Recovering real estate sector presents best growth opportunities

Investors seeking a bargain should turn to the Spanish property market as High levels of distressed properties and unsold stock in Spain  make it a buyer's market, it has been suggested.

According to Bloomberg reports, there are many reasons for people to consider purchasing real estate in Spain at the present time as the real estate values have now slipped to their 2003 levels, making it an enticing prospect for investors.

Commenting on the situation, Liam Bailey, head of residential research at Knight Frank, advised anyone considering entering the market to do so with caution. He said that buyers who choose a destination that they enjoy visiting on holiday to purchase a second home should have good rental potential as the property is likely to be in a place frequented by other tourists.

He commented: "There are reasons why properties are distressed. As an outsider coming into the market, it's so risky. You've got to get under the skin of the market and figure out why people are selling at a loss."

Despite the prices tumble by as much as 40 per cent in some regions, investors can still make a profit as a recovering market it is likely to present real estate speculators with the best opportunities for growth in the coming years. The news may prompt a number of individuals to look for Spanish properties with the country currently offering price reductions as a result of the market crash with the nation's Ministry of Public Works revealing earlier this year that a quarterly drop of 1.3 per cent was registered between July and September this year, while values fell 5.5 per cent on an annual basis.

Meanwhile, Adrian Warriner, managing director at Spanish-Living.com stated that for investors, the obvious advantage right now is the opportunity to buy in a market that's not far off rock bottom.

Mallorca is expected to undergo a top-down recovery in 2012

The Mallorca property market is expected to undergo a "top-down recovery" in 2012, it has been suggested.

According to Sotheby's International Realty, the high-end homes for sale on the island have performed relatively well this year and this is expected to continue next year.

Stephen Dight, Managing director of the organization commented:  "We expect a top-down recovery, that is to say continual improvement in the top-quality end of the market with a trickledown effect spreading to the lower priced property."

Mr. Dight was positive about the real estate sector in Mallorca overall, stating that its popularity with buyers from all over Europe, as well as the lack of available stock on the market are the reasons of the market resilience. Also, increased property sales and interest from potential buyers in Mallorca is helping to drive recovery in the country's beleaguered property market

Realty firm Taylor Wimpey de Espana outlined the reasons for the popularity of Mallorca as it did not suffer from the same problems relating to oversupply as the rest of the market, so the balance between supply and demand was in its favour and secondly, buyers claim that Mallorca is considered as a "superior" location to some mainland cities.

Javier Ballester, managing director of the company, said that Sales to foreign buyers have been driven by the price adjustments that the Spanish market has seen and Mallorca properties have seen reductions of up to 25 per cent. He also said that the company is looking at launching more developments to keep up with the current demand.

In related news, Spanish-Living.com website recently revealed that property prices in the Balearic Islands tend to hold up better than those on mainland Spain.

Valencia a safe choice for investment

While property prices in Spain have plummeted in recent years,   Valencia is considered to be a good option for those planning to purchase a home in the country as there are many homes in the city on the market for a low price at present.

Marc Da-Silva, founder of PropertyJournalist.com said that due to the Spanish housing downturn, there are a lot of the vendors have become desperate in their need to sell, so there is plenty of room for negotiation. He added that as it is easy to reach from the UK, Valencia is still a popular choice among Brits.  However, he stressed that price is the most important factor encouraging buyers to consider purchasing a property in this region. The city may not be the best place in Spain to buy an investment property, but it is "definitely a nice place for a holiday home".

According to a recent article in The Wall Street Journal, average real estate values in Spain have fallen by between 15 and 40 per cent since the financial crisis began. However, there is "still a sense of long-term economic stability" in Spain, which may appeal to investors hoping to pick up assets at low prices.

 Moreover, the high-end homes in Valencia, Ibiza and on the Costa Blanca have been in demand during the first half of this year. The lack of quality luxury apartments and houses should mean that prices in this segment of the market will remain stable. Property experts predict that there is also “a very positive second half of 2011" for the high-end property market in Valencia, adding that properties in this area have "great potential", with luxury homes likely to experience capital growth during 2012.

Meanwhile, Ignacio Osle, sales and marketing manager of Taylor Wimpey Espana, noted that the "global appeal" of Spain is such that individuals from everywhere in the world will be interested in sampling its traditions and way of life. The country is set to experience higher growth next year than its European rivals France, Italy and Greece - so  Spanish properties is still likely to be popular.

commercial property sector may take some time to recover

The commercial property sector in Spain may take more than a year to recover, research shows.

According to a data published by Savills, the lack of finance coupled with the wider European debt issues will slow the market's recovery. Since 2001, investment in Spain’s commercial property sector is now at its lowest level with just €1.25 billion (£1.1 billion) in deals concluded in the first nine months of 2011, Bloomberg Businessweek reported. The lack of funding from Spanish banks is deterring investors and this represents a 52 per cent drop over the same period in 2010.

Managing director for Spain and Portugal at RREEF - the real estate investment division of Deutsche Bank AG - Ismael Clemente said that Pressure on Spanish sovereign debt is pulling back investment. A lot of the big property deals that have come up this year have been canned because of a lack of financing.

