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...

SPANISH PROPERTY – ANOTHER NAIL IN THE COFFIN?

Probably like everyone else in Spain(!), I have just received, from a UK relative, a cutting from the Daily Telegraph entitled: ‘Expats threaten a villa “siege” as Spanish serve demolition orders’. This headline is enough to send shivers of fear down any Spanish property owner’s back.

In fact, this story concerns some eight properties in Spain sitiuated in Almeria Province (which is at the bottom, south eastern corner of Spain). It seems that the Britons concerned built their respective properties having been granted the appropriate building licenses in 2002 by their local Town Hall, the latter being responsible for planning permissions. However, the regional authority has since decided that the building licenses were illegally granted and a court has now issue a demolition order. At present, there appears to be no compensation available to the property owners.

This, of course, is everyone’s idea of a nightmare! It is also the worst possible publicity for the Spanish property industry and will, justifiably, unnerve potential international buyers.

So, what has happened?

Obviously, I lack any more details than those in The Telegraph article and a couple of other Blogs that I have read. This means that I am in no position to make any definitive pronouncements on this particular matter. However, what does seem to be the case is that corruption within the relevant Town Hall has been discovered by the regional authority. Having found this out, I can only presume that the regional authority or its court are under a legal duty to reverse the ‘invalid’ licences - and then must demolish the properties once they have been formally declared ‘illegal’.

The problem is that this is very far from the first time that this has occurred. Indeed, the Marbella scandal a couple of years ago (see my article ‘Meltdown in Marbella’ on http://www.nicholassnelling.com/) was the most high profile recent scandal involving illegally issued building licenses. In this case, the level of corruption was, literally, breathtaking - with the police eventually seizing some 2,400 million Euros of cash and assets! Corruption had, it seems, pervaded every corner of Marbella Town Hall and had probably stretched a good deal further up the administrative chain...

So, what do we draw from all of this?

Well, as a generality (however defensive this may seem) the vast majority of the problems encountered by people when they buy Spanish property can be avoided. Know the law, always use an experienced, independent conveyancing lawyer and an equally experienced (and fully insured) building surveyor before you buy anything! Furthermore, wherever possible, buy Spanish property that is Urbanizado and fully Urbanizado. Buying property in Spain in Rural areas (as I have stressed many times) almost always carries a risk – and taking any risks when you buy property in Spain is very stupid indeed.

Of course, this does not, in any way, justify the appalling corruption involved in the illegal issuing of building licences to our British compatriots in Almeria. However, I do wonder whether, before they bought their properties (or building plots), our compatriots had any knowledge of the law - or whether they used independent and experienced conveyancing lawyers and surveyors. I wonder...

I mention this because if you want to build a property in areas classified as Rural you must own a minimum m2 of land - for any new property construction to be legal. This varies around Spain but in Valencia Province, for example, you need 10,000 m2 of agricultural land before you can build a property (to a specific maximum m2). If you do not have this then any construction will be illegal - despite any attempt by a local Town Hall to issue building licences to the contrary. A good lawyer will know this and should immediately tell you.

Sadly, corruption in Spain is endemic and has affected just about anything to do with the Spanish property industry. Sometimes this has taken the form of turning a ‘blind eye’ to illegality, sometimes there has been ‘economy with the truth’ and often a straight exchange of cash. None of this is right, none of this is acceptable and every part of it acts to critically damage Spain, its economy and its perception as somewhere safe in which to live.

It would be an epic understatement to suggest that Spanish property is unsafe to buy. The vast majority of people in Spain (native and international) own properties that are problem free and have a sound title. However, it is equally true to say that there are many illegal properties in Spain and many that have potentially serious liabilities. Clearly, it is these illegal properties and those with problems that hit the news – and often with justification.

Undoubtedly, Spain has been careless and, at times, arrogant and stupid in allowing property illegality to occur. Most of it has been blatantly obvious to the authorities and yet rarely has anything been done. This is ridiculous and needs to be rectified as an absolute priority - with those responsible (or those colluding in any illegality) severely punished. Their actions damage (and have already damaged) the very economy of Spain and thereby every person living in Spain.

Unfortunately, whatever the truth with our compatriots in Almeria, they stand as an example to others of what can happen if things go wrong in Spain. Equally, although the Spanish seem blissfully unaware of this, these types of cases provide the worst possible publicity for the Spanish property industry during its most severe crisis in living memory.

