Gibraltar

When I first came to Gibraltar back in the sixties we nearly didn’t get in as we had almost no money. We were on our way back from a trip around Morocco, and I was still at school. Eventually we managed to blag our way in, and made our way to one of the great watering holes of the western world, Smokey Joe’s.

The building is still there, up a dingy side street right at the northern end of Main Street. There is a bright modern bar on the corner run by a charming English lady, while Smokey Joe’s is now a depository.

In the old days it was the place to eat for down-and-outs like us bums from the UK, and a must-visit joint for the US Fleet. I remember standing outside a firmly shut front door one day, looking puzzled. An American sailer came up, stared dumbfoundedly at the shut door and roundly declared, “What’s this? Smokey Joe is closed. Man, that’s unconstitutional.” And so it was.

It was like some greasy spoon on the Euston Rd where you could get an old fashioned English breakfast. Beans were heated up on a gas ring in their tin, and then tipped onto the plate. Bacon was crisp-fried, and the eggs were done properly by turning them over. The place was usually stacked to the rafters and the noise was sheer bedlam. Now the whole area is deathly quiet.

— To read about my first visit way back in the sixties, and the ridiculous shinnannigins that took place in the public lavatory, you need to read the relevant chapter of my book on Spain:
http://www.property.org.uk/spain/books/035.html

The port area has been reduced almost in tandem with Algeciras’s increase in size. Most of the port area is now covered with high rise apartments. There used to be a cricket ground beyond the casemates. It was a concrete yard like a parade ground. That too is now devoted to high-rise.

Main Street is now traffic free, and is lined with cafes, shops, English building societies, and about half a dozen branches of NatWest.

Parking is a nightmare, and sensible people will park over the border and walk across the airport runway, which sticks into the sea on each side of the causeway.

Before the coming of the new airport the area used to be a race course. I assume they must have kept the horses in Spain because there really cant have been room on the rock, and anyway, there couldn’t possibly have been any grass for them to eat

Luckily we managed to find a single parking space. That’s twice we’ve been lucky recently, but I dont think I’ll trust to luck next time. The whole town cant be more than two miles long, so walking is not a problem if you’re reasonably fit.

There’s a nice ambience about Gibraltar. It’s a bit claustrophobic, but gently so. If you can find a pad to live in I guess life can be very easy. Prices are cheap. Petrol was less than £1 a litre. Cigarettes and booze are cheap. Wine is cheap, and most things are taxed much less here than anywhere else in Europe. Getting anywhere in town is a matter of a ten minute walk. There is Marks and Spencer, Morrisons, and various old fashioned supermarkets. Walk into Main Street, do your shopping, stop at a street cafe, have a drink, have a chat, stroll home. It’s all very cosy. The official language is English. They even have the Friday Ad delivered every friday. And their EU representation is listed as South-West England, which must annoy them somewhat.

I’m getting to quite like the place. And if you want a change, there is the Costa del Sol just over the border, or the mountains of Southern Spain and the quaint white towns capping the hilltops. And just a short boat ride away in the opposite direction is the strange spell that is Africa.

Hmmm. The more I think about it, the more I fancy a pad just behind Main Street.

John

Buying Abroad-2

Ten Golden Rules when Buying Real Estate Abroad – Part 2

Okay, so you’ve digested the first five rules, now let’s look at the next five.

6    You need to understand the important points about location. Very often what appears to be the best location is the very worst when it comes to selling. When you come to sell you have to compete with hundreds of thousands of other apartments for sale all across tourist-land. You’ve got a problem. Tourists come and go. They can choose to buy anywhere. It is much better for selling purposes to buy in a normal town where there are normal people living, working, sending their kids to school, and living within a normal community. A tourist ghetto is not like that. There simply are not normal buyers and sellers. You can only sell to tourists. You are excluded from what I call the normal market. That’s why I prefer to buy in, or close to, normal business towns.

