Updated March 2021- The days of moving to Spain without much money ended with real Brexit at the start of 2021. You now need significant savings to get a visa to live in Spain, which is bound to hit the cheap end of the market in places like Alicante.
For the British, Spain used to be a place you could go to reduce your living costs, make your pension go further, and enjoy your retirement in the sun. House prices were, and still are, cheaper than the UK, so you could even buy a bargain in places like Torrevieja if you could get together a bit of financing. This cheap and cheerful end of the market in the Costa Blanca and the Costa del Sol helps explain why the British have been the biggest group of foreign buyers in Spain for the last 20 years. With its excellent public health care, good climate, and easy access from the UK, Spain is an attractive retirement destination that was affordable to most.
That all changed at the start of this year with real Brexit, when free travel and residency rights in Europe ended. The main avenue to residency in Spain is now the non-lucrative residence visa that does not allow you to work in Spain, and to get it you must demonstrate almost €30,000 in savings or a minimum monthly income from funds of pension of more than €2,000, with more on top for dependents. The Spanish residency door is now close to many by this financial hurdle.
As a reader, Steven wrote to me recently asking “Is the dream of moving to Spain for British pensioners now only for the rich with the necessity for the non-lucrative visa?” He went on to explain. “I think a retired couple now need funds of 33,000€ per year for the first 12 months of the NLV, and 66,000€ when renewing for the following 2 years until they reach 5 years, and can get full residency. This will rule out a huge number of pensioners that can only dream of such an income, and will really hurt the cheap and cheerful end of the property market.”
I suspect he will be proved right when the Q1 sales figures are released in a couple of months. As you can see from the chart below, British demand held up surprisingly well after the referendum and until the end of last year, but that was when the residency door was still open to everyone. Now it is closed to many of the people who used to buy in the South Costa Blanca, and the cheaper end of the Costa del Sol, I think we will see the real impact of Brexit from now on. The 90/180 rule and Covid won’t help either.
Updated August 20, 2014: Cuando pensábamos que éramos ricos—when we thought we were rich
Cuando pensábamos que éramos ricos—when we thought we were rich. At least1.5 million unfinished, unsold, or unwanted residential units stand scattered across the country, products of a still-deflating housing bubble that threatens to undermine Spain's broader economy for years to come. It is the hangover after an epic fiesta, a period Spaniards now refer to as "Cuando pensábamos que éramos ricos"—when we thought we were rich.” Only Ireland can rival Spain for the largest housing bubble.
|In Galicia, you can buy a home for ONE EURO
" The number of homes being foreclosed on is estimated to triple in Spain. About 120 evictions take place every day. Those who default on their mortgages cannot walk away from the debt, as in the US. A story is out tonight about one resident who lost her job and is being foreclosed on. She will still owe over about half her debt, or more than €100,000, plus court costs and penalties."
|Don't expect to see a bottom for Spanish Real Estate until the year 2033!|
If the bank manages to sell a foreclosed home, that amount is struck off the remaining debt. But the norm these days is that the property is put up for auction and nobody bids. That has meant the bank then takes over the house for just half its originally assessed value and wipes the amount off the remaining debt – leaving the borrower still owing a bundle. Spanish Home prices have fallen by at least 20%. Realistic estimates assume a minimum 40-60% total drop is likely, lately, I've heard about a loss of 75%...and although this is new and modern urbanization, I am almost sure prices will continue to drop.
- Spain had one of the most extreme housing bubbles in the world, and its banking system still is heavily exposed to the property sector.
- Spanish authorities realized that without support the banking system would likely collapse, and they have intervened with guarantees and a plan to help banks sort out bad loans and recapitalize. In the end, we believe in a Pyrrhic victory, with most Cajas becoming zombies and recovery being weak and delayed as Spanish sovereign debt continues to rise sharply.
- Since the Real Estate in Spain busted, 150,000 Spanish building companies went bankrupt and 5,000,000 people lost their jobs in the building sector.
- Today it appears that neither the Real Estate Brokers, nor Real Estate agents, nor many speculators UNDERSTAND the catastrophe the market is heading for. Eventually shit hits the fan when you sell a 1,000 sq. ft dwelling for $ 300,000!
- Most Real Estate brokers and agents in Spain try to make some fast and easy money and service and reliability is not the rule to the day. Hence this market must be approached with extreme caution. Many buildings, houses have been built illegally and it can take up to 10 years to get a title delivered. On many occasions, properties have been sold twice...
- In Southern Spain, during the Euro conversion, many prices were simply multiplied by a factor of 4!
- The legal system in Spain is absolutely unreliable and in many cases also corrupt.
updated April 25, 2012
Spanish house prices tumbled at their fastest pace on record in the fourth quarter of 2011, a sign that a long-running property bust will continue to weigh on Spanish households and banks.