 BNP Paribas Real Estate stated that the investment volumes in Spain’s retail real estate sector fell in the third quarter of 2011. Spain is also set to see a decrease in activity in hotel investment sector during the first half of 2011. Madrid has one of the lowest forecasts for activity in the retail market for both 2011 and 2012. The study found that Calle Serano/Calle Ortegay Gasset region of the city saw rents drop by four per cent between the second quarter of 2011 and the same period a year earlier.

Meanwhile, level of investment in Spain’s retail real estate sector decreased by two per cent in the three months from July to September, compared to 12 months previously.

In related news, Moody's downgraded the Spain's rating by two notches, from A2 to A1, following similar decisions from other agencies Standard & Poor's and Fitch Rating. The agency stated that this decision was partly due to "the downside risks from a potential further escalation of the euro area crisis".

The statement from Spanish government stated that it believes the credit rating cut is based more on the short-term problems in Europe, rather than the "long-term fundamental outlook" for the country.

Spanish golf properties are holding its value

According to industry experts in Spain, properties located on or near Spanish golf courses are holding its value much better than the national average and have weathered the economic storm better than comparable homes on the coast.

Taylor Wimpey de Espana said that Golf property had held its value between 10 to 15% more than other properties in the country and the value of golf properties fell by a maximum of 20 per cent - significantly better than the 30 to 35 per cent decline exhibited among properties on the coast that are not near a golf course.  He advised investors that purchasing real estate on a golf course in Spain "can be a very sound investment". Investors may also want to bear in mind the firm's argument that good year-round weather and the rising popularity of overseas golfing holidays mean that rental income can be generated in every season.

He also revealed that during the first eight months of this year the property firm saw transactions to overseas investors increase by eight per cent, on the year to date and also a significant rise in the number of enquiries about Spanish properties with a 70 per cent boost in the first half of the year, compared to the same period in 2010. Brits have accounted for 32 per cent of sales so far this year.

With the Golf season lasting the majority of the year unlike other properties that rely on the prime holiday months for occupancy, Golf properties are a great source of regular income. May – August are peak period for Golf property owners who can further profit from their investment.  The combination of high demand and high rental yields meaning there are more exit options and re-sale have continued to attract investors to Spain’s Golf properties ultimately helping them hold their value.

Demand for property in Spanish cities could be set to grow as an increasing number of investors look to take advantage of  price drops in Costa de la Luz on Spain's Atlantic coast.

Nick Stuart, managing director of Spanish Hot Properties, portrayed the region as "the Caribbean of the Spanish property market" as it offers "a completely different lifestyle for property buyers, especially for those who want to get back to real Spain".

The lower prices available in the region is another reason that investors may consider purchasing  real etsate on Costa De Luz is, particularly when compared to areas like the Costa del Sol. Boasting one of the best climates in the country, numerous beaches, historical monuments and a growing ex-pat community, it is the ideal destination for Brits to escape to. Indeed, a growing number of British, Russian and Scandinavian property buyers are beginning to show a real interest in Costa de la Luz property. Price reductions of up to 30 per cent proving too good to miss out on.

The region has now been enjoying an increased interest from international property investors due to its excellent growth potential and investment credentials as properties are available at much lower entry levels than the rest of Spain .

Marc Da Silva, Freelance property journalist and founder of Propertyjournalist.com explained that prices are not likely to increase in the nation over the next couple of years and  they may drop further, which could enable investors to find a better bargain.

He commented: "In Spain, prices have been falling there at a rapid and alarming rate for quite some time. It is a wonderful opportunity to negotiate a cheap property deal."

Spanish luxury property market has shown more resilience

The sales of residential property in Spain dropped radically during the second quarter of the year, compared to the same period in 2010.

Recent figures from Spain’s National Institute of Statistics showed a 40.8 per cent fall in the level of  Spanish property sales which is followed on from a 30.4 per cent decline in Q1 of 2011, compared to a year earlier, according to AFP report published on Expatica.  From April to June, 90,000 homes were sold and there are an estimated 1.5 million properties still on the market in the nation.

Global Property Guide stated that housing values declined by 8.43 per cent in the second quarter, compared to a year earlier. Besides, a quarter-on-quarter drop of 3.1 per cent was also recorded in the first quarter of 2011. The INE figures show that the price of both new properties and re-sales are falling, down 2.6% and 1.8% respectively year on year and prices are set to keep falling for another two years. Madrid was the only region to experience rising prices in Q3 2010, up by 0.9% compared to a year earlier. Andalucía saw prices fall by 2.2%, The Balearics 2% and the Canary Islands down 2.9%. The biggest fall was in Cantabria, down 6.7%.

According to figures from Idealista.com, one of Spain’s leading property portals, property owners are dropping their asking prices in record numbers as a record 26,188 vendors advertising their homes for sale at Idealista reduced their asking prices.