For example, I would never buy anything in Torremolinos, or a similar type of location. It’s a ghetto. You might like it, but it is not a good place to try and re-sell a property. You can only sell it to a tourist who can choose to buy anywhere on Spain’s coast, or in Morocco, Turkey, Egypt, or wherever. On the other hand, if I had bought in, for instance, Malaga or Istambul, then I could sell to a tourist, but I could also sell to someone who works locally in a bank, or for the local newspaper, or as a teacher, in other words, a normal resident. That gives me a better exit strategy because there is a wider and more stable market.

There is one other very important aspect to the problem of location, and that is political risk.

I have been advising my clients to avoid the Middle East for years. I avoided Dubai. I have always been skeptical about Turkey with its long border with Iraq. I have advised against Egypt as it is so close to strategically sensitive areas, and other unstable countries. I am still against all those zones. There are safer areas to buy in. Why buy risk?

There is also another aspect of political risk that you should consider. I advised people against buying in Santa Margarita because of the currency risk. I would now suggest there is a serious risk in buying countries that are having trouble in the Eurozone, including Ireland, Spain, Portugal and Greece. For most of these the risk is not great, but Greece is particularly vulnerable to being ejected from the eurozone. That would lead to instant heavy devaluation, and serious loss of value in any real estate.

7    Never never never buy off-plan in a mature market. Most off-plan deals that have been advertised in Spain and Portugal over the past six or seven years have been grossly over-priced. I have come across some deals that have been as much as three times the resale price of similar second hand properties. That’s another reason for looking for resale prices in the local newspapers before you turn to any estate agent. It is also why you never buy off-plan without visiting the area and checking the second hand market for real prices.

But, you are buying a new home, you say. Yes, but a new home, once bought, immediately becomes second hand when you want to sell, and that is the real market. You will always find that as a market matures the off-plan deals become increasingly dislocated from the re-sale market. When you sell, it is that resale market that will determine the price you get.

The only time you should consider off-plan is in a very fast moving market where prices are rising in the double figures year on year. Reckon on a seven year run in such prices. Reckon on at most a three year turn round on your deal, and make sure you get out before the seven years are up. That gives you only the first four years of a boom market to profit from an off-plan deal. After that you are into risk time.

8    Remember there is no such thing as Below Market Value. Whatever the sale price is in the public domain, that is the current market value. And remember you are buying real estate for the longer term, so the current market value is not a good guide to real value. Market value is subject to so many pressures. Price is not the same as value. You need to buy value. Go back and read Rule 5.

9    Instant equity has no value. You cant spend it. You cant remortgage with it, and in a static or falling market it will whither away. In a rising market no-one with half a brain will sell something under market value. Instant equity is a marketing concept, nothing more. It is another way of pretending you have bought into a good deal. In reality you will have bought at the market price because no-one else will bid higher. The seller has had to drop his price. That means the value has dropped, and that is why the seller is forced to face reality. It is also, like the concept of BMV, indicative of a falling market. You should never buy a falling market. Buy either in a static market or a rising market. A falling market will by very definition bring you losses, and of course, erode that supposed instant equity.

10    Never accept a bank valuation of any property that is being marketed by any kind of consortium. If the bank valuation is claimed to be above market value then you know without any doubt that the consortium is in financial trouble. The bank wants to shift the debt from one shaky developer to a myriad of individual borrowers. They are simply trying to shift a dodgy loan. Come on guys, why would a bank want to over-value a security for a loan? When was the last time you heard of a bank doing you a favour? Wise up. Leave such deals well alone. The valuations are fraudulent and wont stand comparison with general market prices. Re-read Rules 1, 2, and 5.

Pretty well everything else is down to personal preference, but at least you now have some solid rules to guide you to a sensible and prudent purchase.

john

Buying Abroad -1

Ten Golden Rules for Buying Real Estate Abroad – Part I

This article was prompted by me reading a similar article in another newsletter which consisted of two pages of complete waffle. Never mind the waffle, this is what you really need to know.

1    You should never buy anything you haven’t seen. Get off your backside and get out there and have a look. If you want to rely on others, good luck. You will surely need it. If you want to rely on luck then all I can say is: A fool and his money are soon parted.

2    When you are out there rent a property. Do not live in a hotel. Stay for as long as you can, preferably at least a month. Buy all the local newspapers and check re-sale prices and rental prices. Do not look in a single estate agent’s window. That is a very important point. You get your prices from the market place, not from a salesman.

