Sweet Spot Of Opportunity On Europe’s Best Coast
Sumptuous Marbella, nestled on Spain‘s southern Mediterranean coast, has long been a draw for moneyed expats. The good news for those of us who might not qualify as “moneyed” is that the collapse in the Iberian nation’s real estate market has brought prices here back to real-world levels. And with signs that property values on this coast are finally back on the up, now is the time to be shopping.
I visited this costa recently to investigate the situation on the ground firsthand. My scouting included a conversation with local property expert Barbara Wood of The Property Finders. As Barbara and I discussed, it seems that Marbella is in that sweet zone of high end at a low price with capital appreciation on the way.
Here are highlights from our conversation…
Rob Carry: To start, what do you think it is about the Costa del Sol that has made it so consistently popular with generations of expats and visitors?
Barbara Wood: This coast has got the best winter climate of all mainland Europe. The only place in Europe that’s slightly better is the Canary Islands, but they’re stuck out in the Atlantic off the coast of Africa.
Also, if you look at a map, the only part of Spain’s Mediterranean coast that is south facing is in Andalusia. Every other bit of Spain’s Mediterranean coast is east facing. Most properties on the coast face the sea, but if you’re on the east coast then you’re losing the sun quite early in the day. Also, in the winter, the east coast gets winds off the sea.
Plus, most European capitals are within a two- to three-hour flight, so this part of Spain’s coast it’s incredibly accessible.
Rob: What has Marbella got over the rest of the Costa del Sol?
Barbara: I’d say simply that Marbella is head and shoulders above the rest of this coast. By Marbella I’m including the nearby Puerto Banús area and the little town of San Pedro.
The area to the west of Marbella is considered most prime. It’s very residential, and this is where most overseas residents choose to have their homes. The best golf courses are here… the best of everything really. This is also the spot with the most expensive real estate.
I like this region because it’s still not far removed from the real Spain. At restaurants on the backstreets of Marbella and San Pedro, you can be the only non-Spanish person in the place. These are places where you can eat fantastically well for 10 euros.
East of Marbella is more touristy. This is where you find the best beaches, but the area is geared less toward residents. There are also noticeably fewer golf courses.
Rob: I imagine golf is a big draw around Marbella…
Barbara: It’s not up for discussion—this is the golfing capital of Europe. There are around 65 golf courses within a 100-mile stretch of the Costa del Sol.
This has advantages even for those with no interest in the sport. Most of Mediterranean Europe is shut up in winter. Resorts close down. The Costa is the only place on the whole of the Mediterranean that has a genuine 12-month season. That’s because from the middle of October through the end of May and into June, the weather is perfect for golf. As soon as the summer visitors head off, the golfers start pouring off the planes.
This means the potential for year-round rentals. Unlike the rest of the Med, where rental potential is indifferent outside the summer season, you get really good rental potential year-round on this coast because you can target those golfers.
Rob: Who’s buying?
Barbara: European buyers make up 65% of the market. Twenty years ago it was predominantly a retirement market. Many were looking for winter homes and somewhere for summer holidays. Now that’s completely changed. A buyer could be anyone… in his 30s, 40s, 50s, or upward. These people are buying now in part because prices have fallen dramatically. They might use their properties as holiday homes while they’re still in their working years. They might have teens or children in their early 20s who can use the properties during their summer holidays. Or they might rent out. It’s a broad base of people.
Brits are the largest contingency but only about 15% of the market today. You also meet Hungarians, Ukrainians, Russians, and Chinese.
Rob: Tell me about Spain’s Golden Visa program. What is it, and how has it impacted the property market?
Barbara: The Golden Visa (whereby you get residency when you invest more than 500,000 euros in real estate) has driven a lot of additional traffic, especially from Americans. I used to get maybe 100 or so hits a month from the United States. Now I get 5,000 a month. This started literally the day the law came into effect (Oct. 1, 2013).
Note that you can also buy government bonds to qualify for the visa; it doesn’t have to be property. Also, you can buy more than one apartment. For example, you could buy one for yourself and one to rent. Do that, and you’ll get residency for Spain. And, remember, that means residency for the entire Schengen Area.
Rob: How are rental returns right now?
Barbara: In the really prime areas like Marbella, we’re seeing gross returns of 7% to 10%. And we’ve been seeing that for the past three seasons.
Spain just became the third most visited country in the world. The overseas tourist numbers for 2013 broke the 60 million barrier for the first time ever. Last year, 2014, the country saw more than 63 million overseas visitors. And this is supposed to be a recession. Also, these numbers don’t include domestic tourism.
A third of these foreign tourists stay in private accommodation rather than in hotels. You see the potential for people who buy to let.
Rob: Let’s talk about prices. How much has been wiped off the value of the average property since the beginning of the downturn?
Barbara: Prices have fallen by 45% on average. They are now back to where they were in 2000. All the gains of the boom have unraveled. Clients arriving with 650,000 euros are getting houses that at one time were on the market for 1.2 million euros. If you’re looking to spend 300,000 euros, you’re able to buy something that would have sold at the height of the boom for 450,000 euros.
I look my clients in the eye and tell them that what they’re buying will recover to at least that level again in the medium term. I’m very sure of that.
That reality explains the strong recovery of the overseas market in this market. Overseas buyers now represent about 20% of the overall market in Spain.
The timing is phenomenal, but this window of opportunity isn’t going to last longer than 12 months because of the shortage of new properties coming through. Apparently the overhang of unused properties has been reduced by 40%. But there are still amazing opportunities out there.
Rob: Has there been much variation in the level of price declines in different areas along the coast?
Barbara: In the prime areas, 40% has been wiped off property values. That includes Marbella and also San Pedro, the heart of the golfing area.
On the outer edges and in less desirable locations the decline has been 60%. But some of the property built during the boom is, frankly, unpleasant. You would wonder if some of it will ever find a buyer.
Rob: So the time to be shopping is right now?
Barbara: Parts of Spain are still on the way down. In the domestic market—Spanish cities and suburbs—prices probably won’t bottom out for another two years.
That makes it difficult for overseas buyers to read things. If you look at broad averages, you see property prices that are still falling. And, overall, they may well be. However, you have to look at the market as two sectors—the overseas sector, which is limited to coastal areas, and the wider domestic sector. These are very different markets, and they’re behaving differently. One is declining because lending is on the floor. Then there’s the overseas market, predominantly one of cash, which is doing much better.
In the prime areas, we’ve already seen prices lift off the bottom.
Rob: Could property price increases be offset in some areas by construction firms ramping up supply and thereby reducing demand?
Barbara: Right now no new building is going on. Very little new product is getting planning permission. Plus, builders can’t get credit. That’s been the case for five or six years now. In the best areas, we’re seeing a shortage of stock.
Rob: The trials and tribulations of Spain’s banks have been well publicized. What are the chances of overseas buyers securing finance?
Barbara: Lenders now give about 60% of value to overseas buyers… when they lend. In my experience, they will only give mortgages to people who don’t need them. The mortgage market is still in intensive care.
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