However, Property wire has reported that recovery in Spain's commercial property market is currently ahead of the residential sector particularly Madrid is a hub of office activity, offering better than average occupancy rates.  Also, the luxury property market has shown more resilience than other sectors of the market. Overseas buyers are acquiring more luxury properties in Barcelona, the Costa Brava and Ibiza without mortgage financing. Lucas Fox International report on the first two quarters of 2011 also shows that there is a growth in Luxury property investment in Spain from Russian, Dutch, and Swiss buyers and investors.

Alex Vaughan, director of Lucas Fox has said that the first half of the 2011 has seen the luxury property market has held steady in sales prices and seen some increases in rental price for exclusive properties located in major cities. The lack of quality luxury apartments and properties should mean that prices in this segment of the market will remain stable.

He commented: “Given the current economic conditions and lack of finance available to local buyers, the luxury property market for foreign buyers has great potential and that there will be a return to annual capital growth next year. Demand for luxury properties continues apace, mainly driven by international clients from the Euro zone and more demand for sea front villas from buyers from Russia and ex Soviet states”.

Substantial price falls in Spanish coastal areas encourage buyers

Investors seeking a bargain should turn to the Spanish real estate, one sector commentator has noted as there are "some outstanding bargains to be found" in the country.

Adrian Warriner, Managing director of Spanish-Living.com explained that this is the ideal time for buyers to jump in as in some of Spain's coastal areas, price falls have been substantial. He suggested Costa del Sol, where property prices have plummeted by ten per cent this year alone.

He highlighted other locations such as Nueva Andalucia, San Pedro and Guadalmina because they "provide easy access to up market hotspots Puerto Banus and Marbella".  Apart from the bargains, the government's decision to halve value added tax on new property purchases, bringing it down to just four per cent and discounts offered from the banks with offers up to 100 per cent finance on certain homes has resulted in more influx of first time buyers.

Finally, he pointed out the fact that the Euribor is currently at its lowest rate since 1999, which means there are encouraging conditions for borrowers. Lower property prices may encourage more investors to look into the options open to them in Spain and elsewhere in Europe

 Peter Mindenhall, analyst at IPINGlobal.com, stated that the market is segmented at the moment, with some houses are “just on the market” and some are only “priced to sell.”  But still,   exceptional value can still be found in the country. He also issued a note of caution, stating that investors looking for a good deal on properties should carry out the required research if they are to find “the most competitively priced properties”.

Mr. Mindenhall commented: “The banks have yet to declare much of the backlog of repossessions on their books - when this happens, the average sale price can be expected to fall further.”

Foreign investment increase in Madrid office market

Foreign investor interest in the Madrid office sector has increased significantly which is showing signs of recovery particularly in Madrid's central business district (CBD).

The latest research from Savills has revealed that vacancy rates in Madrid has dropped during the second quarter of the year to reach 4.73 per cent, compared to the 5.31 per cent recorded in the shortage of new developments has resulted in property-owners refurbishing their properties in Spain to bring new space on to the market. She added that due to the delivery of a number of new and refurbished state-of-the-art properties in Madrid’s central business district, the market is very competitive in terms of quality supply on offer at good prices. This should lead to a revival of interest in the central business district from large corporations in 2011.

According to Savills reports, Madrid’s office market has reached 440,000 m sq (4.7m ft sq) in 2010, which is a 40% increase when compared to 2009. It also records that Madrid’s Central Business District’s (CBD) vacancy rate currently standing at 4.73% while other prime sub-markets outside of the M-30 range between 5% and 8% and some outer lying periphery areas of the city have a vacancy rate of 25%. Savills believes this is because companies have chosen to take advantage of considerable vacant space in the city at affordable rental prices. Tenant take-up in the Madrid office market improved in 2010, up 40% on the previous year despite concerns over the Spanish economy.

Meanwhile, Luis Espadas, Head of Capital Markets at Savills Madrid has stated that the rising interest shown by foreign investors in Madrid is heartening, although national investors continue to be active and dominate the market, both as buyers and sellers.

Retirees looking for Spain for new experiences

Brits retiring abroad are increasingly looking to try a new way of life and Spain is still a popular choice with people wishing to retire in the sun, it has been claimed.

According to Research by NatWest International Personal Banking , moving abroad is still a popular choice with retirees, with western European nations such as Spain and France and long-haul destinations such as Australia and US remaining firm favorites.

Dave Isley, head of NatWest International Personal Banking, said that nearly 92 per cent of retirees who decide to move abroad chose not to retire to a designated expat community. This seems to emphasize the notion that expats have retained a sense of adventure; they really do want to start afresh and experience life as a local rather than settle with other expats.

Meanwhile, property expert George Glen, the country's high-quality healthcare facilities and warm climate are key factors in its appeal to more mature buyers. Spain also offers British retirees the opportunity to live in predominantly English-speaking communities such as those around the Costa Blanca.

Mr. Glen commented: "Older people want to go to countries where they are not going to feel isolated."

In related news, Shelter Offshore explained Spain is still one of the main hotspots for senior expatriates. This was said to be largely because it offers numerous lifestyle attractions that are highly conducive to a relaxing and pleasant retirement.