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LiveAndLetBuy

Big Spanish Property Price Drop – Real Case Study

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Happened to come across this:

http://www.eyeonspain.com/spain-magazine/spanish-price-drop-case-study.aspx

Might be of interest as there seem to be a few on here considering buying Spain at some point. It's quite refreshing to hear people own up to their losses, and to read about their situation without it being distorted by the tabloids.

Last week’s article “Spain 2011, To Buy or Not to Buy? That Is the Question!” really got some people fired up! Just read the comments on that page.

Yes, it was written by an estate agent and yes, he is promoting bank properties. We know the banks have thousands of properties to sell and they have reduced the prices and most are offering 100% mortgages on these properties.

Getting a mortgage on a non-bank owned property is much more difficult requiring you to stump up at least 30% as a deposit.

All that is true, whether we like it or not.

Over the past few weeks I’ve been reading all sorts of reports that property prices have fallen by 30%, or is it 20%? I think some are saying another 5% this year?

Who really knows. There are so many conflicting reports and if you follow Mark Stucklin’s blog on Spanish Property Insight, you’ll know that much of the official data on property prices, etc, is actually quite unreliable.

Latest data also shows that 2010 saw a small increase on 2009 in terms of property sales. But how many of those were the banks completing on their own properties and how many were REAL sales?

The true picture is very unclear.

So what can we believe about the real state of property prices in Spain today?

The Case Study

There is nothing better than a real case study so I’m offering to share how the value of my own apartment in Manilva, on the Costa del Sol, has changed over the past several years.

Obviously, every property and every area is unique but this is just one (real) example for you to understand how prices have been affected in one area of Spain.

I actually got the idea to write this article yesterday as I was walking down the hill (battling the high winds, it’s not always sunny here!) on my way to the town of Sabinillas. It’s a good half hour walk.

Just on this short walk you can see so many finished and unfinished apartments. I estimated that from just the ones I could see there must have been at least 3,000 mostly empty, unsold apartments. Then there are all the shells of those that never got anywhere near completed. All of these are now owned by the banks.

The photos here are just some of those I saw.

The walk and the realisation that we still have a long way to go before these apartments become someone’s home or second home, got me thinking about the impact this has had on my own apartment in Manilva.

So here goes, the timeline of the price of my apartment and where I see it heading over the next couple of years.

Winding Back to 2003

We bought off plan in 2003, which seems a very long time ago now. Our apartment was actually very cheap at the time as most were going for considerably more. It’s a 3 bedroom apartment in Manilva, and as we all know, most developers actually built mainly 2 beds, so that’s definitely a positive.

It’s also right in the village, walking distance to everything here.

Off plan price: €112,000

After taxes: €122,000

For a 3 bed, this was actually a fantastic price back then. Remember, we are going back 8 years to the property boom period.

Stopped construction in SpainCompletion in 2005

We completed in the summer of 2005, even though everything wasn’t quite ready, but we wanted to move in. Now it was time to get the mortgage and as was “the norm”, the valuation came in rather nicely high:

Valuation in 2005: €198,000

Theoretical increase: 61%

That’s a pretty decent return in just two years, although at the time I probably couldn’t have sold it at that price. Another 3 bed was sold then for €180,000 so a bit less than the valuation but still, in theory, in profit.

Just down the road, off plan 2 bedroom apartments were being sold for between €240,000 and €270,000, which just seemed ridiculous at the time. To prove that point, today you can pick one up for just €120,000.

Getting Tougher in 2008

Early in 2008 was when we first realised that something major was happening. Things started slowing considerably in terms of people looking at apartments here and those that were had no intention of paying the valuation level prices.

Many people I know decided not to sell and hold on to their apartments and wait for prices to go up again! I know, it seems silly now, but that’s the reality.

Huge Drop by 2009

2009 was literally the “just get out now before it’s too late” year. Prices had fallen so much by early 2009 that most of us were wondering if there was ever going to be any value left whatsoever in our properties.

My friend sells his 3 bedroom apartment for just €115,000.

Ouch.

From his point of view he was just happy to get out before he lost any more money.

My apartment is slightly larger and with a better view than the one my friend had so I reckoned at the time that I could expect perhaps, €120,000 for mine. I didn't want to sell at the time so I was still relatively happy.

