Anyone buying a luxury property in Spain should be aware that the long correction of house prices which started in 2008 and which, according to the main indexes, has seen average values dropping by almost 40% peak to date, is still under way. Property analysts believe that the overall market is not expected to truly recover any time before 2014 and the forecasts are still subject to change, not necessarily for the better, as the current economic crisis persists.
Some of the local markets have fared much better than others
It has to be said that, some of the local markets have fared better than others; for instance at the end of 2012, properties located in the exclusive residential districts and historic centres of the main cities like Barcelona and Madrid had registered a less pronounced drop between 15% and 20% from peak values. However transaction volumes have suffered a generalized drop as the credit crunch has been felt also by the wealthier part of the population while international buyers have taken a more cautious approach. Luxury property owners, unless forced to sell, are waiting for better times and are often reluctant to lower prices.
Those who can access the money to buy will have the chance to enter the property market at a very favorable time
On the other side the contraction has been very sharp in the mid-lower end of the price spectrum and in second homes market locations especially for those Southern areas where in the past 10-20 years there was a construction boom which enticed many local and foreign second home buyers. In some cases once popular properties are now trading at a third of the original price or development cost.
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Looking at the brighter side, at the beginning of 2013 most of the correction has already taken place (especially considering that properties are selling well below asking prices) and therefore those who can access the money to buy will have the chance to enter the property market at a very favorable time and possibly make a good investment, especially if taking a mid to long term approach.
Choosing the location
The Spanish luxury property market offers a wide range of opportunities so before starting to look for properties, it is a good idea to define the characteristics of the location, the property type and the investment rationale.
International buyers often buy second homes in seaside locations either along the coasts of the peninsula or in the famous islands. Here is a list of the areas that are most popular with foreign buyers who are looking to buy a second home in Spain:
- Southern coastal locations on the Mediterranean; from east to west the “Costas” are Costa Brava and Costa del Maresme which are located north of Barcelona, Costa Garraf (with the well-known Sitges) and Costa Dorada which are both in southern Catalonia and then Costa del Azahar, Costa de Valencia, Costa Blanca (with Benidorm, Altea and the surroundings of Alicante among the most renowned locations), Costa Cálida, Costa de Almeria and Costa del Sol (with Marbella, Malaga, Benahavis and Estepona).
- Among the world renowned Spanish Islands we can mention Ibiza, Formentera, Majorca, Minorca, Tenerife, Gran Canaria and Lanzarote.
Among the Spanish cities Madrid and Barcelona are without doubt the most dynamic and liquid markets and offer a variety of high-end properties from luxury apartments in the historical centers to larger houses and villas in the most prestigious residential neighbourhoods and gated communities; however there are many other cities that have a high historical value and offer a more tranquil lifestyle; among them Bilbao, San Sebastián, Seville, Valencia, Granada, Malaga and Cordoba.
The Spanish luxury property market offers a wide range of opportunities
Wherever you decide to buy, if you are planning to live in the property at least for part of the year (as opposed to rent it out) before beginning the buying process it is recommended that you visit the area at least a couple of times to establish the pros and cons, look at the types of properties available and make note of the lifestyle and traditions of each place.
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Other than considering the intrinsic geographical characteristics of the place, you should also ask yourself the following questions:
- Would you prefer to buy in a place where there are other foreigners?
- Do you feel comfortable in this location? Who else lives there?
- How easy is it to reach the main airports?
- Would you prefer a particularly private location?
- How much outside space (garden, swimming pool, parking etc) do you need?
- What type of amenities (restaurants, shops, bars) are in the area?
- If you have children, which recreational facilities or activities are available?
Beginning the search
Once you have identified the area where you want to buy, it becomes much easier to search for your ideal property. Here are some suggestions that you should take into consideration at the beginning of your search:
Contact more than one agent in order to see more available properties in the area you have selected
Start your search online: The majority of luxury properties on the market can be found on the internet and are sold through estate agents. Take a look at the properties currently sold by our trusted Partners on www.teatrium.net.
