Bailout bargains

Wednesday, August 01, 2012

Bailout bargains

They monopolise global headlines. Millions of lives depend on receiving them, and then on following them to the letter. Bailouts have already changed the face of Greece, Ireland and Portugal; and Cyprus, Spain and Italy are on the list.

The issues surrounding bailouts lie at the heart of the crisis in the eurozone, where economic growth has stagnated. The property markets have been particularly hard hit by the euro depreciating to levels not seen for years, bank repossessions at an all-time high and a record number of “for sale” signs. Although this is doom and gloom for many, for the house hunter it's a great scenario. The combination of depressed markets and favourable exchange rates brings a world of good deals to your fingertips. Spain has, of course, the biggest bargain basement, but other bailout countries are also ripe with opportunities. But a cheap price tag isn't always synonymous with value, and bargains can easily turn into white elephants.

To combine a good price with a wise purchase, you need market knowledge, careful research and a cool head. It also helps if you're cash-rich and not looking to make a fast buck — because short-term recovery is not on the horizon.


Spain's bargain basement

The amount of property on the Spanish market is mindboggling. Latest estimates calculate that there are around 680,000 new-builds plus tens of thousands of resale homes for sale. The surplus of supply coupled with lower demand has inevitably led to dramatic drops in prices, now between 40 and 60 per cent below those paid just five years ago.

Official statistics pointed to a fall of 12.6 per cent in the first quarter of this year alone, and, with theSpanish economy still in recession, the depressed market looks set to continue. This makes for plenty of bargains, such as the two-bedroom villa with sea views in Mijas on the Costa del Sol, just snapped up by a retired couple from Cumbria for €135,000 (£107,000), down €90,000 (£71,000) on its 2006 price. Or the Art Deco three-bedroom flat in central Valencia recently bagged by a 35-year-old Londoner for €110,000 (£87,000), that was originally valued at €200,000 (£158,000) in 2007. These bargains share several characteristics – great location, good-quality build and easy access to amenities (all of which make the property saleable in the future, too). Their prices are around half their 2007 value, although those in the industry believe they've bottomed out.

“Special properties in a great location are unlikely to drop further in price, because they're scarce and always in demand,” says Mark Stucklin, the owner of Spanish Property Insight, an information website on property issues. Graham Hunt from Valencia Property agrees. “Prices for properties with key selling points have now stabilised, and there's a strong market for them among foreigners with ready finance,” he explains.

In Marbella, Christopher Clover of Panorama has noticed a similar trend. “Villas and apartments in high-quality, well-established residential areas are experiencing no substantial price drops,” he says. “I expect this tendency to continue over the next few months.” The message for this market sector is clearly to buy now. “The best properties go very quickly, because people snap them up,” says Hunt. Clover sees the same in Marbella. “Homes in key areas are being sold at bargain prices and not being replaced by a similarly priced property,” he says.

Buying now also means you can take advantage of two half-price tax breaks – 4 per cent VAT on new-builds (down from 8 per cent) and 10.5 per cent capital gains tax (usually 21 per cent). The tax discounts are available until the end of this year. Sourcing these bargains is best done through a reputable agent who knows the area and its prices. A good agent will have factored price drops into the asking price and know the personal circumstances behind a sale, often key when it comes to making offers. “An experienced agent should also know about local planning issues,” says Hunt, “so you avoid illegal properties.”

Snapping up a true bargain also means being able to move fast – have your deposit ready and your finance in place before you start to look. As always in a buyer's market, cash is king, and sellers of the best-priced prime properties are rarely prepared to wait for mortgage approval. But what about the bulk of unsold stock on the market that doesn't fit into the special-home category? Prices for these properties are still falling and Stucklin believes they will continue to do so until more stock is cleared.

With banks and developers desperate to offload properties, this market sector offers plenty to choose from, and the good news for the holiday-home buyer is that there's a lot worth looking at. Stucklin recommends a “lock-up- and-leave” property, ideal for your own use and to rent out with almost no maintenance. He advises taking a look at bank stock, because, he says, “the big advantage of buying through a bank is you can get up to 100 per cent finance, a real plus in today's mortgage desert”.

Bank properties aren't easy to access, but most agents have a selection of the best bank repossessions in their area. The advantage of using an agent in this instance is that they've done the donkey work of shortlisting the good deals. An alternative is to go into any bank and ask for a list of repossessions. Staff may speak English, and some banks on the Costas have brochures in English. However, a bank won't provide a worthwhile shortlist, and it's difficult to tell from a brochure if a property merits a visit.

When considering new-builds offered by banks, ignore the price tag at first and concentrate on the location. Be cautious about developments in the middle of nowhere — ask yourself if you really want to drive everywhere for everything. Be sceptical of promised golf courses, high-speed train links, theme parks… remind yourself that, with Spain in a recession, these are unlikely to happen for several years. And be wary of “ghost” developments, with few other buyers – ask yourself why no one else has bought.

Finally, remember to compare like with like. Weigh up prices, but also bring location, quality of construction and standard of maintenance into the equation. The difference in price between two similar properties may seem unjustified, but paying an extra €50,000 (£40,000) for walking distance to amenities, or €20,000 (£16,000) more for a new-build in perfect condition, may be more than worth it. And don't forget to think long-term, for the boxes you tick today will be ticked in the next stage of your property's lifetime – when you come to sell.”

Greece and Portugal

Greece and Portugal have very different scenarios to Spain. A burst property bubble isn't behind their financial problems and neither country experienced the massive building seen in Spain. Nor can Greece and Portugal compete when it comes to volume of property on the market. But severe austerity measures have caused a big drop in property prices, and, as a result, these are good hunting grounds for bargains, too.

Spyros Mantzos from A Property in Greece has seen a slow market over the past two years, with prices down by 40 per cent this year alone. He predicts further falls over the next 12 months, with cash buyers likely to find the best properties. “Top bargains are villas within 10 minutes of the beach on Crete, Corfu and the Peloponnese,” says Mantzos. “And resale villas are currently cheaper than building your own.”

Oonagh Karanjia at Crete Property Consultants believes this year will be a great year for people to buy bargains. “Prices have dropped at least 25 per cent; more, when owners are forced to sell,” she says, “but sea views and proximity to the beach still command the highest prices, and there are few bargains within 1km of the coast.”

Portuguese property paints a similar picture of price drops and bargain villas. For Mary Mangan from Winkworth, this buyer's market is almost wholly villa centred, and she describes the market for apartments as “challenging”. Mangan points to the Algarve Golden Triangle (Quinta do Lago/Vale do Lobo/Carvoeiro) and Lagos/Praia de Luz as the best places to look. “Buyers want peace and quiet in tried and trusted developments,” she says, “and these areas offer just that.”

Essential guide to bargain hunting

• Choose the right location for purchase (and resale later on).
• Don't be swayed by price alone.
• Avoid developments with unfinished phases or amenities.
• Don't consider developments with less than 50 per cent of properties sold.
• Check the agent's reputation – most of the cowboys have vanished, but not all.
• Don't hum and ha over a bargain for too long, as you may lose it.
• Use an independent lawyer as soon as your offer is accepted.
• Don't forget to have your deposit and finance ready

Author

A Place In The Sun