July 2009 Archive

Property valuations in Javea & Moraira

3 bed 120m2 moraira apartment for sale

3 bed 120m2 moraira apartment for sale

Recently I have been trying to make sense of property prices and valuations in Moraira and Javea.

There seems to be all sorts of data around with regard to valuations. The majority is not area specific relative to the Javea and Moraira properties for sale. Although we have seen, in some cases, a price reduction of around 20 – 30 % in advertised sales prices, it does not represent a true picture of the underlying value that was born during 2007 – 2009 financial crisis.

What the majority can afford will always dictate the underlying value of a property. It just takes a while for the reality to kick in. Many property owners out there simply don’t have to sell or can hang on to an unrealistic price until such a time when the majority of prices have been corrected. They then have to follow suit if they wish to sell. This process usually takes three years to bottom out to a realistic level. Some properties are priced to sell but the majority for sale still doesn’t reflect reality.

The properties that seem to sell are being substantially reduced when it comes to the actual deal done. Most never get to know how low the actual sales price was relative to the asking price. Many offers are refused but the ones that are selling are deals based upon a more realistic price level to start with. So how do you get a realistic valuation?

The process of valuation is arrived at by various means but rest assured, it’s always way behind the market when it comes to the reality of reductions! Most vendors already seem to know how much their villa is worth. They arrive at this in the usual way and this is based upon other advertised prices and what they think properties have been sold at next door or down the road over the past few months. Then by making adjustments for what they paid for their property and how much money they have spent on it, plus adding some on to negotiate with and “oh, the exchange rate is not in my favour” etc.

The other way is to ask an estate agent to come around to value the property. Estate agents are aware of the market conditions and will use slightly revised figures per square meter that reflect this but will still hold out in hope that the market will improve or will not be as affected like other areas. Historically there is a lot of truth in this as far as Javea and Moraira go. These desirable areas have been able to ride the storm far more than other areas, but of late there seem to be many people having no alternative other than to sell at low prices. In my opinion this time next year will see the low priced deals done today being the advertised sales price next year. So the initial figures estate agents arrive at will be similar to what the banks come up with to lend new money.The only difference is that estate agents are more at liberty to be a little bit more creative with the rest, usually increasing the valuation to please the vendor subject to how desperate they are to sell.

The truth is there is no rock solid formula and the formulas that exist in my opinion, do not reflect the true underlying value of a property or basically what the majority can now afford. Even the official figures are lagging behind what’s happening on the ground and what’s actually happening on the ground is lagging behind the financial crisis born during 2007 and it’s not over. It may take another year before we see some realistic prices being advertised, maybe even longer.

Estate agents talk amongst themselves and know, even if they are not selling much them selves, some of the properties being sold and at what price some are exchanging hands for. Many can’t believe the deals that are being done and it would insult many vendors out there wishing to sell if they knew. Consequently it’s easier to live in the past and avoid the confrontation when asked to put a value on a property! They allow the market to take its natural course.

Another way, though at cost, to value your property is to pay a bank to do it and allow them to be as clinical as possible. Don’t sell it to them! After all these guys will probably be financing the 70% mortgage to someone, somewhere down the line. Its inevitable banks will have their say because most buyers require some form of funding or at the very least an official valuation, so you might as well know how banks are going to look upon the value of your property before hand. At least you can waive an official bank valuation in front of them regardless.

Recently I thought I would compile 200 villa properties in Javea, taken at random from various websites. I made sure that the prices were reduced prices and that the properties had a similar build 150 – 175 and plot size of 850 – 1200. Then I totaled up the build size and divided it by 200, likewise with the advertised prices. Then I divided the average price by the average build and came to an average figure of 2,300 euros per M2.
I compared this 2,300 M2 figure with some recent bank valuations and arrived at a figure that was almost the same. Today I have spoken to a property valuation expert that does valuations for the banks. Banks use various registered organizations that specialize in such activities whom follow the guidelines laid out by central government.

One such organization is Tinsa and a report by them echoes my sentiment on this subject matter even though there info is dated relative to what’s happening on the ground.