The answer?

Well, there are two. Firstly, if you are a buyer: be careful and knowledgable so as to avoid being the purchaser of a ‘problem’ property – this is something I stress constantly in my ‘Move Safely’’ book together with relevant guidance.

Secondly, Spain must ‘grasp the nettle’ and create an amnesty for almost all existing illegal property. It really is way too late to start demolishing property and, although I hate the thought of any rewarding of illegality, this is the only way to clear-up, quickly, a long term, discreditable mess. Obviously, the amnesty should, on no account, extend to corrupt officials...1

SPANISH PROPERTY MARKET – PROPERTY IN SPAIN FOR THE BRITISH

One of the conundrums facing the Spanish property market is when Spanish property will again become financially appealing to British buyers - given the collapse of Sterling against the Euro which has affected both potential buyers and existing owners of Spanish property.

Obviously, the current strength of the Euro against Sterling has had dramatic consequences for anyone living in Spain and relying upon an income paid in Sterling. The difference between an exchange rate at 1.40 Euros to the £ and (say) 1.10 Euros to the £ is huge. In effect, the purchasing power of a UK pension in Spain has dropped by some 30% over the past couple of years. This has unexpectedly ruined the financial planning of many Britons and made, for some people, life in Spain too expensive to sustain.

Indeed, many ex-patriot Britons have had to place their properties in Spain for sale so that they can return to the UK. The danger of this is that many estates in Spain with a high density of British property owners have, as a direct consequence, a disproportionate number of properties for sale.

Of course, the more properties in Spain there are for sale in a given area the harder it is to sell (the laws of supply and demand) with any seller having to rely upon a severe price reduction to differenciate his property from his competitors. This is never more true than when an estate comprises more or less identical properties - which is often the case on ‘new’ urbanisations. To make matters worse, some estates in Spain are primarily ‘British’ and therefore unlikely to appeal greatly to other nationalities. This means that any likely buyers of Spanish properties on ‘British’ estates will largely remain fellow Britons – themselves hampered by the weakened purchasing power of Sterling.

Of course, many Britons bought their properties when Sterling was at 1.40 (or more) to the Euro. This means, very crudely, that they can drop the sale price of their Spanish property by 30% - and still get their money back (at current exchange rates).

The conundrum is obvious.

Property in Spain has fallen by (at least) 30% since the end of the boom in 2007. So, if you, as a Briton, reduce your Spanish property price by 30% (from its 2007 level) then your property in Spain is still not cheap - to a British buyer! In fact, the 30% drop in an ‘in-coming’ Briton’s purchasing power means that your Spanish property price has, in effect, not fallen at all. So, ironically, any UK buyer is going to be looking for a further price discount before he even begins to think he is getting anything like a real bargain.

In fact, ironically, Britons in Spain are not helping the vortex of falling Spanish property prices. At the moment, many are able to drop their prices by 30% with impunity – and then to drop them by a further 10% - 20% if they are prepared to take a (reasonably acceptable!) loss to extricate themselves from Spain. This is more than most Spanish or Euro sellers are prepared to countenance but acts to further destabalise the Spanish property market.

Certainly, it is no secret that the stabalisation of a property market is utterly dependent upon ‘distress’ sales being rare. Until that is the case, any property market will continue to be volatile with the emphasis being on continued falling prices rather than any marked ‘levelling off’.

In short, are prices stabalising on British owned property in Spain?

Sadly, I rather doubt it – although this could change should Sterling suddenly find sustained strength against the Euro. This would put money back into the pockets of those Britons in Spain drawing their incomes in Sterling and thereby make them less desperate to sell. It would also, as a side effect, force prices up as the Euro weakened and reduced the ability of British sellers to drop their sale prices ‘artifically’ on the basis of having bought when Sterling was strong.

In the meantime, can Spanish property offer value for money to in-coming Britons carrying Sterling worth some 30% less than a couple of years ago? The answer is a cautious yes. The unfortunate number of true distress sales (particularly on ‘British’ estates in Spain) provide some real opportunities to buy Spanish properties at bargain prices unthinkable a few years ago – even given Sterling’s depreciation against the Euro.1

SPANISH ESTATE AGENTS – THE DANGERS OF A BUYER’S PREMIUM

A while ago, I commented on sales commissions for estate agents in Spain. At the time, what I had no space for was a critical warning to any buyer of Spanish property to be very careful about ‘buyer’s premiums’.