House prices fell on average by 11.2% in the fourth quarter from the same period a year earlier, well below the 7.4% decline in the third quarter, while prices of used homes were down 13.7% in the period, the country's statistics agency INE said Thursday. Both readings are by far the worst since INE started recording countrywide prices in 2007, the peak year for Spain's decade-long property boom. Previously, annual price declines had bottomed out at 7.7% in 2009, and analysts say house prices have only rarely fallen year-to-year since at least the 1970s.
The drop indicates Spanish property prices are now correcting at a similar pace to that seen in the U.S. soon after the 2008 financial crisis and may fall further at least this year. In previous quarters, price drops were somewhat contained, the result of support efforts by the government and banks, fearful of the effect of housing collapse.
Spanish banks hold more than €400 billion ($521.32 billion) worth of loans to the construction and real-estate sector, backed by collateral that loses value as property prices slide further. The amount is equivalent to around 40% of Spain's gross domestic product.
Spanish Banks, Caja's, and also Spaniards put a frighteningly high percentage (80%) of their wealth into housing. As people age, they will need to sell their real estate to finance their retirement. This would work if there were people to buy the houses...but there are none: it's a one-way market! The introduction of the euro caused massive imbalances, and Spain was a net loser. Falling wages will hurt Spain in multiple connected ways.[Spain's unit labor costs need to fall 30% to match Germany] Housing prices will be pressured as homeowners find that they can no longer afford to maintain their mortgages or their homes. Consumption is about 60% of the Spanish economy so falling wages will reduce GDP until real job growth returns. The government will be pressured by this initially falling tax base, which will hamper its efforts to reduce the deficit. Finally, deflation in wages will lower GDP and make the debt-to-GDP ratio that much worse. Spanish banks were repeatedly warned by the Central bank of Madrid that their exposure to the real estate market was dangerously high. (see previous Goldonomic newsletters) Hence it will come as no surprise that soon the Spanish Banks will need to be Bailed out! (Santander, BBVA, La Caixa,...)
Updated May 25, 2010 - Empty properties have become a problem for residents trying to find the funds to pay for the maintenance of their communal areas
Developers owe communities millions in fees for unsold homes but the IDIOTS refuse to bring down the prices and the same can be said of the Landlords which refuse to bring down the Rents!? Bringing down the Rents, would automatically bring down the value of the property and endanger the overleveraged Spanish Banks.
The financial crisis is leaving communities of residents with mounting debts. Their lack of income, however, is not just due to individual owners getting behind with their monthly fees but developers of new buildings who have stopped paying community fees for the numerous apartments that they have failed to sell.
This trend has been confirmed by the School of Property Administrators, whose representatives believe that developers’ debts with communities could run into millions of euros in the province of Malaga. What’s more the debts build up month after month. In some cases, developers have not paid the community for unsold flats, garages, storerooms, or commercial premises for as long as two years.
The current inactivity in the property market is behind the problem. “Before the crisis, developers religiously paid their part of the community fees for reserved or unsold properties, because they knew a buyer would come along within a couple of months; now, however they are the most problematic debtors we have to deal with because many of the companies we are demanding money from have gone into administration”, points out Marcelo Cambló, president of the School of Property Administrators.
Posted March 28, 2010 - Amazing is that what was published last year was and still is valid...
The Spanish real estate bubble keeps deflating and 'the Nile - denial' is the longest river on earth.
While Real Estate prices keep coming down properties are still sold and bought as markets never come to a standstill. The amount of empty homes keeps rising as fewer British (Spain's major customers) can afford to travel and live in Spain (the British Pound lost 30% of its value) and East Europeans have decided to return home and stay there. The Spanish cost of living keeps rising and chokes the economy as Spanish people traditionally have a tendency to go back to Peseta prices. Because of the depression, real income is stalling and government income fails to cover its expenditures. VAT and other taxes are raised instead of brought down...
March 2010 the second shoe has dropped: Commercial Real Estate. Shopping centers have become ghost towns ( this even applies to Puerto Banus -Marbella). So far only the 'too big to fail' have survived. Most Real Estate (Immobilaria) shops have closed down and the state of the Spanish real estate has suffered from 3 months of rain.
Hard to understand is that Real Estate prices and rents are not really coming down as expected. Contrary to what is happening in the USA -where prices are coming down in compensation for falling demand - Spanish people seem to be stubborn and prefer to leave the properties vacant instead of selling or renting them out at lower prices. Such is only possible for so long!
Posted September 1st, 2009
Spanish politicians and international investors have grossly misjudged Spain. In retrospect, Spain will be viewed as a subprime where all of the banking results looked good until they didn't. This is typical of bubbles, and Spain will be no different. [Casey]
The real estate crash in Spain is worse than is widely believed and the Spanish banks are hiding the losses. Spanish banks are incorrectly seen as the strongest in Europe...they are only better at window dressing and making smoke curtains. Spain is a disaster waiting to happen. Denial or misunderstanding the crisis will prove to be costly to investors and Spanish homeowners.