Tinsa, a Spanish property valuation company used by several high street banks, has signaled that advertised house prices will drop a further 20% over 2009. In the same report, they have calculated the drop in 2008 as being 10.1%
If this figure is correct, Tinsa say that this will bring house prices back to their advertised levels in 2005. The monthly drop may be between 1 and 1.4%.
This is not news to many agents down here on the ground, who have seen price reductions of between 20 – 40% in the resale market. The official figures often lag behind the reality of business day to day.
A 10% drop in price does not really attract attention among the bargain hunters looking to purchase a Spanish home at a drastically reduced price. It is only those properties that have reduced to 2005 prices that are actually selling.

It may well take time for certain vendors and developers to catch up with the pricing downturn. It is only those that need to sell for personal or financial reasons that are pricing their properties realistically or accepting very low offers.

This translates into only a small percentage of properties available at ‘distressed’ prices. However, they are the only properties that are selling and selling quickly.

As there seems to be no accurate formula for property valuations, I asked how they establish a value on a given property. It was a little vague but here we go…..

Firstly, they have a valuation guide by province and this is broken down to some degree by area. The problem is that there are huge fluctuations from province to province and town to town. The system depends greatly upon each individual valuation officer having knowledge of a given area and the prices these areas are able to attract. For example a like for like property in the south of Alicante would be significantly less in price than say the north of Alicante in areas like Moraira and Javea.

The bulk of the valuation is based on the amount of actual living accommodation, excluding garages, terraces and undeveloped under builds. The plot is usually included in the price/calculation, unless it’s a double plot. The pool also tends to be included. Then adjustments are taken into account relative to the overall condition of the building, gardens, views and area. So it’s part science part art. One thing for certain is that properties with greater living accommodation have always valued up very well, where as smaller accommodation will not calculate favorably and therefore will be more difficult to sell especially if the buyer requires finance.

Some of the recent bargains I have come across are larger properties of 280 and 290 M2 build. As far as bank valuations go, they value up well and one was recently valued at 670k two months ago. But the prices they are being sold at are way below a bank valuation. The figures work out at 1,300 – 1,400 per M2!!
The reason for this is because that market for older properties that were once worth 600 – 750k has virtually gone, and what’s left of that market sector can buy something that was once worth 1.2million!

So to get back to property values in a real world, many of the once 600k – 750k properties are selling at around the 400k mark, some above and some below. This is mainly due to the fact that lending has become difficult and people have less value in their currency. Spain used to be cheap!

It all sounds like doom and gloom, but let’s not hide away from what is actually happening here on the ground. You might as well know because if you have a villa that you need to sell and it’s not too dissimilar to the many out there and amongst hundreds of others for sale within a given price band that 90% of the market can not even afford, through no fault of their own, how are you going to sell your villa?

If 90% of all buyers can only raise 300k – 400k at best, plus the additional 10% cost and you happen to have a villa that you think is worth 700k or 800k, think again!
Where is your market? Who are you selling to? The few buyers around with this higher budget can find amazing villa bargains that seem unreal and unfair but they indeed exist.
If one day the advertised prices are within the grasp of the many and sterling recovers to 1.45 against the euro, you may stand a better chance of finding a buyer. Either way, you will lose out on both the reduction in price and probably on the exchange rate if you need sterling!

One thing for certain is that resale properties represent amazing value for money. And are far less expensive than new build. You would be lucky to find a decent plot for less than 225k and anything with a sea view is at least 350k for a 1000M2 plot. With the cost of architects, building permissions and modern day materials and labour you don’t get much change out of 600k and that’s for something basic. Consequently, the future of new build looks grim and only prime and very expensive plot locations seem to be being built on for a more discerning customer.

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Posted by on Tuesday 28th July 2009

Non Resident Taxation Explained

Non-Resident Home Owners and Annual Property Taxes

Most non-resident owners of property in Spain are under the misconception that they do not need to submitt their annual tax forms anymore!

It would be great but it is not the case. However as from 1st Jan 2008, the law changed and the taxes payable are less than people paid in previous years.

Up until the end of 2007 non-residents with property in Spain were liable to pay a “wealth tax” (Patrimonio) which was calculated on the value of their assets in Spain.

