December 19th 2012, Villas & Fincas, Casares. Review on the Andalusian Country Property market
2012 has been a turbulent year again for the Real Estate sector in Spain. Focusing on Andalusia and the Costa del Sol we have seen a continuing drop of prices. The official figures give a decrease since the peak in 2007 in the province of Málaga from around 2500€ per m2 to an average of 1740€ per m2. In other words a price drop of over 30% (source Idealista). Where the m2 prices cannot be applicated as such on country houses, Villas & Fincas can state that country property in Andalucía has suffered from the same decline.
A Year of Reduced Prices
Basically 2012 goes into our books as the year of the continuous price reductions. Demand was still low due to the instable economic climate in Europe and the uncertainties related to the position of Spain in this game. Reducing sales prices time after time was the only solution to generate new interest. With success we have to say. There are definitely buyers around, looking to purchase quality houses, on good locations, for reasonable prices. Professor Suarez, from the IESE business school, who is Spain’s guru on Real Estate developments, confirms this tendency. Good quality houses on desirable locations do sell! His view on the vast amount of developments of poor quality in bad areas is devastating. He thinks Spain will have to face its first demolitions of unsellable houses in the near future. Hopefully this will be a wake-up call for developers (and banks) and a start of sustainable development (and loans) based on clients demands.
Growing interest for Casares, Gaucin and Ronda
Has the market bottomed out? This is a question not easy to answer. Looking in general, it is said that the banks own about 47% of the new built property on the Costa del Sol (Source: Mark Stucklin, Property Insight). Pricing in this segment highly depends on what politics decide in order to create a healthy balance. Some sources say that we will have to face another drop of 10%, others say that we’ve hit the ground and are on the rise again. What we see in our market segment is a stabilization during the last 3 months, even showing a tiny bit of growth in the amount of houses sold. We confirm a growing interest in the area of Casares, Gaucin and Ronda and for the luxury villas around Marbella and la Zagaleta now that the prices have come to a more then reasonable level.
In Spain there were 22,489 house sales in October (excluding social housing), 14pc up on the same time last year but 1pc down compared to the previous month, according to the latest figures from the National Institute of Statistics. So yet more evidence that the Spanish property market has found a floor, and even staged the most feeble of recoveries, as illustrated by the chart (2012 in red). On an annualised basis the Spanish property market has now grown for three months in a row, having fallen continuously since March 2010 before that. The Department of Housing confirms that that the Spanish property market was almost steady in Q3, so data from two different sources is telling a similar story. (Blog Stucklin). The bad news is that the recent increase in sales might be short-lived. Analysts attribute the increase to the end of tax breaks for buyers at the start of next year. This is bringing forward sales and might lead to a new slump in sales at the start of next year.
Andalusian Country Property, trends
The macro-analysis might be right but we are slightly more optimistic for our market. During 2012 we have seen a slowly but steady growing demand for sustainable country property. We would like to divide this into 3 categories. The first consisting of Villa typed properties on supreme locations, the second farms and cortijos and the third we would like to call ‘problem properties’. The quality, villa type properties on good locations are selling again. In 2012 we have made prices of 2500€ per m2 for country properties and over 6000€ per m2 for luxury villas! The m2 prices vary and depend strongly on the quality and finishings of the house, the location and the views. The purchaser of 2012 went for the top houses. If they were reasonable priced they generated a lot of interest and were sold. Heavy negotiations were always part of the purchase process. The second category of farms and cortijos is merging. We have a growing group of customers looking for properties with an agricultural use, either on a larger or a smaller scale, as an investment for the future as well as to live in now and be completely self sufficient. This new demand is most certainly impulsed by the tremendous drop of over 50% of prices in agricultural land. Yet we also notice a trend of having hobby vineyards or olive groves to create your own label of wine and olive oil, as well as the trend to grow healthy food and to keep healthy livestock on your own grounds.
The third category, the ‘problem properties’ are those houses with either a technical or a legal problem. In the current economical situation these objects are very difficult to sell. Our property base has grown over the years. Although it’s not as bad as the large scale coastal developments, it still means that purchasers have a larger base to pick from and will go for the better properties first. Properties of lesser quality can only beat this by dropping even more in price to make an irresistible offer.
Restricted building on the countryside
Another trend from 2012 we would like to highlight is the changes in building legislation. Since 2002 it has become more and more restricted to build on the countryside. The only projects that are still allowed are buildings for agricultural use or for public and touristic use. The conditions for approval of these projects are set by the Junta de Andalucía and are not easy to meet! Promoting a project of this kind asks for patience and perseverance! In 2012 new regulations have been published to instruct the local townhalls how to deal with the illegal building that has taken place over the years. Established lawyers, notaries and land registries do not agree with these new guidelines which can be contradictive with national laws. The burocratic procedures have not been helpfull to facilitate sales and we have advised all our vendors to go through the paperwork with their lawyers to be prepared.
Property Market Forecast 2013
As said earlier, we are optimistic for 2013. The growing interest and inquiries from 2012 will eventually lead to more sales in 2013. The internal Spanish market will need some more time to recover but purchase of second homes by foreigners is increasing (source: Prof. Suarez) . The Spanish government is taking all kinds of measurements to make it more attractive and easier for non-European citizens to purchase in Spain. A residency is offered with the purchase of a house and plans are made to abolish the non-residents tax for foreign companies (in non tax havens) who purchase a house in Spain. We do not expect a mayor recovery of the market in 2013, yet adding all positives signs and measurements up we’re definitely going in the right direction.
Another development for 2013 is the obligation for vendors and landlords to provide an energy label when selling or renting their house. The energy label will be based on a certificate drawn up by a certified technical expert whom, with the help of a computer program, scales the house by its energy efficiency. Rating A represents the most energy efficient house, whereas rating G represents the least efficient house. The measure is to comply with the European law. In our opinion it will not only rate the energy efficiency of a house but will also make differences in quality visible for purchasers and therefore affect pricing.
Vendors have to take these developments into account. The market will still be slow, legislation is getting stricter and quality differences become more visible for purchasers. In order to sell it is an absolute key factor to keep the house in a perfect state of maintenance and to have all the paperwork prepared to guarantee a smooth sales process. Even with reduced prices, today’s purchaser wants to be taken serious and is not willing to buy legal or technical problems. Why would they? There are so many houses for sale, they will just move on to the next property.
We thank you all for the confidence and business this year.
Merry Christmas and a Happy New Year
Oscar and Anita
Oscar Ernstsen | 19th December 2012