It seems for us Brits that Spain is now a place of sun, sea, sand and a semi in Torremolinos. While buying a home on the Costa del Sol used to be the preserve of East End gangsters, owning an overseas property is now available to almost anyone and Spain remains our favourite escape from Blighty.
Alan Butterworth, Spanish development manager at Norwich and Peterborough Building Society, comments: “A lot of the attention is now being placed on Bulgaria and Cyprus, but Spain is still the number one choice for people. It’s not the boom-time of a few years ago but there are decent opportunities out there with 10-12 per cent growth. The Costa del Sol also has good re-sell opportunities and if you do your homework, there are plenty of bargains to be had.”
Potential rumblings
Despite still being a popular option, there are rumblings in the Spanish property market that could have an adverse impact on UK buyers. The International Monetary Fund (IMF) has been warning for some time that Spain is one of the real estate markets which is in danger of crashing and while this has been avoided so far, the downturn in the US market has led to fears this could have a knock-on effect elsewhere in the world.
In its latest World Economic Outlook, the IMF warns: “House prices in Spain, Ireland and the United Kingdom still look elevated and could come under pressure in a rising interest rate environment.”
With the European Central Bank putting up euro interest rates to 3.25 per cent at the beginning of October and warning of further rises to keep inflation in Germany and France in check, will this begin to hit the Spanish property market?
Fitch Ratings has charted that growth in Spanish property prices has already scaled back this year. While double-digit rises have occurred every year since the turn of the millennium, this year is expected to see close to a single-digit increase. Furthermore, it predicts prices will soon level off, with affordability to blame.
Marina Alcalde, writing in Fitch Ratings’ ‘Securitisation in Spain: Trends and Outlook as Property Price Growth Levels Off’ report, says: “Property price growth has nearly fallen back to single digits following six years of double-digit growth between 2000-2006. This may be the start of a levelling off of property prices, which has been expected; some market participants have even called for it. Since the Spanish economy remains buoyant and the number of Spanish households continues to increase, this slowdown in growth rates is most likely driven by decreasing affordability.”
Mixed opinion
However, while a slowdown is expected among Spanish buyers, how will this affect UK residents looking for a property? Opinion seems mixed.
Butterworth isn’t too worried. He says: “There has been a slowdown in growth but we are still seeing good opportunities so I wouldn’t panic. There is still a demand for property and a lot of people are still thinking about moving abroad. The demand is there and there is good property and good infrastructure so I can’t see a dramatic fall.”
However, Roger Morris, managing director at em-financial, believes business could be hit. “The market has lost momentum but it is no different to parts of the UK. You have seen 400 per cent growth but this growth is unsustainable and it will correct itself.”
Even though a correction in prices is expected, most analysts are pointing to continued growth in the re-sale market. Much controversy has surrounded Spanish new build after the indictment of the mayor of Marbella in March for corruption, and there is speculation there could be further cases brought which could affect UK owners.
Simon Conn, senior partner at Conti Financial Services, insists getting proper advice should help to alleviate potential problems.
“It has had a dampener on the market but you just have to make sure you get proper advice and use registered solicitors. Other areas might see similar problems further down the line but as long as you are careful, you should be okay.”
Despite the potential threat of a market slowdown and the corruption fiasco having an impact on the image of buying property in Spain, the Iberian peninsular is set to remain a favourable destination for Brits. Fitch Ratings believes if there is a deflation of the Spanish market, foreign buyers will help to hold it up and prevent a serious decline.
Conn has seen the market slip before and is confident it will bounce back. He says: “Some areas are quiet but the Costa Blanca and the area between Gibraltar and Portugal are seeing a lot of activity. However, prices do need to level out but it does yo-yo a lot. I’m sure in a couple of years the market will come back.”
Morris concurs and warns potential purchases they must take a long-term view if they want to see a positive return on their investment.
“In Spain, there could be a crash. If you brought five years ago, you should be okay. If you are buying now and you buy in the wrong area, you will be caught out. However, if you are careful and you understand the market, you can get away with it but it could be around 10 years before you see any growth.”
