Investor Perspective

The past sixteen months have been exceptional for property sales within Spain, especially in Javea & Moraira. This demand has stimulated price increases of 6.3% during the first quarter for 2016 year on year, according to Eurostat, the European Union’s Statistics Institute. This is the largest increase since the third quarter of 2007 when we had the Spanish property boom!

After six years of price reductions we have now had eight consecutive quarters of price increases. Towards the end of 2015, data shows property price increases of over 8.5%. 2016 has continued with price increases. On the face of it, it would seem that prices have certainly recovered well from the price reductions throughout the crisis years.

We must be mindful that it was the low prices that attracted the buyers, especially UK buyers when sterling was stronger. This encouraged confidence and stimulated further growth and consequently prices have been increasing but for how long this will continue no one knows. Demand for property looks like it will continue as investors scramble to find safer investments. This means there is still some upside to price increases before it levels out.

Since Brexit happened business has been surprisingly good with UK buyers, however, the reality of the uncertainties we face leaving the EU are just about kicking in as investor confidence in the UK remains low, hence the value of the pound has recently plummeted. Whilst there are many eurozone countries still buying property in Spain, the UK has historically made up a massive 15% of total foreign property purchases and at least 20% of the local Moraira/Javea market, which has attracted many British investors for the past 30 years. I expect some UK buyers will be deterred by all the uncertainties surrounding them but there will always be many Brits buying in Spain regardless. This was proven during the 2008 crisis.

As time/life ticks away the attraction of a safe destination with sunshine all year round and perhaps fulfilling a long held dream becomes more important each day, regardless of the political landscape and turmoil. If we wait for the politicians to solve the problems, I think we are in for a long wait! Meantime life goes on.. The fact that Brexit can not be resolved quickly and could take years to effectively get the trade deals in place for the UK, including the EU single market, does not exactly provide a prosperous outlook.

In addition to this gloom, we hear many reports and uncertainties about the banking system and it’s exposure to the overvalued derivatives market. Deutsche Bank for example have been on the verge of collapse for some time and Chancellor Merkel has reiterated a number of times that there will be no bank bailouts with taxpayers money. Others say all is OK and no help is needed. Lets hope stock values don’t fall as this will dictate what happens to the banks most exposed. The Guardian

It will be very interesting to see how this “no help from the government” stance develops considering the magnitude of the problem, should Deutsche bank be allowed to fail. Said to be five times the problem we had with Lehman Brothers, which is unimaginable.

The new banking stress test that was introduced soon after the crisis began, has meant banks have had to increase capital reserves. So a little more meat on the bone this time around. One of the main problems banks are facing today is not the lack of liquidity, it’s the lack of earnings or net interest/profit, compared to what they used to be able to make when interest rates were much higher. Hence the massive falls seen in banking share prices.

The Italian banking sector is also weighed down with 360 billion euros of under performing loans. The Italians have also said there will be no bank bailouts, however, the recent introduction of the new “bail-in” laws throughout the European banking system including the UK, mean that the banks can recapitalise themselves using investor/shareholder and savers money!

Consequently, where to keep money safe and earn some interest with little risk is becoming a major concern for savers and many that can are investing in other items as a store of wealth, like property, classic cars, gold, rare diamonds and artwork. This is exactly what happened during the last banking crisis and it was the savers/investors, that were cash buyers, that kept the Spanish property market afloat. This will undoubtedly happen again as more and more savers hedge for tangible assets. Banks are becoming far too risky for the small amount of interest on offer.

Bail-in law:
Apparently all shareholders/depositors or savers have been reclassified as investors. We knowingly give the banks our money of which they use to invest for earnings. But in reality we deposit with them an unsecured loan and allow them to invest it at risk as they see fit for a small return of interest. I wonder if this new bail-in law applies to current accounts, as this account surely should not be at risk? I can’t find this information anywhere and my local bank have no idea either. Comments please.

Seemingly, after the banks have used up 8% of their own reserves to save the day, shareholders, bondholders and corporate investors will be next to take a haircut, followed by smaller private investors & savers with savings above the guaranteed protected amounts. As of the 2015 the banks have now been granted the legal right to re-capitalise using investor money to do so. This avoids the very controversial bailouts with taxpayers money which affect everyone that pays tax. Politically, it’s almost as controversial as a bailout and will undoubtedly deter savers from keeping too much money in the banking system or certainly what is beyond the guaranteed safe amounts.

There are various articles regarding this new “bail-in”law but this article spells out some of the hidden dangers not all are willing to print. Link Here is another article from the Financial Times

The irony is that the more risk banks pass on to the savers and investors, the more inclined they will be to move savings away from the banks and secure their wealth with tangible assets, Many of which can be enjoyed including a property in the sun, which can also be income bearing.



Posted by on Saturday 15th October 2016

Anthony Bloom is the founder of the Moraira based Spanish Property Sales C.B business.
Established in 2002, Anthony and his partner Sally Bloom have dedicated themselves to the needs of the property purchaser. You can see their client testimonials! and their Google+ page

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