Spain has as many unsold homes as the whole of the USA has! In 2000 the exposure of Spanish banks (mainly) to the Real Estate sector was € 33 bn. In 2008 it had increased to € 300 or a rise of 800%. Adding construction sector debts the figure amounts to €470 bn or half of the Gross Domestic Product of Spain.
Spain has over 1,000,000 unsold homes. And most homes are in the wrong places (on the coast). According to official statistics (which are highly cooked), Spanish house prices are down a little more than 10% from their peaks. In reality, they are down A LOT MORE. Spanish banks are hiding their problems by cooking their books, by not marking loans to market, by lending to zombie companies, and by making 40 year and 100% loan-to-value loans.
In many cases, the Spanish banks just took over failing developments for the price of the mortgage hereby converting a non-performing mortgage into a property asset. Such was and is even the case with single-family homes which are - ex-post - simply rented out to the failing owner. As Spanish banks control most of the real estate appraisals, such was/is a simple operation.
Spanish banks are now the largest real estate owners in Spain and hence, Spanish Real Estate is the greatest risk for Spanish banks.
The Euro has become the Spanish number, one enemy. In order to solve the problem, Spain must either increase dramatically its productivity (something simply impossible) or reduce the wages by at least 30% (unemployment is over 20%). However, a devaluation of the Spanish Peseta by 30% like Britain did with the Pound is simply impossible as long as Spain stays within the EU.
Posted March 16, 2009
A 100 sq meter [1,000 sq. ft] dwelling can hardly be called an apartment!? Promoters on the Costa del Sol sold 100 m² dwellings as Apartments for over € 100,000 and assisted the buyers to get a mortgage (even knowing they would never be able to afford it). Penthouses of 150 m² or 1,500 sq. ft were sold for almost € 1,000,000 (and sometimes more)...Construction plans called for preinstalled satellite TV and internet when nothing was done. Such a policy calls for a severe correction as many tourists have fled this area and prices keep on crashing.
Posted November 24, 2008
A four-bedroom apartment for as little as € 10,000: Spain and especially the Costa del Sol counts massive foreclosures. Banks have so far tried to jump in and they have taken over the property from the failing owner renting it back to him. As the treasury situation of Spanish banks is already heavily weighted with Real Estate, they are slowly moving into a situation where they have no other choice but to offload the surplus at well-below-market prices.
Posted November 5, 2008
Up to 500,000 unemployed people - 15,000 of them in the province of Malaga - will be able to delay making 50 percent of their mortgage payments for two years. That was part of the package of measures to confront the credit crisis announced yesterday by Prime Minister José Luis Rodríguez Zapatero in a news conference at Moncloa Palace. Other measures include benefits of 1,500 euros for employers who take on the registered unemployed with family responsibilities.
Posted October 1st, 2008
There is a drop of 46% in house building and 27% less sales activity in Andalusia. The sales figure doesn't include the sales of new homes. The president of the Asprimana (APCE) warned the fall of the property market could get even worse in the near future.
|What is happening here is a repetition of the typical Real Estate pattern: at first, the market dries up, next prices fall because the house of your neighbor comes into foreclosure.|
Posted October 1st, 2008
The latest information we are receiving out of the Costa del Sol is extremely negative. Businesses are closing down by the dozen each week. Banks and Developers are sliding in the ultimate faze of denial. Brace for massive bankruptcies.
Posted September 23, 2008
Conditions in Spain are deteriorating each day. The Costa del Sol is especially affected. The Holiday season has been dramatically bad and one has to expect further bankruptcies of building promoters in the near future.
Posted July 16, 2008
Spain is now spiraling into the worst crisis since the Franco dictatorship. "The economy is in dire straits," said Dominic Bryant, Spain expert at BNP Paribas.". Some of the housebuilders are going to go bust, it is as simple as that. Over 10pc of Spain's economy has been building houses. This compares with 6pc-7pc in the US at the height of the bubble. The adjustment will be enormous," he said.
Spanish Economy Minister Pedro Solbes Wednesday defended the government's decision not to help troubled property group Martinsa-Fadesa, insisting it was up to the private sector to solve its own problems. "I am not particularly in favor of the public sector resolving the problems of the private sector," he told Punto Radio. "It is difficult to justify because it means using citizens' taxes... The risk must be supported by the shareholders." Martinsa-Fadesa filed for bankruptcy on Tuesday, becoming the first major casualty of Spain's once-booming housing market crisis. The news shook the Madrid stock market, which fears other property and construction companies could also fail.
