I hope that no one has taken offence to my "doom and gloom" posting, I guess I am reacting to the enormous amount of misleading practices and information that has fallen on unsuspecting foreign purchasers of holiday and investment homes in Spain. I also think that people have completely disregarded the macro economic picture that is all important and looking more troubleing by the day. The US and Uk will be very lucky to escape a recession next year, and that is going to have an enormous impact on Spain and other holiday markets, that I think look just as vulnerable. Spain at least has a number of factors that weigh heavily in its favour compared to say Bulgaria or Cyprus.

I certainly agree with Smiley that greed aside most people have been unconciously trying to beat the ravages of inflation by investing in property, perhaps with the sole and very reasonable desire to provide for themselves and family in a future full of uncertainty. Having been failed by the stockmarket and pensions and related financial service industries that promised lots but delivered little, people have migrated to what "they know" ie bricks and mortar. Unfortunately for them, once any asset class becomes too popular and too much of a certainty it will inevitably become poor value and under perform.

To do well in investing its necessary to be ahead of the curve, so property in the mid 1990's, techology shares in the late 90's, and commodities in the early 2000s.

Back to property in Spain, I was trying to establish the viability of renting as an expat property investor, and to get a handle on current yields. Perhaps someone with more knowledge (not hard) would be able to critic my ball park figures.

Based on a CDS apartment  worth circa 250K euros, in a rentable area:

Income say 2months at 1000euros a week and say 6 months at 600euros a month long term = 11600euros

Fees for property managment = 30% of gross rental as an average (bulk of rental coming from expensive summer months)

Income after management = 8120

LessTax at 25% = 6090

Less expenses of 10% of gross rental ( figure used in UK tax allowances) = 4930

There are probably other costs but assume a nett figure of around 5000euros gives at nett yield of 2%

I think that for expats the tax might be 25% of the gross rent without allowances for deductions, altho this seems almost criminally unfair. I also think that a tax of 25% applies wether you rent or not, ie even if it is left empty.

I may be well out on the income bit, but if the 25% tax without allowances is true the yield could be much less than 2%. Therefore no case for investing based on rental income.

Miket

I wish you every luck with your investments.

As an aside I have noticed that many people with property to sell have been extraordinarily uninventive with their marketing. The sum of most peoples efforts seem to be a crummy picture usually of a whopping great big building site prominantly in view, and then a rather lame few words about the appartment. Very little I have seen would make me even click on the link.

If I was them I would get a bunch of professional pictures taken from flattering angles, in the sun (durhhhh), one of those swanky videos camera shots inside the property etc- you know where you can look around remotely. A good write up and then get it plastered all over the internet. A few quid spent to sell a 250k property does not seem much effort to me. Some people can't even be bothered to put up a picture in the sun !!! I hav e seen property in the uK for sale where the owner could not even be bothered to cut the grass!!!

Anyway back to rentals can anyone critic my figures, or are they about correct. I forgot to ask, do these communial grounds appartments have a service charge for gardens, pool security etc. If so how much? Any other charges I have missed?

TJ222 - difficult to assess income as it really will depend on location. A property nearer to the beach and facilities will recieve longer rentals and a higher rent!

Also one can rent out on a long term basis.

Short term costs such as electric (expensive in summer for aircon and winter for heating!) water and possibly gas are paid by the owner. Long term rentals, tenants pay those but in all cases the community fees are paid by the owner. Also there are the yearly ibi - rates and basura rubbish collection to pay.

Your yield could be around the 2% mark and as you say not good for solid investors - but then again over time one should be able to assume some capital return, PROVIDING you are not in a position of having to sell fast AND the property is in a good location with good aspect! So there are many points to consider!

Certainly I agree with your points re selling - some owners dont even have the full address of the proeprty, but if it is marketed correctly then there is a greater chance of the masses seeing it.

The market is not totally dead, there are all types still looking around but they know to find the better deals and buy form agents with lower commissions and who are more transparent than others!

Hope this helps, if not post some specific questions and I will try to answer them

Hi Rixxy

Thanks for the reply, I take it that you are in the business, if so you are refreshingly honest.

