Tuesday 29 April 2008

In times of crisis…

It can seem difficult to be optimistic about our business. The markets have crashed, the bubble has burst, the cycle has reached bottom, the financial crisis, the devalued pound, Spain is sinking under the waters of climate change. All clearly exaggerations, but undeniably ideas which make their mark on our buyers’ subconscious. Nobody is buying property in Spain any more. Or maybe they are?

This is an excellent year for buying a property in Spain and I will now try to explain why at QSD Group we are convinced that this is the case.

Firstly, we should be realistic and analyze the arguments of those who are so negative about the Spanish real estate market individually:

Prices in Spain have stabilized (it is extremely unlikely that they will experience any significant decrease in the areas most popular with our clients), but this is not necessarily bad news. It is bad news for the speculators, those who seek to obtain fast, easy profits, who will just as happily invest in a house in Spain as in any other country or in any other profitable option. For some time now Spain has ceased to represent a good market for this type of client. Our current buyers want to enjoy their home and their lifestyle in Spain. In any case, if we take a look at the historical data, in the long term property in Spain is always a safe, profitable investment.

The financial crisis is also affecting Spain. True, but only up to a point. Spain’s financial system has not been as seriously affected by the US sub-prime mortgage crisis as that of other countries. This is because the Spanish banking sector is traditionally extremely conservative with regards to the levels of risk assumed when granting mortgages. The banking system is in excellent health, with almost all entities showing indisputable profits (banks earned 19.72% more in 2007). Without doubt the international liquidity crisis will mean that mortgages will be analyzed more carefully, and the maximum loan percentages will be reduced to 70%, but this does not really affect foreign buyers who usually provide a significant volume of savings for their purchase.

The pound is low against the Euro. This is a fact. A property paid for in full now costs more in pounds than before. And this is where the key lies, not to pay for it cash. At QSD Group we are advising clients to keep part of their funds in pounds, earning a good interest rate, and to finance 50% of the value of their home with a Spanish mortgage in euros. This mitigates the immediate impact of the fall in the pound, and if the situation changes, which will happen sooner or later, they can then exchange their pounds for euros and cancel the mortgage in euros. If, on the other hand, buyers choose to wait for a better exchange rate instead of buying now, they may find that there is less to choose from later on and property prices in Spain may have gone up again. No-one can have it all.

The climate change represents a danger to properties on the coast. No comment. It would be funny if it were not for the fact that statements like this have caused serious problems to developers in areas such as La Manga del Mar Menor. A great example of “scientific accuracy” sponsored by campaigns like Al Gore’s, fantastic businesses based on predicting the Apocalypses.

In short, I do not deny that the circumstances of the market have changed, but I refuse to accept that properties cannot be sold or bought in Spain. Indeed, I believe that it will be some time before we again see the kind of opportunities available to us this year in Spain.