Spain’s property market is entering an interesting era, but why would you want to compare the cities with the Costas? Is there a comparison?
With official March 2014 house price figures up 23% vs March 2013, ending a 10 month run of house price declines, there are signs Spain’s property market could be turning the corner. This, coupled with news the economy is growing at the fastest rate for 6 years and that unemployment is about to start falling, means there is some reason to cheer in Spain.
In 2013 prices were decreasing by over 10%. At the start of 2014 the decrease had dropped to 7.2% by April was below 5% and for the first few months of 2014 was 1%. So house prices could be plateauing.
What’s more a combination of low interest rates, a strong pound and low property prices is proving an irresistible draw for British investors. Spain has even been trouncing France for enquiries in the first part of 2014, which has not always been the case.
Now don’t get me wrong, there are still challenges ahead, but, this is the first time in a long while it seems as though it is worth taking another serious look at what the property market offers.
Recent history has created a different type of dynamic in the property market in Spain. Before 2007 we may have conjured up images of a lifestyle destination. Now with property prices so low it is making the cities look quite an interesting proposition for investors.
Spanish Costa Holiday Homeowners
Now there have been challenges for some home owners in Spain, the so-called ‘accidental landlords’ on the Costas, who, unable to sell their Costa holiday home, have ended up renting out instead. This has created a highly competitive rental market, with lots of ‘me-too’, rental properties. Many holiday homeowners, becoming desperate, competed on price, pushing them down and suffering patchy occupancy rates. Now there is still a market for that type of property, if it is not one of thousands, it offers good value-for-money and is near amenities.
Spanish City Property Investors
But now here’s the thing. Investors, it is worth looking at the cities again, with a view to acquiring rental property. Pre 2007, prices were higher and rental income not that great, so it made rental yields look a bit weak, when compared to other countries or markets. But now, with property prices as low as they may possibly go, and rents at decent levels, yields of 5-15% are not unheard of in some of the main cities, where they may have been under 5% pre-2007. Popular coastal cities like Barcelona and Valencia, offer great opportunities. Buying the right apartments, in the right location can deliver yields of 10% in Valencia for Holiday Lets.
What to watch out for – property buyers in Spain
Now there are a few things to watch out for. Foreign National buyers tend to be offered lower loan-to-values for mortgages than local residents. Dependent on the bank, the region and the type of property this can be a 60%-70% loan, meaning a 40% or 30% deposit. This is the difference between City and Costa buying, where many Bank Repossessions are coupled with favourable lending terms. So if you are a cash buyer, the Spanish Cities are worthy of consideration alongside the Costas.
Another factor to bear in mind, there are changes afoot in the rental laws across Spain and these differ from region to region. The Balearics already have short-term rental regulation in place, which is quite a strict licensing system, as does Catalunya. Some home owners just rent out to friends and family and take care to avoid offering additional services which might be construed as making it a formal holiday letting business. Long term lets are not covered under the same rules, so this is still an opportunity for generating income and houses are sometimes easier to let out than apartments. But the remaining 17 autonomous Spanish regions have yet to clarify their standards.
There are currently no rental restrictions in Andalucia (Costa del Sol) and Valencia (Costa Blanca)
There are some restricted zones for short-term, touristic rentals in places like Barcelona and there are rumblings of more widespread changes. Much of this regulation is designed to ensure the authorities get the tax they are due on rental income, rather than police tourist stays.
So whilst the rental yields are now looking attractive in the seaside cities, it is important to check the status of the rental regulation before plunging in with both feet. And as history has shown, some of these attractive yields may not be around for long as property prices rise again. So if you are looking for healthy yields and are ready to buy Spanish property now, it couldn’t be a better time.
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Featured or Mentioned in: Sunday Times, Times Online, Daily Mail, Mail on Sunday, Independent on Sunday, Homes Magazine, HSBC Liquid Magazine, Easyjet Magazine, London Homes & Property, A Place in the Sun, The Telegraph, Buy AssociationTags: Buy to let, City Investing, Coastal Property, European property, holiday home, Holiday Lets, investment property, Spain, Spanish Banks