‘Buyer’s premiums’, over the years, have been nothing if not contentious - not least because invariably they have taken unwary foreign buyers by surprise. Indeed, as far as surprises go - few can be as unpleasant as finding that you are unknowingly liable to pay a ‘buyer’s premium’. These can be substantial and can badly destabalise your finances, particularly if you are stretching your budget to buy a property in Spain. Certainly, any benefit derived from the low prices produced by the Spanish property crash could be quickly lost...

So far as I know, ‘buyer’s premiums’ are unknown within conventional UK estate agency although they are commonly used in auctions. In effect, a ‘buyer’s premium’ is an amount that a buyer pays to a broker or auctioneer when he purchases something. Normally, at the same time, the seller will also pay the broker or auctioneer a fee – the two sums amounting to the broker or auctioneer’s full sales commission on a transaction.

In Spain, it is not uncommon to find that you could be liable for a ‘buyer’s premium’ when you purchase a Spanish property. Spanish buyers, particularly in urban areas, are used to paying 1.5% commission to a Spanish estate agent if they buy a property - knowing that the seller will also pay the agent 1.5%. There is nothing wrong with this and both parties are invariably fully aware of this deal and accept it as a matter of course.

The problem is that foreign buyers are sometimes ‘tricked’ into paying a ‘buyer’s premium’. Worse still, the ‘buyer’s premiums’ can be a good deal more than 1.5% and, in my experience, can reach 5% of a Spanish property purchase price. Of course, 5% on a 300,000 Euros property is 15,000 Euros – a lot of money!

I say ‘tricked’ because for a ‘buyer’s premium’ to be enforceable there must be written evidence that a buyer willingly agreed to pay the ‘premium’ to the Spanish estate agent concerned. However, invariably this evidence does exist, is available in written form and signed by a buyer.

So, you may ask, what is the problem?

Well, it is the classic one of foreign buyers (or people generally) signing a form/contract that they either did not read properly or did not fully understand.

In the case of ‘buyer’s premiums’ the agreement concerned is most often in the shape of a ‘standard’ form. This form, in essence, commits a buyer to purchase a particular property (if the buyer decides he wants the property!) only from the agent who shows him that property first. This is fair and protects an agent from showing a client a property in Spain which the client then buys from another agent - or directly from the owner (thus cutting out the ‘primary’ agent).

The trouble is that this ‘standard’ form/agreement can sometimes have a clause in it that states that if you (the buyer) purchase a property in Spain from the agent concerned - then you also agree to pay a ‘buyer’s commisssion’ of x% to the agent concerned.

Unfortunately, frequently this very important clause is ‘hidden’ within the depths of the ‘buy only from the agent concerned’ agreement. In fact, I have been shown an example by an agent (an Englishman working for a Spanish inland agency) who proudly explained how the English translation of this clause was deliberately poorly translated - so as to ‘effectively’ conceal its true meaning.

Certainly, the last thing that you expect in any mundane, ‘fair-looking’ agreement is a clause of real importance half-way through the contract. So, almost understandably, potential buyers have a habit of signing this type of agreement with their ‘friendly’ agent without a second thought.

Needless to say, every single person I have met who has paid a buyer’s commission in Spain (100% of them) only realised thier liability when they were ‘reminded’ (clearly and unequivocably) of their liability to ‘their’ agent – after they had already paid a 10% deposit for their desired property to the sellers.

As a buyer you are then faced with only two options: lose your 10% deposit and walk away from the property you are buying or pay (say) 5% in ‘buyer’s commission’ and keep the validity of your 10% deposit and your on-going purchase?

In my experience, everyone liable for a ‘buyer’s commission’ paid it - albeit through hate-filled, gritted teeth!!

The answer, of course, is devastatingly simple. Never, ever sign anything whatsoever (irrespective of the pressure) without your Spanish lawyer present and having read a full and proper translation of any document that you have been asked to sign. If you break this cardinal rule – then, frankly, you deserve everything you get.

