over optimistic government PR!
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Thank you for your very kind and welcome comments – I am just trying to provide objective and unbiased information. Unfortunately, that type of information is not always easy to find, particularly given the vested interests of the Spanish property industry! Certainly, it would be nice to see the Blog develop. It just takes a little time to get a following. Of course, if you can spread the word about it being good(!) then that would help enormously and be hugely appreciated!!
Filiberto, Keith and Carie
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I was reading something else about this on another blog. Interesting. Your linear perspective on it is diametrically contradicted to what I read originally. I am still reflecting over the different points of view, but I’m leaning to a great extent toward yours. And no matter, that’s what is so great about advanced democracy and the marketplace of thoughts on-line.
Great post!
I am trying to buy property in Spain, (large villa) and have extensive property buying experience in the UK….but nothing has prepared me for the incompetence and ‘agent hype’ of that in Spain. I hadn’t read your blog or seen your book, until now (would have saved loads of time) but decided to choose, based on many of your key points.
3mins from Puerto Banus, quality property, good build, legal title, mature area, quiet road, motivated seller, near schools, etc…
Even after stressing to the agents, not to show me the ‘cr*p’, I was taken to numerous substantial properties where basements had flooded, single cavity wall (new build!), damp problems, no Damp course protection, etc… and many that were ‘overbuilt’.
The most common answer in Spain to anything technical, legal or illegal is; ‘Relax, in Spain we don’t worry about these things, it’s fine…if they’ve done nothing to date, it won’t be a problem.’
So we proceed to lawyers (the best out of three), who do not ask any warranty questions to the vendor, as is standard in the UK. I had to provide them! The license of first occupation then reveals that it was overbuilt by a small amount and even though a ‘fine’ of 7000 euro was paid to ‘legalise’, it still says the property was built to ‘not legal’ requirements. I am keen to complete, but have said, that unless the town hall provides me with a letter stating, that, ‘there are no outstanding or current actions, enforcement, or fine pending and no future ones will be taken against the house, now that the ‘fine’ has been paid to legalise and first license issued’ …it is not possible to complete, as without that letter, I have nothing in writing to protect myself or the property.
Q: Am I being too fussy or am I correct in asking this.
It’s interesting that when you ask the lawyer to put his firm and PI cover at stake, that you will not face any future action, he ends up saying, ‘let’s try and get the letter’.
The retaining walls (10ft high), which hold back the neighbours property of which the current vendor had built under a design and build specification from a ‘good’ architect, did not put any drainage holes in, nor used any structural engineer or has any drawings to explain it’s specification. Amazing incompetence for a 2m euro villa. With the recent rain, revealing many building defects in 90% of properties, many retaining walls have failed or revealed cracks…this is an area that requires high due diligence. I have now asked for an amount to be set aside in escrow, so that I can undertake the works to ensure the walls last the duration of the property.
Next I did an air con check…and revealed that all the air con and pool heat exchange unit is R22 (kills ozone layer), which was not legal for installation when the property was built, and the cooling fluid is illegal to be bought or sold, unless reclaimed R22 is used. Obviously ‘left over R22 stock’ is much cheaper than installing the latest air con systems, but the Vendor wasn’t told that! 95% of air con in Spain is R22. In 2009 it is not legal to buy or sell R22 fluids. In 2015 it will be illegal to do anything with them. Another amount is being held in escrow to replace these units….check, ask, test (electrics, drains, water and all costs to run the property!) In Spain trust nothing.
I appear to be ‘annoying’ the agent (who maybe sees a commission slipping away), who states to me, ‘in the 20 years I’ve sold property in Spain, no one has asked such detailed questions… I respond, ‘that’s why, so many people have been burnt, lost money, life savings, etc…’
Feedback welcome.
Jeff
Obviously, I am slightly hampered in providing a detailed comment on your property. However, the first thing that I would say in reply to your direct question about being too fussy is: there is no way when buying Spanish property that you can be too fussy. It is as simple as that!
Equally, your agent (who will probably be earning a commission of approx. 5% – 10% of the sale price) sounds extremely defensive and has either been dealing with idiots for the past 20 years or is being coy in the extreme. Your property, if recently built, should also have a Decenal (similar to the UK NHBC 10 year building guarantee). The License of First Occupation is essential and you will be mad to buy a property that has existing legal problems unless they are resolved in writing before signing any Escritura. It sounds as though the property may, classically, exceed its allowable habitable volume – given the plot size and planning regs. This can be very hard to resolve.
I make the point again and again in my book (worth buying!) that you should never buy a ‘flawed’ property and that you should always get your lawyer to place all his advice in writing (often advice can change when a lawyer is forced to place it in writing!). There is no shortage of properties for sale in Spain – so why take any risks?
Regarding construction, correctly erected retaining walls can be extremely important. They are, however, one aspect of building that is sometimes done poorly (to save money) and many people mistake a ‘decorative’ wall for one that should be constructed to bear significant loads whilst dispersing excess water (Spain does have some astonishingly powerful storms) effectively. On this matter, I would very strongly suggest that you use a properly qualified building surveyor to check the property. Mark Paddon of http://www.surveysspain.com is one of the best in the country and you would be well advised to contact him for his advice.
The main point is this. If you are concerned then it probably means that something, somewhere is not correct. If this is the case then slow down the buying process, if need be go to another lawyer for a second opinion and on no account put any more money down until matters are resolved.
Finally, if anyone says something like ‘…oh, don’t worry, it’ll be alright, that’s just the way it’s done in Spain…’ then treat them with the contempt they deserve.