The recent financial collapse of some of the leading investment banks, ongoing business failures, rising unemployment, stocks and shares rendered worthless overnight to what they once were and the credit crunch that is starting to kick in, it’s no wonder that the once highly inflated property prices have been affected. The value of sterling has diminished almost one for one against the euro having a dramatic effect on the once strong buying power of the UK pound.
Even the recent cut in interest rates by the central European bank did little to rally sterling other than a few points. As the UK economy slides deeper into recession, the threat of further interest rate cuts by the bank of England will again weaken the pound. What does the future hold for property owners in Moraira and Javea?
As Far as the Moraira & Javea property market is concerned, I think we are witnessing a market shift as people respond to the current crisis. More and more people will reduce overheads and find safer and more manageable ground. This will mean scaling down and selling off assets, for those that have to sell, at knockdown prices to realise some liquid cash whilst reducing outgoings. Even though Moraira and Javea property prices have been far more insulated from the massive devaluation seen in other areas, it has still been affected, more so, to those people that simply have no option other than to sell.
I think it’s going to be some time before we see any recovery and unfortunately more people are yet to feel the pinch. Historically, only 10% of property stock in Moraira and Javea would be up for sale at any one time. Due to the ongoing crisis I predict an increase this year of up to 15% as the full effects of a bad situation are felt. Consequently, buying property at knockdown prices is on the increase as investors and other people with savings capitalize on a dire situation.
Thankfully for most of the property owners, they don’t have to sell and let go of their dream but as the situation worsens many will have little alternative.
As professional property finders, finding a really good bargain takes a lot of effort. Sorting through the 10% of property stock takes much time and effort. What may seem a bargain may be fundamentally flawed and probably the reason it has not sold in the first place. There are some highly desirable properties at knockdown prices to be had. To maximize capital growth it is important not to inherit a problem or location that cannot be changed. Buyers beware!
There was once a time when the majority of UK property owners had enough collateral in their UK home to finance a second mortgage for a holiday home in Spain. The increases in Spanish property prices over recent years closed the gap significantly and as this was taking place the property purchase model changed and the calculations included the rental potentials more so than ever before to help with annual cost. Bare in mind this was when sterling was at it’s strongest and Spain was a cheap holiday destination, especially before they joined the euro. Due to the fall in the value of sterling, the holiday rental market that Spanish property owners depend upon is going to be a tough one this year only adding to the problem. If you are depending on renting out your property this year, I recommend advertising within the euro zone and not just the UK.
Recently, interest rates have been reduced to all time lows, but how much the banks pass on to us is a completely different matter, especially if they have you paying 6% plus with an annual review! Therefore banks have an opportunity to make more money out of this situation. They will undoubtedly be reluctant to pass any savings on to us and will stretch it out for as long as they get away with it. If you have a Spanish mortgage, the devaluation of sterling means many property owners are now faced with extremely high monthly mortgage payments.
Many ex-pats living in Spain on a UK pension have seen at least a 30% reduction in their income. Many are now scaling down from their detached villas to smaller more affordable properties and even renting instead of buying realizing a little more liquidity to see them by. Some of the best property deals to be found are with the property owners that bought before the property boom. They can afford to sell at much lower prices than someone that bought during the property boom and still recover some profit. What the seller may lose on the price they have to sell at they can recover this lost value when they negotiate the price on a smaller property.
Mortgage defaults are escalating and consequently property repossessions are increasing. It is therefore important not to get into arrears and speak with your bank manager if you are having difficulties. Some are simply handing the keys and deeds back to the bank and walking away. Providing there is more value in the property than the overall debt, handing the keys back to the bank with no arrears means it then becomes an asset to the banks balance sheet. It’s never simple but handing the keys back could be a more favorable option for you but it means you lose whatever you have put into it but at least they cannot chase you around for the rest of your life or be made bankrupt. If people are in arrears with their mortgage and cannot pay the bank, after four months or so, the bank will issue a repossession order to the courts. A repossession order is a banks last resort as it also means a liability for the banks balance sheet. If the property is repossessed, the banks can auction off the property at a fraction of the market price and then chase you for the remainder of the outstanding debt and that includes any future earnings or inheritance you may one day have! Even if you go back to England, they have English lawyers in place to track you down. It is paramount that you speak with your bank manager before you fall into arrears.
As already mentioned, more recently we have seen much interest from property hunters /investors that are looking for highly distressed property sales, something that we specialize in finding for our clients. Some people do have money and those that have, at this moment, don’t trust stocks and shares and can’t earn hardly any interest on it from the banks without tying it up for a given period. And as for the rest of the alternative investment plans and schemes, just how are they going to be managed? Other than for some more specialized investments that you may have a role in managing, you have to be a rather brave investor to trust any institute again. Anyone for roulette!
Tying money up with the banks, in my opinion, is also a risky proposition right now, regardless of promises from the government to underwrite it.
I think cash is king and we all need some liquidity that’s totally accessible just in case governments declare a financial state of emergency. What if?
Having too much cash is also risky and a tangible asset makes perfect sense. If we take note of our boom and bust history, property seems to be a good choice right now and probably the only thing worthwhile. Unfortunately, we don’t have a crystal ball, so much for timing! I am afraid to say for those that have to sell, needs must but it’s a golden opportunity for an investor or simply someone whom has always wanted a place in the sun at the right price. That said, you have to realise a distressed sale when you see one.
Written by Anthony Bloom For more information www.spanish-property-sales.net