Contact more than one agency: A certain percentage of properties are exclusive to one agency so it makes sense to contact more than one agent in order to see more available properties in the area you have selected. It is worth remembering that in Spain the sales commission is entirely paid by the seller. Te Atrium is delighted to partner with only with the most respectable estate agents in Spain.
Choose a long-established agent who has a reputation to uphold
Property Finders: Because sales commissions are paid by sellers, agents act primarily on their behalf. If you wish to receive support in finding your desired property you may want to consider hiring a property finder. A buying agent can help the client in all the phases of the acquisition from scheduling the visits to closing the deal, passing from negotiating the price and making technical verifications. In most cases property finders do not require any additional cost because they tend to split the selling agents’ commission. To ensure that the client is committed, buying agents often require an upfront deposit that is reimbursed at the time of sale. At Te Atrium, we can put our clients in contact with the best property finders in Spain.
Off-plan buying:
In recent years many international buyers acquired their Spanish property off-plan; however this practice may be risky in the current market.
Spanish developers like to sell off plan as it reduces their risks and enables them to finance part of the project with someone else’s money. Agents like to sell off-plan Spanish property too as developers often pay them lucrative commissions – though this varies significantly by region – and one property developer offer many properties. Unfortunately off-plan sales also make it easier for agents to take the commission well before the property is delivered, leaving the client fully exposed.
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Below we present the main advantages and disadvantages of buying off-plan.
Advantages as follows:
- Favourable price: It is common for Developers to incentivise a proposal of an off-plan development with discounts to buyers of anything between 10% and 30% off the current market price for a similar luxury property. The discount is intended to off-set the risk factors to buyers of off-plan properties (as there is risk with any situation where you pay for goods or services in advance), to compensate for delay in completion and reward the buyer as an early investor in the development, providing capital to fund the project.
- Better Quality: One of the attractions of buying an off-plan property in Spain is the possibility of owning a home that has been built with the latest techniques and materials and to the latest standards. To avoid disappointment in the finished development it is recommended that the buyer of the off-plan property understands and is comfortable with the proposed specs before making a decision. It is reasonable to expect a high quality for a luxury off-plan development in Spain since building regulations have improved over the years and modern techniques and materials have become more widely used.
- Guarantees: New-build properties in Spain have the added attraction of guarantees thanks to laws designed to protect the consumer, covering defects for defined periods of time (in some cases up to 10 years depending on severity). Buying off-plan or as soon as the development has been completed means that the buyer can take advantage of the guarantee for the longest possible time.
In the current market, the greatest risk is represented by solvency of the developer
Disadvantages:
- One of the most typical risks when buying off-plan is that you end up with something that doesn’t match the plans and specifications that you signed up for. This can happen for 2 reasons: firstly because understanding what plans and specifications mean in terms of finished product is more difficult than it might seem, and secondly because the developer promised one thing and deliver another.
- Because of a Spain’s popularity with developers and buyers there is an ever-decreasing availability of prime locations for luxury developments. It may be that no matter how attractive the off-plan proposal the buyer may have to make some compromises on the location. This is true in areas that have been heavily developed to date.
- In the current market, possibly the greatest risk is represented by solvency of the developer. Be aware that there is a legal requirement for builders engaged in the construction and sale of properties to provide the buyer with an insurance policy or bankers guarantee, protecting the buyer’ s payments against the risk of the builder becoming insolvent before completing the work.
Unfortunately several builders have gone out of business in recent years, and even the well established ones have curtailed their construction sites until things improve. In any case if you do buy off plan, ensure your developer has an insurance policy and is well established. Perhaps visit other sites operated by your chosen builder to verify the quality of build.
If you want to know more about the Spanish luxury property market, we invite you to check our blog regularly. Shortly we are going to publish more information on how to buy a luxury home in Spain. You can find other property guides and the best properties for sale at www.teatrium.net.
This article was originally published in Aug 10, 2012 and was updated on March 4th, 2013.
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