I agree with the comments re purchaseing a home rather than an investment, and its value being in the lifestyle rather than its monetary value. However the problem with this is that had only these types of people bought ( fully paid for homes etc) then the mass market would never have arrived, and consequently homes would be still based on Spainish economic fundamentals. These fundamentals are notably salaries much much lower than northern europe. I think the average salary in Southern Spain is around 1200 euros a month. So property prices are clearly heavily influenced by purchaseing power outside of Spain. If this purchaseing power dries up, as looks the case, then property has some way yet to fall to match Spainish fundamentals.

Imho the investement market looks highly suspect, as property investors will be unlikely to be able to finance their property for an extended period, inorder to enable prices to recover, without the benefit of a realistic rental income. I wonder why the Spainish government has introduced such penal taxes on ownership and renting, perhaps this has been done to cool prices. I saw on CNN that  young people have been demonstrating over the prohibitive cost of ownership of property, and Spain's houseing minister has stated that she is making affordability her major goal.

Of course the real villian of the piece is the central banks and their constant expanding of the money supply. In the UK for example M3 is growing at around 13%, strikingly similar to UK property inflation. So its more a case of the purchaseing power of your pound or euro declining, rather than property prices increasing.

Hola TJ222, yes in the business but have been for over 23 years now UK and Spain - gosh I sound old!

I have been coming to Spain for many years with parents and made the move over 12 years ago now.  I had a rental business for 8 years here (just sold it) and am in the sales game albeit in a differing way - auctions!!

A lot of the problem is as you have explained - I lived and lost through the late 80s early 90s UK crash, but then people had to struggle to live in their houses, courts became more lenient and sympathetic and finally things picked up. Again at the time there was a huge service industry created on the back of inflating salaries! So in a sense false jobs!

Here in Andalucia, which was mainly agricultural, tourism sprung up but again this is based on outside influences and incomes! When the holiday rental homes boom started this drove the demand with 'investor speculators' jumping on the bandwagon!!! All expecting to make a killing, buying several units - unfortunately due to oversupply and greed, there was no end user! There is NO industry here - people living on the coast rely on the foreign euro. The shop worker made redundant as no one buying their product, cant go and work in the local factory, because there isnt one.

Rentals have dropped drastically over the years. 4 years ago elviria beachside apartments 2 bedders sleeping 6 would get 1400 euros per week high season now if lucky 900 per week. We were busy from may until end of october and praying for no more bookings! Then after analysing the rentors, I realized many were buyers whose properties hadnt completed yet SO 1) they were prepared to pay the weekly fee as they themselves thought this is what they would acheive, and 2) They are the ones who diluted the rental market by removing themselves, their friends/family/work colleagues from other units available for rent and adding another property to the rental glut!

I saw this and got out of it - now concentracting on the auctions (last 4 years) which has been interesting to say the least. I find that the little pulse factors as to how the market is likely to go tends comes to me first due to the very nature of the business I am in.

The spanish are massively outpriced which obviously means if the first time buyer is removed from the first rung, then who will generate the market?

Cheaper housing isnt the answer really unless they take and very cheap rent/mortgage payments the repossessed properties from the banks and hand them over to the ftb's otherwise a secondary chaper market will be created which will also drag down and undermine the current situation!

Hey ho - better do a bit of work now!!

Rixxy

Interesting, looks like you read the signs correctly, they are always there, just more obvious to most people after the event. So are you auctioning distressed property sales and repos, or just normal sales at a discount? If so what kind of reductions in price are buyers getting and what percentage of properties are being sold?

You say the rental prices are coming down, but what surprises me is the lack of rental property on the market. Admittadly I have only being looking on the costa tropical, but there is surprisingly little about for long term rent. Is this because owners are holding out for a sale and don't want to be limited by tenants, or is it just the unnatractive financial aspect to the owner for renting? Or are people only looking for summer peak months for rent?

BTW how much is a typical service charge and other charges you mentioned - just ballpark will do.

Thanks for all the info!

