Spanish Repossessions

Spanish Repossessions

You will note that one reader has asked a very simple question. Bearing in mind my rather drastic remarks about property values he quite rightly wonders whether spending half a million on a dream home in Spain is a wise decision. Are repossessions the answer?

Various points are made as part of the question. He wants to own his own home. He wants to live there in a long and happy retirement. And why not? But the place costs half a million. Is it worth it?

The questions here dont really relate to whether one should rent or buy. Other questions, such as what happens if one’s partner gets ill, or dies, dont come into the discussion. These are private matters, and I trust the questioner has worked his way through them.

I cant write a book here about Spanish repossessions, so I have to skate over a lot of points, but my main point is a general one. It relates to values. It relates to the system governing house prices.

Let me show you something. My mother bought a detached three bedroomed house in 1949. She paid the vast sum of £750 for it. It was a cash purchase. It cost approximately the same money as a new car. Since then the value of money has plummeted. I reckon in terms of inflation, you would have to multiply that figure by about 50 to get a similar price today. In short it would cost about £37,500. Before the crash it would probably have sold for an extra nought, say, £375,000.

I can understand house values going up to counteract inflation, but why the extra nought? Where did that come from?

My mother had to pay cash. Any buyer in 2005 or thereabouts would have probably bought with a 95% mortgage. Having mortgage finance makes the process of house buying a totally different situation. You do not pay in one go, you now pay over a 25 year period. With interest rates on the floor the cost of the money is less than the march of inflation, which means you essentially get the loan for nothing. That makes it possible to pay a lot more for a house than before mortgages were widespread.

Now let’s see what happens when mortgages become difficult or even impossible to get. Have another read of my analysis of that friend’s flat near Albufeira in the Algarve. The actual cost of the flat with a mortgage allows a valuation of about €90,000. Without a mortgage the real cost of the money needed to buy gives a real value of about €35,000. The difference is vast. And this is not just an academic exercise. With a mortgage I could afford to pay the higher figure. Without it I would be hard pushed to pay even that lower price. That means the price at which the flat changes hands has to drop quite drastically to take into account the difficulty of obtaining useful mortgage facilities.

House prices rise with the advent of easy money. They fall when that easy money is removed.

House prices across Europe will continue to fall while the current monetary fiasco continues. And it is set to continue for the rest of this decade if the current political chicanery is anything to go by.

I am not telling people that they should not buy houses. I am not suggesting everyone moves into a hotel. I am merely pointing out the best use of money. If you want to spend ten million euros on a nice little Picasso, then spend it. If you want to make your money work for you to produce a good income, then do so. It’s your choice. All I’m doing is pointing out equivalences. And I am pointing out that the equations have changed due to the locked up banking system, and the demise of the easy money system we have been used to for the past fifty years.

Any house bought now will be worth less in a year’s time. It will probably be worth less in ten years’ time. If that does not concern you, then buy what you will. If you have adequate funds for a great lifestyle, then you have nothing to worry about. If, on the other hand, like most people, you need to watch the pennies, and need to make your pounds go as far as they can, then dont think real estate in Europe until easy money comes back into fashion.

I still say that the easiest way to value a house is to weigh up the difference between the cost of the money to buy, and the cost of the money to rent. Ideally there should be no difference. If the difference is more than 20% in either direction then one of the prices is way out of line.

I can get at least 10% return on capital. 10% return on half a million is about £1,000 a week. Would it really cost that much to rent that half a million pound house? How about offering to rent the house until the vendor considers a price reduction?

The way to find cheap Spanish repossessions is to avoid estate agents. Your first point of reference is the local newspaper. The second port of call would be the local bank. Ask them to put you in touch with their repossession centre. They will have thousands of properties they are desperate to get off their books at rock bottom prices. Let them know exactly what you want, and they will send you a list as long as the Nile. So long as you can cover the mortgage they will be happy. Cover 75% of the mortgage and they will probably still be happy.

As to the area, just outside Javea, I think it’s rather nice. I used to live there myself, and I was very happy there. If you do buy, invite me over for a couple of days, I can tell you some interesting stories. I will add a few Spanish repossessions in that area in the next members’ bulletin.
john

Cadiz

I am continuing my series on places to move to in warmer climes. This time I will be looking at Southern Spain. Usually, when you mention southern Spain people think of the Costa del Sol. That isn’t my idea of heaven. It is a concrete jungle, with a motorway that doubles up as a parking lot.

My idea of southern Spain is the province of Cadiz. The ancient city of Cadiz dates back about 5,000 years, to the days when the Phoenicians were roving the world. It is built on a spit of land pointing northwards, and sheltering a wonderful deep water harbour. The old walled city is fascinating. The little bars can be intriguing. The paseo is still an essential part of life. In fact, one of the big attractions for me is the fact that this province more than any other still keeps the old traditions.

Cadiz

It is one of the few places where the old folk still keep the votive candles alight in front of the saints’ alcoves. You can still find people talking and breaking into song, and hand clapping almost as a method of conversation. There are bars where you can still hear genuine cante jondo. There are towns which put on fairs where you can take part in the old rituals. And if you cant find what you want, you will be sure to find it a short drive away.

You have sophisticated shops. The following major cities are all within an easy drive: Cadiz itself, Jerez, Algeciras, Gibraltar, and even Seville and Cordoba.

There are ancient cities with roman remains, and with architecture ranging back to the middle ages.  The best, apart from Cadiz itself, are just over the border in the province of Seville. The towns of Carmona and Ecija are particularly interesting. The Roman necropolis of Carmona is particular noteworthy. It lies on a low hill at the opposite end of Carmona amid cypress trees and contains more than nine hundred family tombs dating from the second century BC to the fourth century AD. Enclosed in subterranean chambers hewn from the rock, the tombs are often frescoed and contain a series of niches in which many of the funeral urns remain intact. Some of the larger tombs have vestibules with stone benches for funeral banquets and several retain carved family emblems.

There are the white hill towns with their charming squares. There are the vineyards producing fabulous wines, including sherries, manzanillas, and montillas. It doesn’t matter where you go, they all have a charm that is irresistible; Arcos, Ubrique, Medina-Sidonia, Jimena, Vejer.

Just south of the motorway from Seville to Cordoba is a very rich and rewarding area. The local wines are superb, especially the whites. The towns are usually very old and fascinating. There are big annual fairs at places such as Utrera and Osuna.

Further south is a range of mountains, hiding the old city of Ronda. Carry on through the mountains and you come down to the coast at Marbella.

There are also the charming coastal towns. Down in the very south is the old Arabic town of Tarifa. It has, of course, been almost destroyed by concrete eyesores. The coast however, is a favourite with surfers. Then there is the rapidly developing city of Algeciras, which used to be a dump before trade with Africa opened up. On the other side of the bay is Gibraltar, with its British stores and banks and building societies, and its charming squares, and bustling cafes.

Africa is just six miles across the straits, although the ferry fares are extortionate. There is a niche here for someone to start up a cheap ferry service.

To the north of Cadiz are the charming sherry towns of Santa Maria and Sanlucar de Barrameda, while I rather like Chipiona because of its rather nice bodega right up on the coast overlooking the mouth of the Gaudalquivir, and next to an old renovated fort. (At least it had better be renovated. I tried to buy it, but the council claimed they had already got an option on it and would be restoring it.)

The weather is usually dry for most of the year, although recently we have been getting wet winters. The weather is generally warm in winter and very hot in summer.

Properties here are generally more expensive than in the north, but sales are slow, and there are bargains about.

For more information on the area, do look at my book on Spain.
john