Andalucia Property Market Update 2008

A Review of 2007 and Predictions for 2008
Finally, in 2007 everyone seems to have accepted that market conditions in Andalucía have changed.  In fact, they started changing some 18 – 24 months ago but it has taken a while for the message to be taken seriously.  Developers, estate agents and property sellers now know that the buyer is king, at least for the time being.  No tears will be shed for the estimated 3,000 estate agents who have gone out of business in Málaga province alone in 2007; most of those had no property background, limited or no Spanish, but just climbed on the bandwagon.  They were dangerous and bad for the market.  The professional, long-established agents will survive, just as they survived the last downturn in the early 1990s.  Nor will the short-term speculators be missed.  Why so many people thought that they could purchase small, cookie-cutter apartments off-plan in a high-density complex and then sell them for double what they paid during construction is beyond me, but thousands did and are now desperate to unload.

However, in my opinion, much of the media comment during 2007, the banner headlines predicting doom, gloom and disaster, is wide of the mark and misleading because it concentrated almost exclusively on new-build property development.  Overall, the property market in Andalucía is not facing meltdown.  Certainly, there is significant oversupply of certain types of property in some areas but demand for well-located, quality property remains firm.  The problem is that the majority of unsold property is in high-density developments of 100s of identical units, often in undesirable locations, that the discerning buyer does not want.  And in the resale sector over-optimistic sellers have continued to increase their asking prices year-on-year, in spite of the fact that all the evidence shows that property prices in Andalucía peaked in 2004 and, although they have continued to rise, it has been as a much slower rate.  So as 2007 ended, there was indeed a huge overhang of unsold property in Andalucía; a lot of it not very nice or overpriced, and often, both!  But there is also a significant amount of top-quality, well-located property for sale, and all the signs are that serious sellers are taking substantial reductions on the asking price. 

The Marbella Story, cont’d….
Fortunately, the dust is starting to settle on the damaging corruption and illegal building scandal that broke in early 2006.  The new schedule of planning laws, the PGOU or Plan General for short, has been agreed at local level and is now before the regional government in Seville for final approval, expected during 2008.  It was the lack of regional approval for the many revisions of the 1986 Plan General submitted by the former mayor in Marbella, Jesús Gil, during the 1990s that led to the chaos in the first place; when his revisions were rejected in Seville, he just granted building licences anyway, although the projects clearly contravened the planning regulations as they then existed, usually in respect of development of green zone land and density levels.  The new planning regulations now awaiting ratification will set out how the western Costa del Sol develops for the next decade and beyond.

We now know that the overwhelming majority of the estimated 30,000 illegally built properties are to receive retrospective licences but uncertainty still hovers over approximately 750 and there may yet be some symbolic demolitions.  Also, in return for legalising the illegal properties the Marbella Town Hall is seeking compensation from the original developers who benefited and there is concern about what will happen if this is not forthcoming if, for example, the developer has gone out of business.  The worry is that the authorities will then make financial claims on the residents of these developments.  So the story still has some way to run, but the worst is over for the majority. 

Prices in 2007
The official Ministry of Housing statistics show that during 2007 property prices in Andalucía rose 4.8% on average, the same as the national average.  Within Andalucía, the best growth was in the province of Granada, at 8.1%, the worst Málaga, with 3.8%.  But, for several reasons, official figures in Spain can be somewhat inaccurate and are best seen as indicators of trends; all the indications are that property price inflation is slowing, although not necessarily as the same rate across all sectors of the market.  For example, while I would expect to negotiate ±25% off some asking prices on the coasts of Andalucía, I might only manage 10% in the centre of Seville and even less in some of the prime country areas where demand for certain types of property may still outstrip supply.  Having said that, in January 2008 the first transaction of the year for clients of The Property Finders in Andalucía involved a superbly located penthouse apartment on the Balcón de Europa in Nerja, without doubt the best address in town, only a few paces from the beach and we only achieved 2.5% off the asking price.  As ever, quality holds up well, irrespective of what may be happening in less desirable sectors of the market

In a country as large and diverse as Spain national averages ignore big regional variations and it is no different at the provincial level.  Andalucía is Spain’s largest autonomous region, covering nearly 20% of the Spanish mainland and is bigger, in fact, than several E.U. countries.  So it should come as no surprise to find differences in the property markets in the eight provinces that make up Andalucía, ranging as they do from the affluent coasts of Málaga province to the less well-off rural interiors of Jaén and Huelva.  In effect, there a several property markets across the region and it makes more sense, therefore, to look at the different sectors separately.

