Torcal Estates Fincas and Country property - Málaga, Spain

Fincas and Country property - Málaga Property

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News - January 2009

Predictions for 2009

We have decided to forgo our usual snippets of news and take a long look at the property market in this part of Spain in the coming 12 months.

What is interesting, before we start making our predictions for 2009, is to take a quick look back at the predictions that we made at Torcal Estates for 2008.

  • “Property prices will continue to fall during 2008”
  • “Prices also need to fall to a level which starts to encourage new buyers into the market place and many properties have been “over-valued” within the last 2-4 years”
  • “You are unlikely to get €300,000 for your property if a neighbour with a similar property is selling for just €200,000!”
  • “The availability of mortgages and credit in general is reducing and this will have an affect on all property markets”
  • “Mortgages will be more difficult to obtain”
  • “The property market along the coastal strip is likely to be affected more so than the inland market”

Whilst we have no pleasure in spreading the doom and gloom, it is important to recognise that we need to be able to read our property market as this gives us a better chance of understanding how to survive it and continue to help people buy and sell.

What is going to happen to prices during 2009?

I’m afraid that, for many, the bad news about prices has yet to kick in properly – whilst many people appreciate that the property market has changed and that things look bleak, the reality is that many vendors (both Spanish and foreign) have not yet adjusted their thinking to the right level of property prices to stimulate new interest.

We estimate that prices have fallen by as much as 20% in the last twelve months (in real terms) and this is likely to be replicated in 2009. Now that might seem like an incredible reduction (40% in total) but the truth is that many property prices were over-inflated to begin with.

In recent weeks we have seen some properties reduced drastically – a couple of examples are a 3 bed villa reduced from €295,000 to €219,959 which is a drop of 25% and a large property reduced from €850,000 to €725,000 which is a reduction of 15%.

Whether the original asking prices were over optimistic or whether the new asking prices are likely to have an effect is difficult to say but it does show that some vendors are doing everything they can to create interest. Many have decided to “beat” the market and reduce before the market catches up – thus trying to attract those buyers that are out there.

Thankfully, the inland market in Malaga is somewhat different to that along the coast and we have already seen, during 2008, much more activity inland than has been experienced on the Costas. Having seen an upturn in activity during the first few weeks of 2009, we are hopeful that we can survive the worst experiences of the coast.

Mortgages, credit and cash

One of the biggest issues for us all during 2008 has been the tightening of the “credit crunch” and the fact that cash is king.

Again, this affects the inland market very differently to the coastal market – much of which is made up of new build properties, investment buyers and this is the sector of the market hardest hit.

Inland, buyers tend to buy a property for long term reasons – be it as a permanent home, a holiday home which can be used by the family and friends or a future home for enjoying their retirement.

Many of these purchases are not reliant on mortgage finance and there is no immediate desire for an investment “return”.

It is estimated that over the last 5 years, more than 50% of sales in the new-build market along the coast were investment driven. Of these, 80% were heavily mortgaged. This means that people who bought are now trying to compete with many neighbours on their respective development to attract a buyer or tenant to their specific property.

This drastic over-supply of landlords has already driven rental values down and this creates small enclaves of depressed properties.

At some stage, the credit markets will start to flow again and this will help those that seek mortgage finance to buy. Our prediction is that, whilst it will help, this will not be the stimulus that the property market needs as a whole.

The disappearance of credit and the obvious problems it has created (heaven forbid - people actually having to pay back loans!) has shaken confidence and has given a whole generation a short, sharp, shock which will take a while for people to recover from.

In the last recession in the UK (early 90’s) it took people a few years to gain the confidence to increase their personal debt levels after experiencing the high interest rate levels of 15%. Whilst the interest rates prevalent across the UK and Europe are much lower it will take a while for people to regain the comfort of pre-credit crunch borrowing.

Look who’s buying

There is no doubt that the current exchange rate between Sterling and the Euro has seen huge numbers of British buyers disappear for the moment.

Have they disappeared for good? Absolutely not – some analysts are stating that even more people are looking to escape from the UK with rising costs, concerns over crime and the appalling weather!

When the pound regains ground against the Euro (or the Euro falls when the true state of the European finances are publicised) the likelihood is that British buyers will return in numbers.

Interestingly, out of 9 sales that successfully completed during 2008, 75% of them were still British buyers with just 5% coming each from Belgium, South Africa and Spain.

The large number of enquiries coming forward in the early part of 2009 indicates plenty of interest amongst Euro zone buyers who feel that the time is right to pick up a bargain. Taking advantage of a buyer’s market is one of the reasons that prices have to come down to reach a level that encourages new buyers into the market.

Even though many buyers have decided to wait, the difficult thing will be predicting when the prices have actually bottomed out. Some indicators show that prices will bottom out during the second half of 2009 and then show a slight increase in the autumn but the likelihood is that any real increases will not be evident until the spring or summer of 2010.

We feel that there is still some way to go before prices have stopped falling, however, it does depend greatly on the property itself and where it is.

We, at Torcal Estates, believe that the demand for property in this relatively undervalued area will remain steady during 2009 with interest coming from a variety of countries.

Prices will continue to fall although some vendors will not be able to reduce as much as others and therefore we will see a two-tier market place with those vendors who “need” to sell and those that would “like” to.

Fundamentally, the reasons for buying a property in Spain remain and with prices dropping, 2009 could be the ideal time to pick up a property 20 – 40% cheaper than you would have been paying a year ago.

Whilst there is no rush to get into the market for buyers it is, perhaps, to be borne in mind that you don’t want to wait too long and finding that you are buying too late in the cycle. There are some great buys to be had in the market at the moment and they will probably continue to come up in the next 6 months but at some stage the recovery will start to take shape and vendors will start to harden their stance on accepting offers etc.



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