Spain is particularly attractive for investors in property at the moment, as deals are available on the ground for individuals. Large hedge funds are starting to really pile into the country with both George Soros and John Paulson investing in the Hispania Real Estate Fund which is linked to the bad bank Sareb. They foresee returns on their investment.
Obviously, the big funds get bigger discounts. If you are putting in 127 million Euros to a bank then you expect a decent discount, compared with your average Joe looking for a holiday home or bolthole at the bottom end of the market. However, there are discounts and bargains available at the top and bottom end of the market, for the quick buyer.
What do we mean by the “quick buyer”? Well that is someone who is ready to buy now, has funds in place and is ready to go when the perfect property that suits their needs comes up. That perfect property might well come up today… or tomorrow… or next month but it won’t be around forever.
We have said it before and we say it again here: if you think something is too good to be true and a bargain then somebody else will too.
Recently, we had a client who overlooked a purchase because they thought there must be a catch, surely it was too cheap? The property sold the next week to the next viewer and, as a result, we have one very very happy client getting their perfect property in Spain and one annoyed client for not acting on their instinct nor our advice.
Going back to the title of this piece, why are we asking about the Spanish Property bargains drying up? Surely, with over 1 million properties on the market in Spain, there will continue to be bargains on the market for some time to come which people can take advantage of?
Yes, maybe and maybe not!
The general consensus is that well located property has hit its base price now and has nowhere lower to go. Things that are well priced and located sell very quickly. Only last week we had a great deal come up on a flat in Valencia and it was sold even before we had a chance to get pictures on our website for you. There are hundreds and thousands of properties that are badly located, badly built and overpriced, so they will continue to fall in price (See our blog post about it here)
However, experience in real estate markets all over the World suggests one thing. When the true base of a market is hit then bargains dry up because people are more ready to wait to sell as they realise prices are not going to fall more.
There will be individual exceptions to this rule: the four horsemen of the apocalypse of death, divorce, illness and debt. Situations which force people to sell and maybe take a hit on price. But, in general, the market will be starved of underpriced bargains because everything that comes up that could be classed as such is immediately snapped up.
There is another factor that will stimulate demand in the medium to long term. New confidence and liquidity in the mortgage market and maybe even new forms of financing property purchases as peer to peer lending platforms become more prevalent (There may be some regulatory issues on these especially in Spain but if loopholes can be found they will be!)
So, what will eventually happen?
Well, prices will start to rise as demand grows and supply is dried up: Now don’t get us wrong. We are not calling a Spanish property price boom, that would be stupid, irresponsible and just plain wrong. What we are saying is that if you see a property for sale where you can get a 10% return on your money just by buying it and renting it out at market value, or even slightly below to guarantee a good tenant, then it doesn’t take a rocket scientist to work out that money floods into the market to take up those opportunities (Inward investment in Spain was up from 320 million Euros to 850 million Euros last year for example).
Now, when you consider that clients from some nationalities will take up any investments that pay anything above 3% because in their own countries they are looking at returns of 1% or less, on real estate, due to inflated prices and bubbles, then you have a scenario for competition and therefore eventual price rises.
When you add into this the Spanish Residency visa being offered to non EU citizens for an investment of 500,000 Euros or more, it looks a very good time to be investing in Spanish Property and putting together a portfolio that not only pays a decent return but at the same time allows you to obtain permanent Spanish residency.
The return may be good but, the potential for capital gain on selling is also excellent because the holding period is a long term one to retain Spanish Residency status and long term prices will rise from their current lows.
So, What Happens When The Bargains Dry Up?
When the bargains dry up, our current clients start rubbing their hands with glee. That’s what happens because they have made an excellent decision to purchase in Spain.
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