The Coasts
Andalucía has 900kms of coastline, 600 of which face the Mediterranean and 300 on the Atlantic side.  Some coasts are very densely developed, others are barely touched.  In most coastal areas there are two distinct sectors in the property market; firstly, the high density new-build developments, secondly, the quality resale sector and in my view they will perform very differently in 2008. 

The new-build developments first.  There are too many of them!  And although the number of applications for planning approval is already declining building completions are still rising.  So, even if demand in this sector stays firm, with the number of properties for sale increasing the back-log just gets bigger.  But the evidence is that demand is falling, mainly due to higher mortgage interest rates and reduced credit availability.  This is a big factor; one of the main driving forces behind the extraordinary surge in demand for new-build properties in the last five years, from both Spanish and overseas buyers, has been the availability of relatively cheap finance.  In addition, property price inflation in the U.K. and Irish domestic markets, both key players in the Andalucían markets, has allowed property buyers to release equity to fund the deposit, the balance by a Spanish mortgage.  In effect, many buyers have been taking 100% mortgages.  When interest rates started to rise many looked to the rental market to service the increasing costs, only to discover that the assurance previously given to them by over-excited estate agents, i.e. that they would have no trouble achieving sufficient rental income to cover the mortgage, was, in fact, a myth!

So 2008 in the new-build sector is not looking good for sellers and even for buyers, I would urge caution.  As developments currently under construction come to completion, and there are a lot out there, there will be more unsold properties available and unless you are able to negotiate a very substantial discount then it may be advisable to hold off until at least 2009.  I am aware of recent transactions in which the seller has accepted an offer somewhat below the price they paid two years previously.  However, we have had similar building booms in Andalucía in the past and buyers can be certain that the overhang will get mopped up, stability will return and prices will rise again but any buyer of a new-build property in 2008 must be absolutely convinced that the price is right, that the building licence and bank guarantees are verified by an independent lawyer and that they can finance the purchase without depending on rental income.

Costa del Sol:
On the western Costa del Sol the prime area centres on Marbella and extends about 15kms to the east, to Las Chapas, and about 15kms to the west, as far as Estepona.   Two big infrastructure improvements worth noting; already underway, the San Pedro underpass will relieve severe traffic congestion on the approaches to the town and the Ronda road junction, and the proposed rail link between Málaga and San Pedro, mostly underground, is the most ambitious project ever considered for the Costa del Sol.  The golf industry is vital to this area; the spending power of the golf visitor far outweighs that of the summer tourist and it give the western Costa del Sol one of the few, genuine 12-month seasons in Europe.  There is no ‘low’ season anymore.   

On the eastern Costa del Sol, Nerja is considered the prime resort but the lack of golf infrastructure means that this is primarily a summer resort and is noticeably quieter in the winter months.  However, it does have the same wonderful winter micro-climate as Marbella and, over time, I can see Nerja developing into more of a year-round destination.  For example, a €33,000,000 marina project on the west of the town has just been announced, with 500 berths and waterside shops and restaurants, with completion predicted for 2010.

Costa Tropical
Anyone who has been caught up in summer traffic on the old coast road between Nerja and Almuñécar is unlikely to want to repeat the experience; however, the motorway extension is now open as far as La Herredura and may actually make it all the way by the end of 2008, reducing the journey time from Málaga to Almuñécar to around one hour.  This coast is extremely popular with Spaniards because of the easy access from Granada and Almuñécar is the prime resort, with great beaches and the chic marina, Marina del Este.  In the Punta de la Mona area, wealthy Spaniards have been building their summer homes for the last forty years.  Salobreña is a smaller resort but the time you get to Motril this coast becomes flatter and less desirable.  As is the case in any area popular with the Spanish market, out of the main high season months things can be very quiet with not much going on.

Costa Almería
This, in my opinion, is the least attractive coastal option in Andalucía.  Although there are some great beaches, much of the province is very barren and dry.  And perhaps the greatest deterrent for the property buyer in Almería are the plastic greenhouses covering thousands of hectares across the province, including coastal areas.  These have been very successful in increasing agricultural yields but are turning much of this part of Andalucía into a wasteland causing damage to the environment and hardship to small farmers who can no longer sell their crops.  The buyer should be beware; a pretty view can very easily become an eyesore.