Countrywide’s CEO sees housing-led recession

Mozilo tells CNBC that credit market turmoil will take time to work through

MSNBC News Services

Updated: 3:33 p.m. ET Aug. 23, 2007

Calling the current credit crunch “one of the greatest panics I've ever seen in 55 years of financial services,” Countrywide Financial CEO Angelo Mozilo said Thursday that the ongoing housing slump will likely push the U.S. economy into recession.

 

Countrywide is the largest US mortgage broker. Past history shows that where the US goes, we the UK tend to follow.

Hi TJ222

Well most is borne be experience of living through the boom of the 80s into the recession of the 90s in UK - the same signs are here with the exception of the industry to drag it back up - effectively this is a luxury market and the first thing to go in times of financial strain are the toys!

I deal in mainly distressed sellers - having to sell for whatever reason - but before repossession by the banks due to their laws here. Repos currently arent sold below the mortgage value, which means if bought at the peak 2 years ago, with 80%, then if the market has dropped 30% its already in negative equity, no buyer will buy and the bank will sit on it for a while. Obviously this means other costs such as community fees etc will stack up as well and these are attached to the proeprty, not wiped out under the previous owners name as in the UK!!!!!

I try not to touch repos for that as they are above the differential at which I am selling privately!  BUT I am sure this will change in time as the banks get into bother - all banks are underwritten by the bank of spain regardless of their name, Barclays, Halifax Santander etc, So ultimately BOS will probably have to dump the debt as it is they who carry the can for ALL the repos and defaulters. I dont think this will come about for 12-18 months yet as they are all still in denial that this cam happen!

Reductions are hard to guage, after all a property you might think is rubbish, there may be 5 others who want it and of course this creates the demand. This is the essence of auctions, it shows a true picture of the market from both sides, buyers and sellers. The ONLY way you can have a form of statistic is to work on the bank val which here is not a comparable but is euros per sqmeter, then deduct a percentage.

And put it this way, a year ago I was advising owners to drop to 70-80% of bank val, now I am advising 60 - 70%!! One of the resaons is that until recently some banks would advance to 80% of bank val, so if you get the proeprty at 70% you can get part of your costs in teh mortgages. NOW this is illegal with the BOS stating only 70% of bank val to max (and only in some cases) 100% of the purchase price being advanced. Notaries are asking for the purchase contracts as well so effectively buyers HAVE to at least have their costs to place down unless fraud is being committied by bumping up the purchase price to include costs!!!

Anyway, I digress - form an auction calatlogue I tend to sell 1 or 2 prior to auction, similar on the day but mostly after wards equating to around 50% of the catalogue in total but over time. This tells me that I will have 1 or 2 either bargains or properties that are too good to let go to auction, someone interesed on the day but losing their bottle to hold out til after auction (alternatively the seller drops price on the day) but most want to see whats left and go in with a lower offer which is then negotiated to a hopefully positive conclusion!

I am finding reductions from around 50% of open market price which I think in the cases where people bought more than 5 years ago will go further - ultimately its worth what you are prepared to pay for it and you arent goint to get it for 5 euros either! Location always wins out and anything 1st, to 5th line Marbella and in Banus for example with either go by word of mouth to friends or notaries, lawyers etc or the price will hold. ALTHOUGH i suspect that in a few years these will come through to the open market  (as was in the UK) as these guys will ultimately be saturated too. However, there are loads of Spanish people weathly enough and astute enough to buy and ride out the storm, they dont get too caught up in finance the older generation as they were taught to deal in cash from teh Franco years - I still have spanish with large sums of cash to place down and who will just sit on a property for years if necessary!

I also forsee half finished and empty developments dotted around after the developers go bust and the groans of that was around last year when finally some of them started to talk to tm to sell their units on! (prices too high IMO so I refused at the time)

Anyway, rentals in Tropical might be good, if they have kep a handle on the supply but until all the build is finished you wont see the true picture. It was good here inMarbella until around 4 years ago when development after development came online for rent. Look throught the Sur in english and you will see the supply and the prices dropping - I see it every week!

