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Is There Still a Spanish Dream?

Mar 05, 2015

The retirement dream, settling in Spain, the land of sun, sea and siestas, was savagely ruined for a lot of British ex-pats who bought at the height of the property prices, and then saw values fall in the economic crisis that hit Spain in 2008. The whole effect was exacerbated by stories of ex-pats returning to the UK with nothing.

However, independent reports now suggest that Spain is on the road to a genuine economic recovery, and that this is a good time to snap up those property bargains. Is there another Spanish dream on the horizon?

To consider this, we need to look at the basis of the crisis, how it impacted the economy, and the current status of the property market in Spain. 

The Economic Crisis

There is no doubt that Spain was one of the worst hit countries by the Eurozone crisis. It suffered a housing market crash which nearly brought its banking system to the brink of collapse. Property prices were slashed in half or less, builders went out of business, ghost developments were left uninhabited and unfinished, and many Brits lost their deposits or their home. Generally, Spanish housing prices have fallen 40% since the 2007 peak, and until recently, this deflation has continued, not stimulating demand. From independent figures, the number of new houses purchased in December 2014 was just over 7,000 which is the lowest monthly level in more than a decade. Spain still has the second highest unemployment rate in Europe, which is around 24.4%, and depressingly a large proportion of this percentage, is youngsters who have never had a job. So is there really a turnabout in Spain and is this the time now to be considering buying property?

The good news is that between July and September 2014, Spain’s economic recovery grew for a fifth consecutive quarter. The annual rate of growth for Spain in 2014 was the highest level in more than six years at 1.6% up from 1.3% in the second quarter. The job market is also improving. The number of unemployed is falling, albeit Spain still has the second highest level of unemployment in the Eurozone. As far as house purchases are concerned, whilst the purchase of new properties fell in December 2014, the purchase of second-hand properties is increasing. Whilst this increase does not make up for the loss in the purchase of new houses, we also have to bear in mind that after two years, what is deemed a new house becomes reclassified as a second-hand property. Mr Carney says that the UK could be heading towards deflation. Spain apparently has already been there. Deflation is a protracted fall in prices across different commodity sectors and countries with downward dynamics. So far the Spanish have only seen the good side of deflation: wages and pensions up whilst prices are falling. Hourly wages rose an annual of 0.6% in 2014, pensions were up 0.25% and consumer prices were down 1.1% year on year in December.

In 2014 400,000 new jobs were created, so there is definitely a ‘feel good’ factor. Market forecasters have been brave enough to comment that 2015 sets to see strong growth in demand for prime properties in Spain. This has been assisted by the strength of the UK pound against the Euro. Latest market reports suggest that there has been an increased demand from UK, US and Swiss buyers because of the rise of the dollar, pound and Swiss franc against the euro, with a converse fall in the number of Russian investors, although the ruble is expected to dwindle further. With unemployment falling, the economy growing faster than predicted, and properties having reached the bottom, some see 2015 as the pivotal year for Spain’s property market, and suggest this is the opportune time to invest.

Looking at Spain regionally, Ibiza saw a 10% increase in prime market property buyer interest, and in 2014 foreign investment represented 32% of the market - the vast majority of the clients apparently come from the UK, Spain, France and Germany followed by Italy and the Netherlands. The Marbella and Malaga region have also seen improvement and showed increased purchases in 2014 over 2013 levels. In parts of Valencia, in the more discerning areas of the city, there have been slight price rises. Others comment that Madrid is the overlooked and unsung investment opportunity providing quality of living with competitive pricing. 

What to Remember if You are Thinking of Buying a Property

Investments go up and down as was seen in the dramatic property crash in Spain. Therefore if you are thinking about buying a Spanish property, be in it for the long haul with a plan to enjoy it, taking holidays there, as opposed to a simple investment opportunity.

Do not be caught out by buying properties without the appropriate permission. Regional governments in Spain have been robust on occasions in ensuring that such properties have been demolished. Where you are buying new and off plan, make sure that you pay the monies under the applicable bank guarantee, which is obligatory in Spain, and make sure all this documentation is checked over by a properly qualified Spanish Abogado who can protect your interests. Remember that in addition to the purchase prices, the taxes in Spain are considerable, and could add between 12-15% on to your purchase price. Taxes are raised not only on the purchase of a property, but on the taking out of a mortgage, and as all documents have to be signed before the Public Notary there are extra legal costs there. The Notary performs the role of registering the interest. A Notary will not give you independent legal advice as to what you are buying, so before you get to that stage, you are strongly advised to see a Spanish lawyer. 

It certainly does seem that there are offers available, that the Spanish economy is picking up and it is showing increasing signs of confidence. Whether that is to be sustained in the long term needs to be seen. Perhaps the most cautionary advice that can be given is that if you buy, buy because you like, buy within your financial capacity and buy for the longer term. That way you will enjoy the investment and will be realistic in any returns that you expect to make.

If you have any queries on any aspect of Spanish property purchase, please contact our Spanish Abodago Consultant, Jorge Iguacel or Lynn Cowley.


Lynn Cowley

About the author

Lynn Cowley

Lynn Cowley joined Nockolds in 1990 and was made Partner is 1997; Lynn also heads the Family Team and International Team. Before joining the firm Lynn ...

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