Property

High Yield Investment Spanish Vacation House

High Yield Investment Spanish Vacation House There’s no way around it: Spain is a mess. Embroiled in Europe’s ongoing debt crisis and with one-quarter of its workforce unemployed the country has teetered on the brink of collapse for the last few years or so (at least if you believe what you see in the media). Much of Spain’s current misery is rooted in the property boom that started in the late 1990s and continued up to 2008, when every bank in world seemed to crash under the weight of bad mortgages (as well as hubris and recklessness) at the same time. The bubble that started to form in ’97, thanks to historically low interest rates, financing by regional savings banks and a seeming demand based on sharply rising immigration, finally imploded and the country entered a recession in 2009. To that point, the property sector accounted for nearly one-fifth of Spain’s economy.

But aside from property and construction, Spain’s economy is one of the biggest in Europe, anchored in energy (particularly renewable technologies), transport infrastructure, agriculture, automotive parts, pharmaceuticals and, of course, tourism. In August 2012, Spain recorded an all time high for tourist arrivals — an indicator, perhaps, that tourists are also looking at vacations in the country on the cheap. According to the UNWTO 2012 Tourism Highlights report, Spain ranked fourth in total arrival worldwide in 2011 and second in dollar receipts at almost US$60 billion. Crisis or no crisis, it’s a popular destination.

And it’s easy to see why. Spain is one of the most vivid, glamorous, sexy, relaxing, historic and just plain fun vacation destinations in the world. Bullfights may not be to everyone’s taste, but who can really resist tapas on a Sunday afternoon, myriad UNESCO sites (second only to its Mediterranean sister, Italy) and iconic architecture. The modern guitar is rumoured to have originated in Spain, so without the country Hendrix and Clapton might be legendary lute players. And here are a few words for you: Javier Bardem, Penelope Cruz. So a vacation home for personal use or to rent would seem to be a smashing idea.

Not so fast. There may be selloffs out there to take advantage of, but doing so may only exacerbate the situation. “Banks eager to reduce their real estate exposure are now offering foreclosed properties at high discounts, which has only served to further depress the market,” stated IP Global’s 4th Quarter Property Barometer. “With a dire overall economic outlook in 2013, highlighted by 25 percent unemployment in the third quarter and a -1.5 percent GDP growth forecast by the IMF investors would be wise to avoid the Spanish market for the foreseeable future.”

But it might not all be doom and gloom. The financial crisis has indeed negatively affected the second home market, where prices are down to pre-2007 levels. There can be good value there and it is encouraging some buyers to dabble. “No one knows if we have hit the bottom but the general feeling is that we are close and this is the time to buy particularly for cash buyers,” theorises David Scheffler, managing director of Engel & Völkers Spain, “Another aspect of this crisis is that more Spanish have been forced to sell their second homes and this has brought some good properties into the market for foreign buyers. Furthermore, in some cases, some real jewels (that have been owned by Spanish families for some years) have now become available.”

Prices are down nearly 10 percent over the year from September 2011 to 2012 to nearly 2002 levels, and IP Global considers the coastal regions to be overdeveloped. But according to Scheffler, the luxury market has seen some movement recently, and the popular coastal regions are still in demand.

“Investors want a good long-term investment in the sunshine, which is easily accessible … Costa del Sol offers sunshine all year around and good access. Marbella is the hot spot at the Costa del Sol and many international clients are buying sophisticated villas here,” he explains. The region is known for its solid infrastructure, nearly perfect climate, luxury lifestyle and security. Elsewhere, 40 percent of perennial favourite Mallorca is UNESCO protected, intensely cosmopolitan Ibiza is covered in parkland (and more UNESCO sites) and Menorca — the most relaxing of the three — has strict building and environmental regulations. In addition to keeping prices stable, “All this means that there is a good balance of supply and demand in these areas. There is only so much coastline to build on. When it’s gone that’s it. No more,” Scheffler notes.

Whether or not you can find a bargain comes down to choice. Sprawling seafront villas rarely hit the bargain bin, but savvy cash buyers may be able to suss out a deal, particularly for properties that have been on the market for an extended period. “If [investors] negotiate carefully with the owners they can walk away with a deal which is substantially less than the highs of 2006/07,” Scheffler finishes. But don’t get cocky. “Vendors, who are in no hurry to sell do not entertain silly offers well below the asking price.”