2009 was the year my apartment was worth less than what I originally bought it for, including the purchase taxes. If I wanted to sell it this is what I could have expected:

Possible Sale Price 2009: €120,000

Estate Agent Commission: €6,000

Proceeds from Sale: €114,000

Giving it Back to the Bank in 2010

Realising in 2010 that prices still had some way to fall, I spoke to the bank about a possible “Dacion en Pago”, whereby you hand your property back to the bank and pay off whatever is the difference between the valuation at the time and the outstanding mortgage.

It is possible to do this in Spain but most banks don’t seem to entertain it.

Mine certainly wouldn’t. They would, under no circumstances, take my property. If I had been in their shoes, I wouldn’t have taken it either!

However, they did change my mortgage to interest-only for a couple of years, and I think most banks will do this if you push them.

The Price Today: 2011

I had an email from an estate agent friend the other day asking me if I knew of any 3 beds here for sale for less than €105,000!

Another agent has one at this price but is struggling to sell it.

Oh dear. Things aren’t looking good this year.

Another estate agent friend of mine in the area says he could, at a push, perhaps get €90,000 for it but the most likely price is €80,000…and that’s including his commission.

So let’s take a midway point, thinking positive here:

Selling Price 2011: €85,000

Estate Agent Commission: €4,250

Proceeds From Sale: €80, 750

More stopped building work in SpainTo Recap

2003 price including taxes: €122,000

Top possible price in 2008: €180,000

Top possible price in 2011: €85,000

Money-in-hand on sale in 2011: €80,750

Total loss in 8 years: €41,250

Percentage loss in 8 years: 34%

Percentage drop from 2008 peak: 65%

I don’t know about you but that’s a lot of money to lose, and remember, we bought off plan in 2003 when prices were still “reasonable”.

The Currency Factor

However, there is also something else that needs to be taken into consideration here and that’s the currency fluctuation factor.

In 2005 when we completed, we transferred the month from our UK account at a rate of around €1.42 per pound sterling.

If I were to sell the apartment today and return the money to the UK, I would be looking at a rate of around €1.17 per pound sterling. Now, I know this isn’t the actual rate I would get but it’s the relative difference I’m looking at here.

It roughly equates to a 20% increase in the exchange rate alone, which would be in my favour were I to return the money to the UK. So, after paying off the outstanding mortgage you should take this into account if this is you.

By the way, our friends at Moneycorp have an excellent opportunity available to those looking to return funds to the UK. Get in touch with them to find out more. Yes, blatant plug!

I’m not returning to the UK so for me, the 34% loss is very real.

Remember also that I mentioned that someone bought a similar 3 bed apartment to mine for €180,000 in 2005? The loss that person has made makes mine pale into insignificance. Their loss is aound 65%…in just 6 years.

No Point in Crying

Am I bitter? Not at all. It’s just the way life is. Sometimes you win and sometimes you lose. The positives for me personally is that at least the apartment was finished and it has its licence and the location isn’t bad, so one day I may even get my money back.

And when might that be?

I predict that over the next couple of years the value of the apartment will drop to around €50,000. And, going by the still huge amount of unsold stock in the area, I predict it will take at least 10 years for my apartment to return to its 2003 value.

Prices still have to drop significantly before we see any sort of recovery.

If I’m right it means that from my initial deposit buying the apartment off plan, 18 years later it will still be worth the same.

That is possibly the worst investment I have ever made. Thankfully I’m in it for the long haul and as with most things in Spain, patience is always tested to the limit.

There’s always rentals or simply enjoying the property for yourself if you can’t sell it. We’re in it and that’s what we’ve got. There’s no point getting angry, upset of frustrated. It’s going to get worse before it gets better but it will, eventually, pick up. Just be patient and try to enjoy your place in the sun.

I truly feel for those whose properties have not been built and have lost huge amounts of money. I hope all those affected manage to eventually get their money back one day. I know how tough it’s proving for many.

On a final note, please note that this is just my personal situation. Every area, every community will have their own trends and the big cities such as Madrid and Barcelona will be very different.

Edited by LiveAndLetBuy

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Excellent find, many thanks.

Percentage drop from 2008 peak: 65%

And he expects prices in his area to drop another 40%! :o Now, that's what I call a proper HPC :)

Just on this short walk you can see so many finished and unfinished apartments. I estimated that from just the ones I could see there must have been at least 3,000 mostly empty, unsold apartments. Then there are all the shells of those that never got anywhere near completed. All of these are now owned by the banks.

Spanish banks are toast, we know that.