Costa de la Luz
Finally, it seems that the Costa de la Luz, with its stunning beaches, is coming into its own for the overseas property investor.  Good access is vital for any property market and after lagging behind the Costa del Sol in terms of upgrading infrastructure there is now real improvement.

The important thing for potential property buyers to realise is that this is not Mediterranean coast and the Atlantic influence makes for some differences.  The winter climate is less balmy and often there is a wind that takes the edge of the temperature.  In addition, as so many Spaniards own second homes for the summer on this coast many resorts have an abandoned feel out of the high season, and some bars and restaurants close at the end of summer.  This can adversely affect letting potential so buyers who are looking to finance a mortgage with rental income should be very sceptical about some of the occupancy claims made by estate agents and developers.

This western coast of Andalucía has always been popular with Spanish buyers, precisely because the climate is cooler and therefore, quality property in good locations is not cheap.  In addition, very tight planning controls should limit further development in the prime coastal areas, so prices should hold up well.  Where development is allowed the result can be very high density.  The prime resort on this coast is El Puerto de Santa María where prices are not much below those of Marbella, followed by Chiclana, Conil and Vejer to the east and
Chipiona and Sanlúcar de Barrameda, famous for the horse races on the beach, to the west.

Inland Andalucía
The infrastructure improvements of the last decade have demonstrated quite clearly that better access to an area drives property markets forward and impacts on property prices.  Indeed, in % terms, the biggest prices increases of the last five years have not been on the coasts but in the most accessible country areas of the interior and the cities of Seville and Granada – on average doubling and even trebling in the very best locations.  But, as with the coastal markets, the interior of Andalucía is not just one property market but several; in all, Andalucía covers about 87,000 square kilometres and it is inevitable that some areas have performed much better than others, some have really lagged behind and these differences will continue going forward.

There are still hundreds of rural properties to renovate all over Andalucía and it’s easy to find inexpensive houses if you do not mind being miles down mud track, halfway up a mountain and facing north, with no chance of water and electricity being connected anytime soon.  Finding well-located houses with good access, electricity and water and close to a pleasant town or village is more of a challenge but it is essential in the market conditions of 2008 to focus on good properties in prime areas.

Central Andalucía
The upgrading of Andalucía dilapidated roads and railways, barely touched during the Franco years, had to start somewhere and once the money started to flow after E.U. accession in 1992, this is the region that benefited first. It is hard to overstate the impact that the road upgrade programme has had on property prices in the areas that have been opened up by improved roads, for example, the towns 20 – 30kms inland from the Costa del Sol such as Coín, Monda, Alhaurín el Grande and Álora, or those reached by the motorway heading north out of Málaga in the direction of Antequera.  Journey times to villages such as Villanueva de Tapia, Iznájar and Villanueva de la Concepción have quite literally been halved. 

Antequera, the geographical centre of Andalucía and at the crossroads of the Seville – Granada and Málaga- Córdoba mortorways, looks set to become an even more important regional hub now the Madrid – Malaga high speed AVE rail service is operational.  A brand new rail station has been built just to the north-west of town.  I expect continued strong demand for property of all types in Antequera and surrounding countryside from both the Spanish and overseas sectors.  In the case of the Spanish market, Antequera will be easily commutable to both Málaga and Córdoba while at the same time, businesses are moving into the area bringing with them the need to relocate staff.  For the overseas buyer, easy access to the coast, the great inland cities of Seville, Granada and Córdoba and  skiing are a big plus, while the growth of the area is bringing more amenities, e.g. golf, to the doorstep.  Next, from the hub in Antequera, the AVE will extend to Ronda and from there, on to Algeciras, Spain’s largest port and the second in Europe only to Rotterdam.  Currently the journey time Antequera – Algericas is in excess of 5 hours and will be reduced by more than half.  Also at the planning stage is the Antequera – Granada route.

Quite clearly, the bargain days are over in this area.  For a large village house to renovate you will need from 150,000 € and allow at least 75.000 € for a quality refurbishment.  Farmhouses to renovate start at 200,000 €, and recent refurbishment estimates for clients are coming in at 125.000 €+.  To install a swimming pool, budget 20,000 € for 8m x 4m and 25,000 € for 10m x 6m.  Property buyers of inland property should be aware that Spanish banks are much more cautious about lending when it comes to rural property and valuations generally come in very low.