I should qualify the above, as I do in my 'Move Safely' book, by saying that the majority of estate agents in Spain do not charge ‘buyer’s premiums’. However, there are certainly those that do – so be very careful if an estate agent in Spain asks you to sign something!!!1

SPANISH PROPERTY FOR SALE - AND THE SPANISH BANKS

It is, of course, no secret that the banks in Spain are now the biggest owners of property in Spain. Naturally, this is not something that they welcome and, as a consequence, several have their own estate agencies (for example, Mediterráneo for the CAM bank and Habitat for Bancaja) to dispose of these properties.

The question is whether, as a buyer, you should automatically search for property in Spain by first going to a Spanish bank or their associated estate agency? Logically this would make sense - as you know that the banks will be invariably offering property at ‘distress’ prices. After all, what a bank wants is its money back i.e. the debt owed to it on a given property. This is irrespective of the true market value of a given property.

Normally, of course the debt on a property will be the mortgage which, in theory, should be less than the value of the property. So, in principle, buying from a bank should be compelling and allow you to pick up an almost guaranteed bargain. With so many properties for sale in Spain, it therefore also follows that, one way or another, you have a reasonable likelihood of finding a bank ‘distress’ property to suit you pretty much wherever you want to live.

However, life is rarely simple and just heading for the banks as your main ‘port of call’ for bargain properties in Spain does not necessarily make sense.

The trouble is that the debt on some properties can be greater than their present day value - given the fall in Spanish property values over the past couple of years. To state the obvious, if a 100% mortgage was granted on a property in 2007 (at the height of the boom) then the debt may be well beyond that property’s true market value in late 2009 (somewhere, possibly, towards the bottom of the Spanish property crash). So, to be told that you are buying a property only for a bank’s debt may be little more than ‘weasal’ words!

Certainly, you should be wary of taking on a Spanish property just for its bank debt value and you must research the prices of similar property within the same location within the general market place. You may find that they are being sold for less by mainline estate agents or private sellers.

That said, one of the advantages of buying a Spanish bank owned property is that the legalities are normally correct and in order. Furthermore, mortgages (sometimes with preferential terms) can sometimes be obtained.

Nonetheless, as I stress in my book ‘How to Move Safely to Spain’ – never forget that a bargain priced Spanish property is not necessarily a good buy. Indeed, the sale price of a property (anywhere in the world!) is only one of the many different criteria that make a property purchase a sound, long term investment.1

FINANCIAL DISCIPLINE IN SPAIN - 6 CRITICAL GUIDELINES

When it comes to finance, the secret of moving to Spain is to:
1. Under-spend on any Spanish property.
Set a budget and make it less than you can afford and then keep to this figure. Be disciplined and remember that long term an inanimate object (even a lovely Spanish villa) will not guarantee you happiness. Financial problems, on the other hand, are absolutely certain to provide you with heartbreak and intolerable stress.
2. Avoid any borrowing - whether mortgages or otherwise.
Keep your fixed costs and overheads to a minimum. For someone relocating ‘cash is king’ – unless you are financially very sophisticated.
3. Budget for the worst possible income return on existing investments or pensions.
As 2008 showed, Sterling can crash (in 2008 almost by a third to the value of the Euro compared to a few years previously). Equally, the value of pensions and other investments can drop as radically as they can rise. Nothing is absolutely certain and you must build in a conservative factor to your anticipated long term income. Make sure that you can survive comfortably should your predicted income drop by 20% - 30%
4. Be precise about the Spanish property you buy.
Make sure that your new home will be right for you and that you will not have to move again. The costs of buying property in Spain are considerable (around 10% of the purchase price) and Capital Gains Tax is payable (with exceptions) on the sale of your Spanish property whether it is your main and primary residence or a second home. If you buy a property in Spain that is not suitable for some reason and then sell up and buy again in Spain then you will have lost:
- At least 20% of the gross value of the properties bought (2 x 10% purchase costs).
- Any money payable as a consequence of Capital Gains Tax.
- The fees due to any estate agent.
- The ancillary costs of moving (removals etc.).
This is a fine way of wasting a lot of money very quickly.
5. Allow at least three years for any work in Spain or new business to start providing a satisfactory income.
Businesses are invariably much slower (irrespective of the country!) to produce a proper income than ever first anticipated. There are exceptions, of course, but be very pessimistic on your predictions about the expenditure involved and the time it will take to receive a viable income.
6. Put aside a contingency budget for unexpected problems
Unanticipated difficulties occur when living in Spain (as if with any country) as surely as ‘night follows day’ and just as certainly they involve expense beyond that ever considered. So, always ‘ring-fence’ several thousand Euros as a contingency budget - to be used only in cases of emergency.1

NEW SPANISH PROPERTY - ‘OCCUPANCY PERMIT’

First Occupation License

It is absolutely essential that your new build property in Spain is granted a Licencia de Primera Ocupación (sometimes referred to as a ‘Certificado de Habitacion’ or ‘Cedula´) before you pay fully for it. This vital certificate is granted by the local town hall planning department upon completion of a Spanish new build and declares the legality of the property in Spain. Also, it acts (in theory) as confirmation that the Spanish property meets all necessary local and national planning regulations.