Service charge do you mean management fees? between 500 and 1500 euros per year for a management company to look after your property, cleaning around 10 euros an hour, laundry around 22 euros for 4 pax - an average 4 bed apt takes 4 hours to PROPERLY clean for rental purposes so 60-70 euros and these are averages before anyone shoots me down!

IBI and basura varies massively depending but the worst are community fees - if you are on a golf course, couled be 2500 euros per quarter! I guess 140 euros about average for down here, a lot less in town with large block and little gardens!

Pull in your belts folks!

Hi Rixxy

So let me get this straight, if it goes into negative equity and you hand in the keys so to speak, then the bank sits on it racking up fees etc for community charges etc. Why does it not sell immediately, BOS is in danger of becoming a property company! Its common practice for banks to sell immediatly as they are not in the property business and want to get the bad debt of their books at any price. If you hand in the keys what happens if you then go back to the UK, presumably it does not affect your UK credit score? I would say it looks bad for the BOS - wow future not rosy. I can see 30% drops as the norm soon with more to come if the UK experiences a property slowdown.

Hopefully I will be in Spain by the end of the year. I plan to rent for atleast a year, I can see nothing but declines for years to come as more and more property comes on the market due to investors getting sick of funding a loseing property every month that they can't shift. There will be huge inventory buildup, which will last for years. IMHO the whole concept of holiday ownership abroad for the masses was always deeply flawed, it only really made sense when property was going up. Why buy for your few weeks holiday every year, when renting is so cheap and you can go anywhere in the world?

Do you know the coastal strip in the Tropical? If so what is a good area to rent and eventually buy if opportunity presents?

In a nutshell yes! The banks will have to rethink this and I reckon they will have to go down the path or the UK banks and sell at whatever price and then chase old owners for the remaining debt. As you say, people go back to their country of origin and currently there is no cross border claim, although in theory I have been told it can affect your credit history and rating

HOWEVER - a word of warning - I do think that soon developers where people default on off plan contracts and banks WILL follow people back to their main UK residence and either place charges or push for a forclusure which will have devistating effects obviously. There is no reason why they cannot do this, but the process is long winded as they have to go throught the courts here and then effect this through a UK court - costly and time consuming, but Im sure a simpler system will be put into place in the not to distant future to cover this! Certainly to chase europeans to their home country should not present too much of a problem!!!

And yes the BOS could become a property company - perhaps their idea is to then rent thes out to the spanish youngsters on a rent/byu contract, or a subsidized mortgae, rolling all the costs up - OR selling the debt onto funds. Who knows and it will be interesting if a little painful to find out!

Anyway yes rent and get here as it will be if you are on the ground and networking that you will find a good deal.

I dont know the strip in Tropical (Im a good girl really ) but just look for the best you can afford nearest the beach, sea views, above ground level - higher up the better - and see what the rental return is there to work backwards for your offer price. And dont foget to take into consideration your purchase costs - up to 13% approx to come off your budget. Ensure the community fees arent horrendous and then be hard about it - if the criteria doesnt fit then dont buy it!!

Good luck and keep in touch

Ok Rixxy

Thanks for all your time and knowledge. Yes it would be great for me to keep in touch, not sure how I can help you as I'm an investment professional in a completely different market - a rather scary one at that! Can I send you my email?

I'm looking for a detached property with grounds and view, but not sure where. I'm told the climate is best around the coast, warmer in winter and cooler in summer, but obviously you get less bang for your buck. I would tho as you say spend a lot of time on the ground getting the local knowledge, and then work backwards from the rent frr a sensible valuation. I doubt the apartment situation will affect me, but obviously it has hit sentiment really badly and as you say sentiment is key.

I have to say that I'm surprised that the banks lent as much as 80%, in a market that has doubled twice, 20% fall does not seem like much, esp. given the outrageous practices going on - prices, build quality etc. I guess they got greedy too, must have made a bundle from fees etc.

Anyway good luck with the business and thanks for all the advice.