Martinsa-Fadesa, a leading property group in Spain, said that despite many attempts it had been unable to obtain a loan of 150 million euros (239 million dollars) needed as the basis for refinancing. On Friday, the group had requested an extra delay to raise the loan as part of a plan to refinance the debt of 4.0 billion euros. Its creditors said they had already put aside more than 600 million euros against their exposure to Martinsa.
The low-interest rates that followed Spain's accession to the eurozone in 1999 fuelled the housing boom as Spaniards took out mortgages to buy homes for the first time or to trade up to a larger house. The market began to suffer early last year as rising interest rates and the international lending crunch hit Spain's credit-fuelled expansion, making it hard to sell property in a market that many argue is oversupplied. AFP News
Posted July 12. 2008
Apartment owners lower prices for fear of being unable to rent during the summer.
Estate agents say that an apartment facing the beach can now be rented for 30 % less. Last August's occupancy rate was 81%. this year is expected to be 71 %!
Holiday apartments are the latest consumer items whose prices have dropped as a result of the current recession. The two-month high tourism season is already upon us and reservation levels are far down on last year and rental prices have dropped considerably. Failure to cut prices means an unoccupied apartment throughout the summer season, and this is particularly disturbing for those who purchased these apartments as investments. Property agencies specializing in this type of rental have confirmed that summer prices have dropped by up to 30 percent.
The president of the School of Property Agents, Cayetano Rengel, knows all about it, and also confirms that the sector is going through hard times. “The market is at a stagnation point. Everything has stopped, from hotel reservations to private apartment rentals,” he says. In previous years, he recalls, most owners had clients for the entire summer by mid-June.
The domino effect has set in, and to attempt to get around it, Rengel says that owners are lowering asking prices all around and are all very anxious to negotiate. “There was such demand some years ago that they could fix their own prices and stick to them, but now they are willing to talk about it to any potential clients, and even consider rental periods as short as three days at a time,” he adds.
The dozen or so estate agents who spoke to this newspaper agreed with the president of their association. “This will be one of the worst summers ever,” said one of them, while another assured us that prices have stagnated completely over recent months. Other agencies in the sector confirmed this.
13.07.08 - 12:34 - ALMUDENA NOGUES - MALAGA
CREDIT CRUNCH - Repossession cases heard by Marbella courts multiply eightfold in a year 26.05.08 – 17:46 –M.J. CRUZADO | MARBELLA
If you want an idea of the economic situation of a town, pay a visit to the local courthouse. The less money people have, the more conflicts are taken before the judges. In the last year, the number of cases of unpaid mortgages presented to the Marbella courts has multiplied by eight.
“This is a symptom that all is not well because the mortgage is the last thing people stop paying”, says Alfredo Martínez of Ausbanc Consumo, the Association of Bank Service Users. According to statistics released by the Marbella courts, in the first three months of 2007, banks filed an average of one case a month; now this average has gone up to eight. Falling back on three or four mortgage repayment installments is enough for a bank to initiate legal action, which more often than not ends with the property being put up for auction.
Worst to come
“The worst is yet to come”, said Marbella’s head judge, Ángel Sánchez. “Claims for unpaid loans are increasing tremendously and all the banks predict that the situation will get worse in the second half of this year. Some professionals - lawyers, notaries, estate agents - lose trade in a crisis. Our workload increases. It’s maths”, Sánchez explains. If interest rates remain high (note that interest rates are low!) and unemployment, in the construction industry, for example, continues to rise, there will be very serious problems in two years’ time. First people stopped paying other types of loans. Now they are in arrears with their mortgage repayments.
The majority of repossession cases in Marbella involve foreigners who bought properties as holiday homes or as an investment. Nevertheless, there are some cases of families who have lost their only home after being unable to pay the mortgage or the community fees (I’ve seen community fees up to € 11,000 per annum), despite the flexibility measures introduced by the banks and the Government aim at reducing commissions to a minimum when it comes to main residences.
When a mortgage case goes through the courts the property is put up directly for auction, a golden opportunity for alert buyers ready to benefit from others’ misfortune.
The legal process is hindered however by notification problems. “It’s very difficult to find people in Marbella; there are a lot of isolated residential estates and villas, and holiday homes with foreign owners who don’t live in the town permanently. That makes our work a lot more difficult”, adds the judge.
At present, the six Marbella courts have an average of 700 cases each which involves the repossession of property or other assets being frozen.
Debtors in the community
There have always been neighbors who will go out of their way to avoid paying their community fees. However, in the last year, the courts have noticed a considerable increase in cases brought against neighbors who could end up losing their homes. Judge Ángel Sánchez explains that community fees “are among the first things that people stop paying” when times get tough, especially in Marbella where these bills tend to be high due to the large numbers of developments with pools and gardens.
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