3    You need to find out if you like the place. That includes not just visiting the beach and a restaurant or two. It includes doing some shopping to get an idea of prices. It means testing out the infrastructure. Do the buses function efficiently? How about the phones and broadband? Can you get replacement cameras if yours gets stolen or broken? What about medicine? Check out how the health centres and hospitals work. Are there frequent, easily accessible flights back to the UK that don’t cost a fortune? And are you less than an hour’s drive from the airport?

4    You also need to check whether there are facilities for carrying on your hobbies, and whether you can survive without speaking the language. Do they cater for English speaking residents, or is everything done in the local language? Is that language easy to learn? Do you want to learn? If not, are there ex-pat groups who will help you survive?

5    You need to check out whether prices are reasonable. This is where it pays not to have visited the estate agents first. If you go to the local agencies you will have your brain cluttered up with their prices, which may or may not be reasonable. You need to realise that there is price, and there is value. They are rarely the same. Prices relate to fashion, availability, hard sell, all kinds of extraneous reasons which shouldn’t concern you, and also interest rates (you’ll see why later). Value remains constant, and you can work it out yourself without help from any smooth talking agent.

How do you work out value? Easy. You find out from the newspapers how much it really costs for a long term rental. For example, in an average area in Southern Spain or the Algarve you can rent a 1 or 2 bed apartment for anything from €75 to €150 a week. Let’s take a figure bang in the middle. Multiply that by fifty-two and you now know how much it costs to live in your own pad for a year (52 * 100 = €5,200).

Now work out how much it would cost to buy a similar property if you had to borrow the money. Say the apartment was advertised for €150,000. Interest on borrowed money currently would cost you 3.8%, call it a round 4%. 4% of €150,000 = €6,000. The apartment appears to be a trifle over-valued. It’s marginally cheaper to rent than to buy. So why would you want to buy? Prices may be going up? Not if the place is already over-valued.

There is one other thing to bear in mind. Interest rates are at the lowest they have been in recorded history. They wont stay there. You would do better to use a more realistic interest rate in your calculations. Suppose you really do need a mortgage. If you do then you would be well advised to remember that the average mortgage interest rate is about 7%. How much would your apartment cost if rates went back up to that figure? The answer is €10,500. Your apartment would then turn out to be rather expensive. In short, it would cost you twice as much to buy than to rent. That’s stupid. If interest rates rise, and they will, sale prices will have to come down. That also means that now is not a good time to buy for investment purposes.

I see advertisements all the time for places that cost only £5,000 or £10,000 down, with “nothing more to pay”. That of course is simply not true as you have the mortgage interest to pay. And you will be paying that for ten or fifteen years, maybe longer. When the rate goes up remember how much that interest is going to be. Even at a relatively mild 7% it could turn out to be quite a burden.

The long term outlook for interest rates is for them to rise. Bear that in mind. That is why I always buy when interest rates are high but falling. Things then get better as time goes on, rather than getting worse. I always find that when interest rates are high, house prices are low. The reason is obvious. The higher the interest rate, the more expensive is the loan and therefore the house. That also means that as interest rates fall, house prices tend to rise (which is a nice bonus) as people can afford bigger mortgages.

There is one point here which most people tend to overlook, and that is the opportunity cost of the money. If you have the money from the sale of another house and you dont need a mortgage, that means you dont have mortgage costs to think about. That is true, but it does mean that once you have bought the house you no longer have the money. What could that money have bought you? There are literally dozens of ultra-safe investment deals around paying more than 10%. I’m looking right now at one guaranteed by the British Government that pays 14%. 14% of €150,000 is €21,000 a year in income. Use the capital to buy your apartment and that apartment is effectively costing you that lost €21,000 a year.

What was the rent again? Ah yes, €5,200. Hmm….. doesn’t sound like a sensible purchase to me. Think about it!

(Rules 6 – 10 next week.)

John

Algeciras

I can never get from one side of Jerez to the other. It’s possible, but I never manage it in less than three heart attacks. There are no signs to Algeciras, and the road disappears into housing estates, and after ten minutes of going round in circles and doing three-point turns I am beginning to get that usual Jerez feeling. I do the only sensible thing, and turn south via Cadiz.