If your newly built Spanish property, when completed, does not have a Licencia de Primera Ocupación (sometimes referred to in English as a First Occupation License - FOC) then ‘alarm bells’ should ring! One sign of this is when a Spanish property is not connected to mains utilities (water, electrics and telephone). This is known sometimes as being on ‘builder’s electrics and water’ - which is an accurate phrase!

Indeed, your property in Spain may literally have its services connected to those of your builder rather then the services suppliers. This is usually obvious but can be proven by the fact that you will not receive or be able to obtain any formal services bills.

Certainly, by Spanish law, utility companies cannot connect their services to illegal properties in Spain. If they do they can now be fined heavily. So, services suppliers tend not to connect to illegal properties - when in the past (pre-fines) they turned a ‘blind eye’ to the law.

So, if your new Spanish property lacks a mains supply of electricity, water and land line telephone then you should take this as a potential sign of illegality. At best, it may indicate that there are delays with regard to legalisation or final completion of your Spanish building project.

Note that sometimes personal registry on the local ‘Empadroniamiento’ can also be affected by a lack of a First Occupancy License.

Being on ‘builder’s electrics and water’ used to be laughed off and was tolerated by many buyers of new properties in Spain. Frequently these people were told that it was ‘quite normal’ and would be ‘sorted out soon’... However, some found out later, to their great cost, that the underlying reason for this seemingly ‘innocent’ delay was related to the far more serious and worrying issue of illegality. So beware...

Note that failure to supply a Licencia de Primera Ocupación constitutes a breach of contract on the part of the seller. Indeed:
· You are not obliged to sign the Escritura (UK ‘Completion’) until the Licencia de Primera Ocupación is presented.
· Your seller cannot cancel the contract on the grounds that you refuse to sign the Escritura without the Licencia de Primera Ocupación.1

THE SPANISH PROPERTY MARKET - BUY NOW OR WAIT?

Few things are more apt to cause stress than an attempt to ‘call’ a market. It is something that my friends at Currency Direct have to do daily and it is something for which I have nothing but admiration. They know that, one way or another, they have to make a prediction about what will happen in the future – and then act upon it - despite the real risks and difficulties of so doing.

When it comes to Spain, the vital ‘call’ for anyone interested in the country revolves around whether or not now is the right time to buy a Spanish property.

Certainly, as we all know, timing is everything. Buy at the wrong time and you can find that your new property in Spain instantly loses you money. On the other hand, if the market rises you may ‘kick’ yourself for not having taken advantage of a distressed Spanish property market offering possibly ‘once in a lifetime’ bargains. In short, do you buy now or remain watchful and wait for another year – or possibly much longer?

As always, it is hard to find meaningful guidance that will help you make an informed ‘call’.

Just as with the UK, reliable predictions in Spain about anything to do with the national economy and its related property market are hard to come by. Those that do exist are often coloured by political or vested interests so biased as to leave most observers baffled.

So, what is the reality?

Without doubt, Spain is suffering a property crash of epic proportions. The world economic crisis has hit the country very hard indeed but has been greatly exacerbated by the lunatic building programme of the past ten years. The latter resulted (between 20002 – 2007) in Spain building something like a third of all new properties constructed within the Eurozone. This was far in excess of any possible demand and has led to a massive oversupply. Indeed, it is thought (no-one knows exactly) that there are some 1 million new builds for sale and possibly much the same number of resales.

To make matters worse, new construction is somewhat like an oil tanker with building completions continuing to occur despite the brakes on the market having been applied some time ago. So, unfortunately, this year some 450,000 newly completed homes will evidently hit the marketplace - further damaging it when least needed.