And their "solution"? Sell this cr@p out to joe public with a 100% mortgage :lol:

Brilliant.

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Interesting comment about the banks giving mortgages on stuff they have repossessed but wanting 30% deposits on non-bank owned property.

Just shows that the banks are actually propping up the housing market.

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But that isn't Surrey.

Miles from the sea, staggeringly hot in Summer, close to being as cold as the UK in winter. No central heating. Zero holiday let potential, and why the hell would you want to go on holiday there yourself?

Perfectly good house for someone wanting to tend crops in the village on about 10K Eur a year.

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But that isn't Surrey.

Miles from the sea, staggeringly hot in Summer, close to being as cold as the UK in winter. No central heating. Zero holiday let potential, and why the hell would you want to go on holiday there yourself?

I wouldn't go on holiday there, but I could imagine living there (although that's all it is, imagineering) mostly because, as you rightly point out there wouldn't be any tourists around. And no matter how hot it gets in Spain, a nice glass of Senorita Beater always cools you down. ;)

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Bravest Face Award:

We bought our 3 bed house in Lebrija, Sevilla for €230,000 including taxes and costs in July 2008. Just like any other new house we had not factored in the cost of light fittings, kitchen, bathroom etc so had to spend another €3000 and now have just paid €14000 for sound and damproofing with more to spend if we want to achieve UK standards. That makes €237,000 so far and local agents value it at €90,000. So like others not my best investment but look on the bright side. The money has gone, the sun still shines and will eventually dry the house out.

I am just glad that we kept the narrowboat back in the UK so we can return for the summer to a home that is dry and warm. It always makes me smile when I think about living on a boat floating on water which is drier and warmer than a concrete house in sunny Spain but hey-ho life is full of quirks.

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Bravest Face Award:

Funnily enough, " Die Sonne scheint noch", or "the sun still shines", were the last words of Sophie Scholl before she was guillotined by the Nazis. Perhaps it's gallows humour.

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I wouldn't want an apartment, but I was looking at this four-bedroom country house on RightMove today at £51,000, I wonder how much it would be in Surrey?

89534_CortijoTracy_IMG_00_0000_max_620x414.jpg

http://www.rightmove.co.uk/overseas-property/property-31268213.html

I lived in spain for a few years, it is NOT like most areas of the UK.

Yeh, parts are superficially like the UK because that was the best way to attract and fleece Uk holiday makers.

Honestly if you want to emigrate there, go and rent for at least 6 months and get to understand the issues, there are lots.

Not least crime which is growing more rampant as unemployment rises.

At least one reason why I'm glad to be back in the UK and would certainly not choose Spain as a permanent move.

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Honestly if you want to emigrate there, go and rent for at least 6 months and get to understand the issues, there are lots.

Thanks, in fact if I did move abroad I would rent, in fact I would probably rent for a couple of years before making a decision to buy. I too have spent a lot of time in Spain and I know it has its problems. I look at houses in Bulgaria too but as much as anything it is simply to while away life's dreary hour.

Having said that, poverty is always easier to face in a hot country than a cold and rainy one. ;)

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I lived in spain for a few years, it is NOT like most areas of the UK.

Yeh, parts are superficially like the UK because that was the best way to attract and fleece Uk holiday makers.

Honestly if you want to emigrate there, go and rent for at least 6 months and get to understand the issues, there are lots.

Not least crime which is growing more rampant as unemployment rises.

At least one reason why I'm glad to be back in the UK and would certainly not choose Spain as a permanent move.

do you know what the situation is on gun laws/crime in Spain?

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It roughly equates to a 20% increase in the exchange rate alone, which would be in my favour were I to return the money to the UK. So, after paying off the outstanding mortgage you should take this into account if this is you.

Big mistake on the writer's part: since the mortgage and the property are in euros, his liability is in euros, e.g. bigger in £ terms than if he'd realised it in 2005 !

Fascinating piece. I like the bit where the banks, now major actors in the market, favour the purchase of bank owned properties by raising LTVs for non bank owned. It's everyone for himself, good manners have gone straight out the window. A bit like estate agents here.

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If I'm right it means that from my initial deposit buying the apartment off plan, 18 years later it will still be worth the same.

:D

Oh no it won't!

At 5% inflation per year, in 18 years the money he put in will be worth 40% of the original amount in real terms, a 60% loss. But again, he sounds like a bit of an optimist.

