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Looks like an investment to me

Marbella investmentI think the words ‘property investment’ were two of the most overused and misused words during the hyped-up property fest that was Spain’s property market from 2000 until the 2008 meltdown. As a result, I try to keep them out of my vocabulary. In the worst cases, ‘investors’ were still piling into overpriced tat, aka, property investment, fully two years after clear signs a severe price correction was looming. As ever, most people chose to look the other way and pretend all was well. But it’s a fact that Spain’s property market was in deep trouble as early as the end of 2005 and was always going to be a major accident regardless of what was happening in the rest of the world. The fall-out from the wider global turmoil just made it a whole lot worse.

The Typical Property Investment

Typically, a boom-era investor bought a two bedroom apartment off-plan and waited two to four years for delivery. However, as the feeding frenzy didn’t really get underway until about 2002 this meant that by the time people were getting keys to a finished property the market was already past the peak and heading south. Having got the property investment bug thousands made it much worse by purchasing more than one unit.  They bought the fairytale that they would have no trouble selling on during construction for a profit.  Firstly, they believed there was no danger they would ever have to service the mortgage they took on.  Furthermore, they believed that in the unlikely event that they hadn’t sold before completion then they could service the mortgage through rental income.  Either way, no worries. