SPANISH PROPERTY – A BRITISH PUZZLE!

This is an odd time for Britons as far as Spanish property is concerned. The massive fall in the value of Sterling against the Euro, over the past two years, has really complicated everything. This is as true for those currently owning property in Spain who want to sell - as it is for anyone who wants to buy a Spanish property.

The conundrum, of course, is: what will Sterling do in the mid-term? This may seem an esoteric question but any significant change in the strength of Sterling could be profound for both Spanish property buyers and sellers alike.

At the moment, the fall in Sterling for current owners of property in Spain has been a mixed ‘blessing’. The bad news is that Sterling’s fall against the Euro has reduced any UK derived income by around a third (if we take 1.40 Euros to the £ as the old ‘benchmark’). This has devastated the finances of many people, particularly those relying upon a fixed Sterling income.

Indeed, Sterling’s weakness has made continued life in Spain almost impossible for some Britons - who have been forced, often reluctantly, to place their Spanish property for sale. This is, invariably, so that they can return to the UK and regain the purchasing power of their Sterling income or re-enter a job market less shattered than Spain’s.

Obviously, the sheer amount of Spanish property for sale on high density British estates has also acted to reduce the sale prices of all the surrounding properties. This is the cruel operation of the ‘law’ of supply and demand and has acted to further exacerbate the position of any desperate Sterling seller.

Within all of the bad news for British sellers of Spanish property, there is one factor that is good news – although it has an obvious danger. The Euro is now strong. Indeed, a British seller (intending to return to the UK) can drop his sale price by around 30% with impunity (unlike his European and Spanish counterparts) – given that the Euros he will receive upon his sale will (depending upon when he bought) make up for this price drop.

In other words, if someone bought a property in Spain for 300,000 Euros with Sterling at 1.40 then it cost them £214, 285. Now, give or take, they can sell the same property for around 235,000 Euros and still get their money back – leaving aside taxes and expenses etc.

However, of course, this situation will last only as long as Sterling remains weak against the Euro. If Sterling starts to rise then a British seller’s unique latitude to drop his price ‘artificially’ will be eroded. Of course, the purchasing power of his UK derived income will rise but, in my experience, once someone wants to sell then their mind is made up. Indeed, few people remove their Spanish property from the market once embittered by a life in Spain that simply did not work out - irrespective of the fact that the main cause was the volatility of exchange rates.

That said, for a Briton who wants to buy Spanish property, the strength of the Euro has not been helpful. As the example above shows, in effect, there has been no price change at all - if someone tries to sell his property at 235,000 Euros now instead of its 300,000 Euros price tag a couple of years ago. Whilst the price reduction may look good – on a closer analysis, to a Sterling buyer, it amounts to no drop at all, despite the property crash. So, most Britons can still find Spanish property to be expensive, unless it has been discounted by a seller way beyond 30%.

Of course, the ‘winner’ in all of this is a non Sterling European (with cash) who wants to buy Spanish property. He is in as favourable a position as his Euro compatriots, trying to sell their property in Spain, are disadvantaged. Indeed, Euro sellers must be appalled to see the sale price decreases the British can afford to make!

So, what does all this mean?

Well, as a British seller, intending to return to to the UK, it means that you must keep an ‘eagle eye’ on the respective strength of Sterling and the Euro - and then be proactive to change your sale price continually, as appropriate.

Certainly, if you really want (or need) to sell your property in Spain then you must take advantage of the Euro’s strength right now. This just may(!) be a golden opportunity for you to be able to drop your price (on the face of it) to absurd levels - without suffering too badly. Indeed, my ‘gut’ instinct is that you should act fast and decisively to do this, because Sterling may just go up and hold its position. If this happens then you may have lost an almost unique chance to sell on price alone – which, at the end of the day, is what tempts most buyers.

On the other hand, if you have Sterling and want to buy Spanish property then this is possibly a time to ‘watch and wait’ to see if Sterling strengthens. Alternatively, it is the near-perfect time to look for property in Spain on high density ‘British’ estates. These, for the reasons stated above, are far more likely to have superb distress prices than their Spanish or European counterparts.

Finally, what will Sterling actually do over the mid-term? Frankly (as of early 2009), I have no idea at all! That really is an esoteric question and probably a puzzle to us all. All I know is that its movements have very significant implications for us Britons and property in Spain...