It is interesting to note that when Prime Minister Zapatero fulfilled his election promise regarding Patrimonio or “Wealth Tax”, with the introduction of Spanish Law 4/2008 passed on the 23 December 2008, the tax was finally amended by reducing the taxable base to zero.

Is this technically a formal abolition of the Tax? The answer is no. Certainly the effect is that no wealth tax will be paid by either residents, (obligación personal) or non-residents, (obligación real).

The law, which ironically was published in the Spanish Government Official Gazette (BOE) on Christmas Day 2008, applies to tax years starting 1st January 2008 onwards which, under the previous scheme would have been payable in arrears in 2009.

The mechanics of the new law mean that the obligation to submit a wealth tax return (Modelo 214) is terminated by applying a 100 per cent deduction to the taxable base.
By reducing the tax to zero but not abolishing it, is the Spanish Government retaining the option to re-introduce the tax in the future? That may well be the case!

So to reiterate, the Patrimony “wealth tax” has to all intents and purposes been done away with. But that does not mean that there are no annual property taxes for Non-Residents to pay. You may remember noticing on previous year’s Modelo 214 forms that there were 2 separate calculations: The Patrimony amount and the “Declaración de la Renta” amount.

The “Declaración de la Renta" or “Non Resident’s annual tax return” must still be made and paid!

Taxation, and particularly dual taxation issues are an extremely complicated subject and I would always advise readers who make financial gain from their property in Spain to get a qualified assessment of their own personal circumstances, either directly from the Spanish “Hacienda”, Spain’s Inland Revenue, or from a tax professional.

However, in general terms the earnings from rented property or sub-let property are calculated on 24 per cent of the gross income received from the tenant, excluding IGIC.
If the property is only rented out for part of the year, the earnings are calculated as above for the rented period. For the part of the year that it lies empty, the calculation is made as for “Deemed Rental Income”: see below.
See if your Catastral Value has been updated since 1994 if the answer is yes the coefficient to use is 1.1 if the answer is no then use 2.Multiply the Catastral Value by 1.1 or 2 (as above) per cent Take this value and multiply by 24 per cent – thats how much deemed rental income tax you pay.

Example: Catastral Value 150,000 revised since 1994 = yesx1.1 % = 1650x 24% = 396 euros tax payable
If your property is left empty, even though you do not let out your holiday home for gain, Spanish law assumes you have what is called a “Deemed Rental Income” which is subject to non-resident Income Tax.

The “Deemed Rental Income”, which used to be included on the old Modelo 214 form, is now declared on a Modelo 210 form.
The amount you pay is calculated using the “Valor Catastral” (Rateable Value) of your property in Spain. This can be easily ascertained by looking at the receipt for your “Impuestos Sobre Bienes Inmuebles” or IBI, (often referred to by English speakers as “Rates”) – which is paid to your “Ayuntamiento” annually.
This receipt will also tell you whether the rateable value of your property has been revised since 1st January 1994. This is critical because the percentage used to calculate “Deemed Rental Income” is higher if your rateable value has not been revised since that date. Tax payable on the “Deemed Rental Income” is 24 per cent. The deadline for the submission of form Modelo 210 is the June 30th 2009 for income deemed or actually derived in 2008.
All of the above applies to Non-residents with no permanent establishment but who own a holiday home in Spain
An example of a receipt for “Impuestos Sobre Bienes Inmuebles” or IBI: The format can vary between Ayuntamientos, or whether you get the receipt from your bank rather than paying in cash. But all the information you need will be on there.

Anyone treating apartment letting as a business
If someone owns property in Spain, but is not resident in Spain for tax purposes and has at least one office or premises used for managing the letting business and employs one or more people on a full time contract, then the owner is considered to have income through a permanent establishment in Spain and is subject to different regulations.

It is important that non-resident homeowners are aware of their legal obligation to submit an annual income tax declaration in Spain. What holds true for all, is that no non-resident home owner, whatever their circumstances, are exempt from making a non-residents Income Tax return.

You probably know someone who has owned property for years and never made a declaration? However, if they are caught, and computerised records are making that ever more likely, they are liable to pay the last four year’s tax and probably a hefty fine.

