STABILISING THE MARKET
A 1,344 word feature
By
Nick Snelling
STABILISING THE MARKET
The key to buying property lies in a sound analysis of the market. This is hard enough to do in one’s own country but particularly difficult in a foreign land. However, buying the right property, at the right time, in the right place is crucial to any buyer wishing to invest safely for the future.
Within the Comunidad de Valencia the Spanish property market is both complex and dynamic. Crudely, there are four different property markets in action, with each distorting prices and influencing new developments.
The first market is powered by North Europeans who generally come to Spain to retire. Their dream is remarkably similar, almost irrespective of what they have to spend. Most North Europeans want a three bedroom, two bathroom villa with a pool, on a flat plot, within fifteen minutes of the sea. Invariably, North European buyers believe that this goal is still attainable within a price bracket of 150,000 E to 225,000 E. This is totally unrealistic. A half-decent, legal villa in Spain within fifteen minutes of the coast can rarely be found for less than around 325,000 E. Accordingly, many people are either driven to buy inland where prices are lower or to go for ‘second best’ and buy a townhouse or casita. The second market is the general Spanish native market where there is a demand for modern housing to replace the town houses of old. Adosados with their clean lines, garage and light, airy rooms achieve this objective. Anyone who has been into an unreformed, old town house, within a rabbit warren of narrow streets, can appreciate how much the Spanish must revel in these new style properties. Adosados can be bought, resale, from around 220,000 E but this is becoming a steep price to pay for the average Spanish family.
The third market, particularly true of the northern Costa Blanca, is the demand for beach apartments in Spain. The dream of many Madrilenos is to possess a frontline beach apartment, for which they are prepared to pay considerable money. This also follows for the wealthy within the local coastal Spanish population. Many own a permanent home within a few kilometres of the coast, as well as a beach apartment to which they decamp during the summer months. A decent frontline beach apartment on Gandia playa will easily fetch 500,000 E.
The fourth market is reasonably new and is driven by the non-north European immigrants who are pouring into Spain. These people, from places such as South America, North Africa, Bulgaria and Romania are just able to buy the cheapest Spanish properties available. These tend to be flats and unreformed town houses which can still be picked up for around 100,000 E, dependent upon the area.
On the face of it, the Comunidad de Valencia has a thriving property market with strength in depth. However, cracks are appearing.
The North European property market has shuddered to a halt over the past eighteen months with a considerable decrease in sales activity. This has impacted upon Spain where there has been a noticeable drop in North European buyers due to their inability to sell their own homes, prior to buying in Spain. The opening up of Eastern Europe has not helped, as properties there can be bought for extremely low prices and, on the surface, offer a very real alternative to Spain.
Meanwhile the Comunidad de Valencia has been busy ‘shooting itself in the foot’ by allowing ‘Land Grab’ to become a major concern. It has reacted slowly to the justifiable concerns and dreadful press coverage that this problem has created and has taken far too long to draft a replacement law (the LUV). Even this has been met with lukewarm enthusiasm. Only time will tell whether real confidence can be restored, so that potential buyers do not question the safety of owning property in the Comunidad. To make matters worse the Comunidad de Valencia is mooting a ‘Model Benidorm’ with the aim being to restrict low rise buildings on the basis that they absorb too much land. In essence, the new proposal will ensure that more high rises are constructed. This lunatic plan flies in the face of all social and aesthetic experience and abrogates everything that should have been learnt from the appalling developments on the Costa del Sol and the southern Costa Blanca.
In any event, the Spanish are clearly over-building. Every pueblo, town and patch of spare ground, either coastal or inland, is a building site. This begs the question of from where the prospective buyers are going to come? Either there has been a natïve population explosion of the wealthy or the Spanish truly believe that the flood of North Europeans will continue. And if they do continue, that North Europeans will change their dreams of owning a villa to that of an adosado on an ugly new estate devoid of amenities. The prices of properties within the Comunidad de Valencia have risen enormously in the past few years, perhaps by more than 120%. However, this has not been matched by Spanish salaries, which now have much the same purchasing power as they had in 1997. Any Briton who lived through the late 1980s knows what happens when the divergence between salaries and Spanish property prices becomes too great. And in Spain’s case the parallels may be very apt. Spain is already seeing its manufacturing industry diminish in the face of fierce Far East competition and this will have obvious consequences for unemployment.
The perception amongst North Europeans continues that property in Spain is still cheap. This is simply no longer the case. Whilst it is extremely difficult to gauge raw price differentials it is likely that, within an hour of the coast, property prices are probably only some 25% -30% less than they would be in the UK for an equivalent standard of house. This is a blow to the expectations of many North European buyers who do not realise that Spain bares little relationship to what it was even ten years ago. Spain is now a sophisticated, first-world country providing an astonishingly fine quality of life within a politically and economically stable environment. Education, health and communications are excellent and are combined with a superb climate and a native population that is amazingly tolerant and kind. The nuclear community still largely exists and crime bears little relationship to that experienced in Northern Europe. On an objective basis, Spain should be an expensive place to live.
Forecasting any market is a dangerous game and one that should only be played by highly paid city analysts or end of pier fortune tellers. However, on balance it is difficult to imagine the Comunidad de Valencia not having a price consolidation of some sort. This does not mean that there will be a crash, but that prices will certainly stabilise and remain static for some time. This may be a good thing and act as a spur to better, more appropriate building and encourage the Comunidad de Valencia to heed the lessons of the past in other areas of Spain. Equally, the perception of Spain needs to change, with north Europeans recognising that they are buying into a top class country with a superb infrastructure. It is this factor that justifies the increased cost of housing, rather than mere bricks and mortar. That said, building within the Comunidad de Valencia needs to be improved to deliver the type of home that is universally wanted. Endless, almost identical adosados with their ground floor garages, lack of outside space, endless stairs and isolated positions on the edge of towns are hardly likely to be in demand for long, even by the Spanish.
As always, buying a property is about a cautious assessment of what is on offer, whilst gauging the state and nature of the market. A quality overseas property, at the right price, in a good area will always be a fine, long term investment. Indeed, a recent Barclays bank survey showed that the owner’s abroad market is likely to double from 2.2 million owners to 4.4 million over the next decade with the planned destination of 30% of Britons being Spain.
The objective benefits of the Comunidad de Valencia are self-evident and there is no doubt that this area has long term future. However, as with every market, it should be looked at with an enquiring eye, combined with an understanding of the ever-changing dynamics of the marketplace.
Copyright Nick Snelling (www.nicholassnelling.com) author of three books on Spain including ‘How to Move Safely to Spain’ (www.movesafelytospain.com)
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