In real terms his money will probably take 100 years to return to par, if ever.

Edited by _w_

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So the 60K Euro property is for real? I know it's not by the sea, in bumfck nowhereville. (I've been to Almeria and the Cabo de Gato) But that sounds too cheap. It sounds actually reasonable for a property. I saw a link to a website advertising two apartments as bank repos in spain the other day. They were asking at least 120K in euros still. Shared pool. Down a hell of a lot, but you would still be paying alot for the land wouldn't you?

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So the 60K Euro property is for real? I know it's not by the sea, in bumfck nowhereville. (I've been to Almeria and the Cabo de Gato) But that sounds too cheap. It sounds actually reasonable for a property.

Well, like I said, I was just window shopping, I look at loads of stuff but that stood out as being good for the money.

It said on RightMove that it was a newly renovated four-bedroom country house built over four storeys in a pretty mountainous area but maybe they are lying and it is really an ex council house at the end of a cul-se-sac. ;)

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I was just wondering whether it's got planning permission.

Well, from the look of it I would imagine it is at least 30 years old and probably much older so I doubt there would be planning problems but I really don't know.

Have a look on RightMove's Bulgaria page, it would probably be £20,000 there.

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...

Spanish banks are toast, we know that.

And their "solution"? Sell this cr@p out to joe public with a 100% mortgage :lol:

Brilliant.

The Spanish banks have been trying this one for a while now, but nobody seems to be falling for it.

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Well, from the look of it I would imagine it is at least 30 years old and probably much older so I doubt there would be planning problems but I really don't know.

Have a look on RightMove's Bulgaria page, it would probably be £20,000 there.

If it is an old country cortijo that has been extended then there could very well be planning issues.

Many foreigners have bought plots of land with ruins on them with the intention of rebuilding them because the rules are that if there is already a building on the land then you can rebuild it. Unfortunately you are limited to the same footprint and square meterage of the original building. Most people ignore this rule and from my experience (and I have lived over here for the last six years) as long as you don't take the piss, then you get away with it. For now.

Another thing to be concerned about, as this clearly looks like a rural property, is the size of the plot and whether the land is rated as wet or dry. In other words, does the land grow irrigated crops or not. Round my way, you need at least 3500 square metres of wet land to build a 200 square metre building. For dry land you need at least 30000 square metres.

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So the 60K Euro property is for real? I know it's not by the sea, in bumfck nowhereville. (I've been to Almeria and the Cabo de Gato) But that sounds too cheap. It sounds actually reasonable for a property. I saw a link to a website advertising two apartments as bank repos in spain the other day. They were asking at least 120K in euros still. Shared pool. Down a hell of a lot, but you would still be paying alot for the land wouldn't you?

Years of brain-washing by the banks, property co's, and tv property porn have led to this. Tis a sad state of affairs. :blink:

Before the boom 15 years ago, this "property" wouldn't even have made it to a shop window for sale. Some local would have bought it, possibly with the idea of starting a family or retiring. The price would be about 20-30K, a couple of years of local wages. At 60K, it's still well over-priced and shows the property bubble still has some way to go before it's deflated....

Edited by Agentimmo

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Pay off mortgage on UK property.

Save an additional £60k in cash.

Buy nice apartment/villa in Spain.

Rent out UK property for £900 a month.

Live in Spanish property, less need to use heating/energy, lower property taxes, healthier lifestyle

Fly back to use the NHS when required :)

That is my retirement sorted.

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Live in Spanish property, less need to use heating/energy,

Funnily enough, the in-laws have an apartment in Spain, but they don't now go in the winter, because it's too expensive to heat the place (no insulation and electric heating). It's cheaper to heat in Blighty,

Peter.

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Years of brain-washing by the banks, property co's, and tv property porn have led to this. Tis a sad state of affairs. :blink:

Before the boom 15 years ago, this "property" wouldn't even have made it to a shop window for sale. Some local would have bought it, possibly with the idea of starting a family or retiring. The price would be about 20-30K, a couple of years of local wages. At 60K, it's still well over-priced and shows the property bubble still has some way to go before it's deflated....

A property that was worth 30k 15 years ago would only require 5% pa inflation to be worth 60k today. Which I think is acceptable. So I wouldn't be put off buying a property for 60k just because it was sold for 30k 15 years ago. I certainly wouldn't wait around hoping for it to go back down to 30k again!

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  • 277 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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