But in any case, when that property is eventually sold or passed on as part of an inheritance, the Spanish Tax Agency can and will check their records, which will show that the property is owned by a non-resident and that no tax declarations have been received. The taxes will then need to be paid, including any fines imposed, before the property can be legally transferred.

I believe that at the very least it makes sense to clarify what your tax liability is and if at all possible, keep things up to date, rather than looking over you shoulder and waiting for a fine to drop on the mat.
Research and script by www.diana-mcglone.com

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Posted by on Wednesday 22nd July 2009

moraira property for sale

Moraira El Portet villa for sale

Moraira El Portet villa for sale

Property for sale in Moraira and property for sale in Javea is still proving to be very resilient to the huge price reductions seen elsewhere, predominantly in the mass developed areas where we have seen dramatic price reductions.
Having seen the thousands of properties on the many housing estates in these areas, it’s no wonder!

For those British property owners in Moraira and Javea that have to sell, we have seen on average a reduction of up to 30% in sales prices to reflect the devaluation of sterling. But that’s it apart from a hand full of very distressed property sales. The market is ticking along with lots of lookers but not so many buyers unless a real bargain comes up. Still there are properties being sold and recently have seen an upward trend in activity. I think significant recovery will be a long time coming but recover it will if history is anything to go by.
As to what level and when is anyone’s guess Comments appreciated.

Sterling has recently made some significant increases against the euro and British sellers are now not wishing to negotiate as much as they once were. In fact some sellers have actually increased the sales price to reflect the stronger pound. The reduction was literally based on the poor purchasing power of the pound against the euro in the first place. But even with the 30% price reduction the British are only where they were two years ago when sterling was at 1.45 So nothing has really changed! That’s why we have lost such a significant amount of British buyers and the ones that exist, some 15% of what we once had, are looking for real bargains.

All things considered, I personally think price increases at this stage are rather short sighted, as the majority of recent sales have been led by the euro zone countries taking full advantage of the price corrections fuelled by the devaluation of sterling. If British owners are unwilling to negotiate or in some recent cases, increase their prices simply because of the recovery in sterling, they risk losing not only the few British buyers around but also the many buyers from the euro zone countries.
If you are trying to sell your property in this market, one has to assume that the majority of you are pretty desperate to sell because now is not the time to do it. Buyers know this and will put in, what may seem to you as, ridiculous offers. If you do not wish to be insulted by low offers, it might be worth your while considering the possibility of removing your property from the market thus saving everyone’s time.

Lets face it, low prices and easy lending created the property boom here in Spain and consequently prices escalated. Today, easy lending has gone and so too have the second homes and inflated prices with it.
The big gains you thought you had are simply not there. If you bought midway or at the end of the property boom, you would do well to recover what you invested in the first place. Many are doing just that to make a sale. Needs must!

It’s affected us all. I am one as well and we all have to face it whether we are selling or not. The majority of house prices have fallen by at least 30% and for those that have to sell the prices need to reflect what the majority of buyers can afford. Scary stuff but the market always dictates and there are always winners and losers.

The days of easy lending, over valuations and 80- 100% mortgages etc.. are no more. Today, Spanish mortgages can be very difficult to obtain, then it’s only 50 to 60% of the price paid and then subject to much scrutiny, excellent proof of income and job security. Most used to re mortgage their main residence in their native county to afford a second home here in Spain and simply come out as cash buyers. Those were the day’s!
Property prices in Spain have risen over the years to such an extent that it has become virtually impossible for people to raise enough finance, based upon the inflated equity in their main residence as they once did.
Their house prices have fallen in value and with it have gone the easy to obtain second mortgages.
So, how then are people, other than investors with liquidity, going to be able to finance a property purchase?

Unless buyers have sold their main residence and achieved a good sales price, which is highly unlikely, then paid off their mortgage and have enough surplus to buy a Spanish home, mortgaged or not, plus leave some money in the bank for a little capital; I think it’s going to be difficult to make a sale unless you drop lucky.

How many people do you know with say 350 – 500k cash in the bank? Personally, I think you could be waiting a very long time before your property sells unless you negotiate really hard. A bird in the hand is worth two in the bush!

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Posted by on Thursday 2nd July 2009