The combined effect of the world recession, the collapse of the construction industry and reduced tourism means that Spain is already experiencing significant economic problems. Unemployment will almost certainly hit 20% this year (currently it is around 17%) and government debt may rise to 60%. The OECD is predicting an economic contraction of 4.2% and Standard and Poor (S&P) expect the Spanish property market not to recover until 2012.

But what does this all mean if you are a potential buyer? If there is to be no recovery until 2012 - do you have almost infinite time on your hands?

In a way. But what tends to happen in a property crash is that the weak tend to have to sell at whatever price within the first year or so of a crisis. Meanwhile, repossessions take around six months to a year to administer before they appear on the market as forced sales.

So, the first couple of years of a crisis are when you are likely to obtain the best priced quality properties for sale. After that time those property owners who have survived the worst effects of the storm tend to be able to hold onto their homes. The longer time passes the less likely they are to accept really low prices and the more determined they become not to sell at a loss. In reality, it is only at this time that a market naturally begins to stabalise.

My suspicion is that the Spanish property market may still dip down further between now and the early/mid spring of next year. However, during the same period, I think that a remarkable opportunity exists to buy some fantastic properties at genuine distress prices. The latter, for exceptional properties, may start to dry up towards the spring of next year thus making truly excellent buys increasingly hard to find. There may be a lot of ‘rubbish’ still remaining at low prices but they should be of no interest to the wise buyer (because something is cheap it does not automatically follow that it is a good buy).

Would I buy now? I think so - knowing that there will be a diminishing opportunity to buy exceptionally well.

However, I would be a tough and extremely cautious buyer looking for an absurdly good price on an objectively fine (fully legal) property that was easily resaleable and that I could pay for in cash (at whatever the relevant price range). I would also be someone who would be buying on the expectation that I would be unlikely to see any appreciable growth for another three to four years.1

BUYING A SPANISH PROPERTY IN THE WRONG LOCATION – THE COST!

Stressing the importance of ‘location’ has become an unwelcome cliché. However, it cannot be stressed often enough - as it will define your future life absolutely. If you make a mistake with your choice of location within Spain then it may terminally harm your dreams of a new life and lead to a rapid and embarrassing retreat to the UK. Alternatively, if you decide to move again within Spain then it is bound to be an experience that is disruptive, unwelcome and expensive.

You should realise that any sale of a property in Spain, depending upon your personal classification, is likely to attract Capital Gains Tax at 18% even if you are selling your primary and main residence. Equally daunting is Spain’s 7% purchase tax payable when you buy a Spanish property. Move twice in succession (2 x 7% purchase taxes and a CGT of 18%) and you may lose a lot of money simply to the tax man! So, it is important to make sure that any purchase of property in Spain or relocation is precise and does not result in further unnecessary moves.

In fact, there are some very good general guidelines about what tends to suit the majority of people when they relocate. These are really important to understand and deserve close attention. So, always concentrate greatly more upon the suitability of your proposed location - than upon searching for particular properties in Spain. Finally, know what the guidelines are for a successful purchase of Spanish property. This is something that I will tackle in another blog and detail extensively in my book...1

SPANISH PROPERTY CLASSIFICATION - RURAL - A TERM OF VITAL IMPORTANCE

Rural land (also known as rústico or no urbanizable) encompasses most of the land in Spain and is essentially agricultural land. However, in property terms, it means that it is land in Spain that is severely restricted for building puposes. Unfortunately, this has been abused by the Spanish who have built many properties illegally on land classified as rural.

Existing Spanish properties located on rural land need to be treated with exceptional care. They may be legal, partly legal or completely illegal. Equally, at any time, they may be subject to a change of designation from rural to urbanizado.

Even if a Spanish property is legal and on rural land it can, by definition, potentially have serious future liabilities should the land be reclassified. This can happen anywhere but is most likely to occur in areas of high development potential such as those close to the coast or, perhaps, near to a booming town or village.

If an area of land in Spain is redesignated from rural to urbanizado then all the liabilities and benefits inherent in the redesignation of the land occur. This redesignation of land in Spain can be fantastically advantageous, make little real difference or be disastrous – depending upon the extent of your land, your finances, the cost and extent of the work and the actual execution of the infrastructure project.