Tim

Hi TJ222 - your welcome, its what the forum is here for and I do find it interesting to have a debate with likeminded people. For sure send me your email and we can correspond if you have a question, just ask

Spending time around is the best as everyone has theit personal opinion of where to live. I can see the advantages of both but I love the sea and mountains - I had to go back to the UK for about 8 months in 1998 and really missed the mountains that are at the back of where we are, I was staying in Bristol and it seemed so flat! The sea I love, dont have to see it but we walk along the paseo 3 or 4 times a week and I hit the beach at least weekly in summer, dunno why but I feel so comforted by it. The climate is more temperate as well, yes it can get hotter higher up or further inland, but some like it like that. And also winter weather - I guess its just a bot more extreme further in than on the coast, but you will find that out yourself.

Possibly Costa Tropical will be more temperate as its further into the Med but then again can get the easterlies from the Balearics!.

The banks wanted the business - for the residnets of Spain they were lending to 95% or even 100% I have heard about - 80% was for non-residents and they all banked on the market rising. The Spanish mentality is that he will ask a price and if he has to wait for 10 years for that price, then he will wait, all the time increasing by inflation (or a bit more). No matter it hasnt sold!

I think the best example of this was when a bank manager came to see me for mortgage business. I had a property for sale and their bank had lent the money. I wanted to know an approximation of the new value - the previous valuation was about a year prior) I sent him the nota simple and he called me saying just to add 10% on as thats what they did on a yearly basis!!!

So, you can go from there! Also lately the actual sales prices have been bu,ped up by aoround 15% to include the purchasing costs and in some cases clients have been obtaining cash back! All worrying but it will sort itself out - eventually!

Have a good weekend, Im just finishing off some stuff then out of here and to the beach I reckon!

Hi Rixxy

I have found a great place to rent in the area I want to go to. Its a two bedroom apartment right on the beach with ensuite and two large balconies. Its really top notch with all mod cons. They want 750euros a month for long term over the winter.

To get an idea of the poor value of buying, I rekon it would be sold for 300k euros absolute min, judgeing by what else I have seen. So I could :

A. Rent it for 9000euros a year

B. Buy it for 15000euros a year if I could get 5% base rate (not inclueding taxes, fees etc).

I addmitedly probably could not rent it year round for thsi figure, but it goes to show how overvalued property currently is.

I remember when I bought both my UK houses in the last 10 years, and each time it was less expensive to buy than to rent. This should really be the case as you are paying for flexibility when renting and no hassles with maintenace etc.

By these and other calcs property in Spain has a long way to fall yet 30-40%

If house prices had increased because Spain had a strong economy, then wages would ahve risen with prices and the yield would ahve stayed the same. Long way to go imho.

Hi Derek

Thanks for the reply. In my example I have just used an interest only calculation, so at the end of the day you would still owe the original motgage, so you would not really own the property, the bank would. However its a valid point that in 25Yrs you would only have to pay the original purchase price, rather than some inflated price as of then.

The point about hols is a valid one, but only if you want to go to the same place each year, and of course you would still have to pay the mortgage for these weeks as no chance of renting.

I suppose I was trying to make the point that the ratio between the cost of renting long term and the cost of ownership has got way out of line, indicating that property is not good value historically and still very expensive.

In my example of renting versus buying, additionaly I have no risk renting, but I think over the next few years stand a very good chance of taking a thumping great capital loss, if I had to move for any reason. I might in fact be stuck with a property I cannot shift at any price, like so many I see on the internet.

I think if you have retired to Spain to live there and enjoy the lifestyle, then the thing that is really important is the all the good things that go with owning your own home, and finance, if you can afford it, is very much secondary.

I am youngish and transient, having lived in Thailand for the last few years and spent the year before that traveling the world having quit the UK, job etc.

Anyway Derek I wish you and your family every good luck with your time in Spain, its an enviable lifestyle for sure if you can plan it right.

Boys boys boys! - If you read the remiander of the postitng, I think you will find it is in Costa Tropical!!

Could be about fight for up there - to be sure you wouldnt get that price here front lione, although in Calahonda you would!

TJ222 - I agree with your posting, renting is currenly much cheaper than buying but yes over time the rental will increase with inflation and so to be owning outright after 25 years would be the way to go.