Very high quality country houses can be found in the Coín, Monda and Alhaurín el Grande areas but the proximity to Málaga airport and the coast have kept prices strong.  However, a house that might cost 1.5 million € on the coast would be priced around 50% lower in this area, with no compromise on quality.  For buyers who cannot find what they want within budget on the coast this area would be my recommendation as the best alternative.


Western Andalucia
Infrastructure improvements have come later to this part of Andalucía but across the region the benefits are now really kicking in. The inland motorway to Jerez has improved access to pretty towns such as Medina Sidonia and Arcos de la Frontera and the airports at Jerez, Seville and Gibraltar are alternatives to Málaga. Within five years the high speed AVE rail network should be in western Andalucía with the line from Ronda to Algeciras.

The countryside is much greener than the rest of Andalucía and is an important centre of bull and horse breeding, plus the vineyards around Jerez.  This part of Andalucía is where some of the grandest families in Spain built their country estates and in general, country properties in this region have much more land than in other parts.   Therefore they do not come cheap and expect to find large houses to renovate with several hectares of land.  The small farmhouse with 1000m2 really does not exist in western Andalucía.  In my opinion a buyer needs a budget of at least 500.000 € for a renovated property or good villa and upwards of 300.000 € plus renovation costs of 150.000 € if it is unmodernised.  However, this is already a relatively expensive area much favoured by top-end Spaniards and buyers will be disappointed if they go looking for budget property – it is not there.

Eastern Andalucía
In general, this is the poorest part of rural Andalucía although there are pockets of growth, for example in the Granada area, but many isolated mountain villages have yet to see the benefits of major infrastructure improvements.  It is an area of high unemployment and many small communities are in decline as people, particularly the young, move to the coast or the cities for work.  Consequently, property prices are much lower relative to the rest of Andalucía.  However, it is now much easier to access some of the more remote parts of Granada and Jaén by using Granada airport which now has routes to Girona, Stansted, Liverpool, East Midlands, Bergamo and Frankfurt(Hahn).

This the most mountainous region in Andalucía, dominated by the Sierra Nevada, the highest peaks of which are over 3,000 metres above sea-level.  Unsurprisingly, this has an impact on winter weather and throughout the Sierra, the Lecrin valley and the Alpujarras, winters are long and cold.  Unless a buyer is a skier and actually looking for snowy conditions I always recommend that property viewing in this area should be done during the winter months.  Far too many people have bought in this area after only visiting in the summer months and the first winter can come as a real shock.

Cities:
Across Spain, cities and provincial towns are undergoing a renaissance helped by E.U and regional government funding.  For property buyers seeking a city destination with some history, great street life, elegant architecture and a quality of life second to none then Andalucía can offer some of Europe’s best.

Certainly top of the list for capital growth in the last five years is Seville and the regeneration that started with Expo ’92, continues to transform one of Europe’s most beautiful city centres.  But the dizzy days of 2004/5/6, which saw 20% growth annually, are gone.  Prices rises in 2007 have slowed to single digit and I now find sellers prepared to negotiate.  Parts of the historic quarter are now quite pricey, with 1 or 2 bedroom apartments in Santa Cruz from 275,00 € and 350,000 € repectively.  Prices are about 20% lower in La Macarena where the streets around the Alameda de Hercules and close to the river are the most interesting.  Property in Seville has excellent rental potential in both the cultural tourist sector and the long term Spanish market.

The smaller city of Jerez looks set to grow. With its own airport and excellent road connections in all directions, it is easy to get to and superb beaches are only 15 minutes away at Sanlúcar de Barrameda.  It has the feel of the Seville of 25 years ago and prices right in the historic centre are about 20% lower than Seville at present.  And Cádiz could be an interesting option for the longer term. 

Finally, Córdoba and the surrounding area has remained off the radar for most overseas property buyers because it is relatively difficult to get to; although there is a small airport there are no commercial flights in or out and even with the motorway up from Málaga finished, it is still a 200km drive.  Now, with the high speed AVE rail service to Malaga operational, a property owner can fly into Málaga and let the train take the strain – journey time will be an hour to Córdoba, about half what it takes to drive.  So get out at Córdoba and hire a car there.  Prices are about 30% lower than in Seville.

For more in-depth analysis and comment about AVE expansion in Andalucía click here