It’s all so different from when I first used to walk around these shores. The small arab town of Tarifa has been totally destroyed by frightful buildings all around the old walled town.

It used to be a compact town set inside high stone walls, with a small port area facing Africa. The buildings were typically Moorish, with big wooden doors, often highly decorated, and lots of iron grills at the bottom of stairwells and across the windows. There used to be a few crummy bars with no lighting, and very little to eat, but they all served fino sherry and manzanilla, and every so often a few of the clients would burst into a clapping sequence, with a few vocal outbursts. It was as if you couldn’t have a proper conversation without bubbling over into music. These guys weren’t singing songs, they were simply talking to each other.

One of the other oddities about the place was the fact that in the old days you would find women in the bars. Outside the province of Cadiz that was unknown. Here it was perfectly normal, but the women followed the Arab custom of covering their hair with a shawl.

Now there are young women everywhere wearing the latest fashion, which seems to be short tight shorts worn over black tights.

This is the windy coast, famous now for the surfing which is big business all along this windy gully between Europe and Africa. It is also a centre for ecological energy collection with a massive wind farm straddling a very wide valley, with more wind turbines than I have ever seen in one place. There are literally hundreds of them spread out over an area of about thirty square miles. As you climb up to the range of mountains that shield Algeciras from the wet west winds there are more turbines set on crags and in gullies to catch the wind and produce some serious power.

How things have changed on the bay. When I first trekked around the crescent there was nothing between San Roque and Algeciras. And each town was tiny. I remember standing on the beach midway between the two one evening as we prepared to camp. Gibraltar was lit up like a christmas tree. Algeciras was largely in the dark. There were no street lights, no lights showing from the houses, and just one short string of street lights running the length of the quay, which was merely a hundred yards or so from end to end. And the railway line ran right down to the quay.

Now the port area has grown beyond all recognition with a massive reclamation scheme taking it into the bay, and it’s lit up, while Gibraltar seems positively dull in the distance without the American fleet anchored off-shore.

The restaurant immediately below our hotel is all Moroccan. The waiter barely speaks any Spanish. The customers are all arab, and the cuisine consists of tajines and couscous, with sticky sweets as well.

If you want to hop across to Africa the price is extortionate. Expect to pay sixty euros for a single passenger-only ticket across the six mile stretch of water. It will cost well over £200 for a car and two persons. Someone is cleaning up.

Jerez

Jerez is a great place to be if you live in the centre and only walk the odd few steps to an ambient bar selling top quality manzanilla. You should get a dusky senorita to do the shopping, and if you want to go anywhere, get her brother to come round with the pony and trap, put on your best Cordobes hat, a clean white shirt and a smart tight jacket, and go off in style.

I visit the bodega of the small Hidalgo. I top up with their rather fine sherry. There is no shop just a large office with a couple of ancient typewriters, a couple of modern computers, a grandfather clock, and various assorted bric-a-brac. It looks like a slightly modern version of a Dickensian office.

Their top of the range sherry costs a cool two hundred euros. I dont think I can afford to even try it. I satisfy myself with half a dozen bottles of La Banesa, which sells for a much more friendly price.

Jerez is a strange town. It has so many different barrios, or villages. There are the various bodegas, with long windowless walls fronting a street. The whole block is taken up with what looks like some monastery building with apparently no way in. Other barrios contain tiny squares with a few trees squeezed into the concrete, and jagged apartments jutting here and there.

There is the cathedral with its massive steps, framed by more buildings and advertising hoardings devoted to serious alcohol.

But there are the endless one-way streets leading round and round to nowhere.

I get out of the car and walk across the road. A gentleman comes down the highway in his rather nice carriage, with a splendid horse in front. He is seated on the front bench, dressed in black and white. He is wearing a Cordobes. He looks very distinguished. That’s the way to travel.

I walk down a couple of steps into a small bar order a fino and some manzanilla olives, and prepare to enjoy the next half hour.

I do love Jerez (at least, when I’m not driving a car).