For increasing numbers of Brits, the dream of owning a trouble-free place in the sun is rapidly turning sour. As Edmund Conway says in The Daily Telegraph, “untimely and unreliable” official Spanish property price data may suggest that prices are still rising slightly, but it just isn’t true. Instead, prices are “already in freefall” and likely to fall a good 25%. The International Monetary Fund, which believes Spanish property is still around 20% overvalued, agrees.
UK property owners will have been shielded from this to a degree so far by the rising euro – up 15% against the pound over the last year – but that may not be the case for long: given the state of the market there is every reason to think house prices will fall faster than the euro can rise.
So, where does all this leave those who own or want to own a house in Spain? The easiest advice is reserved for anyone thinking of picking up a Spanish property bargain but who has not yet committed any capital – don’t. Spain now suffers from a huge glut of property – sales were down nearly 16% in the year to April – and mortgages are increasingly difficult to come by.
So, if you are planning a move to Spain, in spite of an increasingly fragile economy and soaring living costs, then rent – don’t buy. And if you fancy a holiday home in Spain, do the same. The best move for those who have already committed money to Spanish property and don’t need to sell is to hold off, enjoy the property, and consider renting it out through a local agent during periods when it is unoccupied.
Worst off will be those caught in a ghastly middle ground, who have committed to a deposit with stage payments to an “off-plan” apartment or home that has yet to be finished. The completion of many of these is now threatened by the bankruptcy of Spanish developers. The latest one to hit the news was Martinsa-Fadesa, Spain’s biggest private housebuilder by assets, according to Mark Stucklin on Spanish Property Insight. The company threw in the towel with a market capitalisation of just $1.1bn and estimated debts of $8.6bn, having failed to raise what BusinessWeek describes as the “comparatively small amount” of $238m to keep going. Although the developer has promised to complete the 12,500 homes that have already been paid for – many by Brits – “there is no way of knowing for sure”, says Stucklin.
So, what to do? Martinsa-Fadesa has ceased trading while administrators work out the best next step. This could include a return to normal trading or liquidation, in which case properties may never get completed. That means anyone who has already paid money over to the company should not pay any more for now and should also ensure they file an original contract and evidence of funds transfer with the administrator within one month of the “declaration of administration”, says José Maria De Lorenzo, a partner in law firm Irwin Mitchell. This will get them on to a list of unpaid creditors for the correct, rather than an estimated and potentially lower, amount they are owed.
They should also check with their agent whether the original funds transfer was backed by a developer bank guarantee; this greatly improves the chances of recovering any deposit and stage payments in the event that a developer is liquidated, as it puts the funds higher on the list of creditors to be paid back. As for the dreams they might have had for a Spanish home completed on time, hassle-free, and to a high standard in the current climate, these should be forgotten.