Subject to obtaining the correct planning permission and abiding by strict regulations (such as the size of the property allowed) you can build a new property in Spain on rural land. However, this normally requires you to have a significant plot of agricultural land - although the regulations on this depend very greatly upon the given Spanish region (Comunidad). Equally, the law changes frequently which means that you must always check extremely carefully with a Spanish lawyer the precise regulations in force (in your particular region) before buying anything.

Currently, as an example (with various exceptions), you would need some 10,000 m2 of rural land in the Comunidad de Valencian before you could build a new property legally.1

SPANISH PROPERTY CLASSIFICATION - URBANIZADO - A VITAL TERM TO UNDERSTAND

To know what the term ‘urbanizado’ means is of vital importance to anyone thinking of buying land or property in Spain. Indeed, it is so fundamental - that you would be literally crazy to buy a Spanish property without fully understanding its significance...

‘Urbanizado’ is the term that describes land in Spain upon which it is legal to build - subject to obtaining planning permission and abiding by the relevant regulations. This land will normally (but not always) have a complete infrastructure of made up roads with pavements and street lighting, mains water supply, mains drainage, mains electricity and land line telephones (generally with an ADSL facility). Urbanizado areas are clearly designated on the plans held by town halls and their designation is ‘black or white’ – either an area of land in Spain is classified as urbanizado or not.

However, it is critically important to know that urbanizado areas are not always fully urbanizado (fully urbanised). This means that an urbanizado area may not have all of its proper infrastructure in place.

So, for example, an urbanizado area (particularly on some estates) may have electricity, mains water and some of the roads properly made up with street lighting and pavements. Any deficient elements of the infrastructure (such as, for example, where there are no pavements and street lighting) may at some stage be compulsorily rectified by the local authority. If this occurs then the owners of the Spanish property on the relevant part of the urbanizado estate (urbanización) will have to pay for completion of the remaining works i.e. the installation of mains drainage or the surfacing of the roads or the installation of proper pavements and street lighting.

Vitally, the safest property in Spain that you can buy is a Spanish property situated on land that is urbanizado and that is fully urbanised (urbanizado). If this is the case then you should face no further liabilities for infrastructure costs nor have any possibility of ‘land grab’. The signs that a property in Spain is urbanizado and also fully urbanizado (subject always to confirmation from your lawyer) are when the property has:
· Mains water.
· Mains electricity.
· Telephone land line.
· Mains drainage.
· A properly laid road.
· Pavements.
· Street lighting.

If your intended property in Spain lacks any of the above then it is highly unlikely that it is both urbanizado and fully urbanizado (with all the infrastructure works completed) – so be extremely wary of being assured otherwise!

Normally all cities, towns and villages are urbanizado as are some, but by no means all, housing estates (urbanizaciónes).1

SPANISH LAND LAW – IT IS NOT THE SAME AS THE UK!

The best advice that any Briton can be given, even before he thinks of buying property in Spain, is: ‘recognise, from the start that Spanish land law and its operation is very different from that of the UK’. This may seem an obvious assertion but many of the problems experienced by UK buyers in Spain stem from a mistaken belief that Spanish land law and building control is almost identical to that of the UK. It is not – anymore than it is in Poland, France or Morocco.

The UK has a very high standard of land law and any transgressions of illegality are penalised quickly. Certainly, if a property is built illegally, for example, then it is invariably promptly demolished by the local authority concerned. This is not the case with Spain. In fact, there are many properties throughout Spain that are either illegal, semi-legal or that have significant potential future liabilities.

Certainly, particularly in country areas you cannot presume that just because a building exists that it is fully legal or that it will not have significant potential future liabilities. In truth, you are better to think the reverse and then only buy after your conveyancing lawyer has provided conclusive proof to the contrary. If you do not follow this strategy then you may end up with the subsequent demolition of your Spanish property or the loss of some of your land and/or the requirement to pay considerable money to your local authority.

All of this is not to say that you cannot buy safely in Spain. You can. Millions of Spanish people and many expatriots own completely safe, secure, problem free properties - just as we do in the UK. However, unlike the UK, Spain can be unforgiving if you are careless or lack an understanding of how property matters operate.

As always, pre-warned is pre-armed and it is my aim to provide you with the knowledge to ensure that any move to Spain or purchase of Spanish property is done safely – for the long term.

In my next couple of Blogs I will tell you about the two most important classifications of land in Spain: urbanizado and rural. Knowing what they are is critical - and only once you understand their significance should you start looking for your dream property...1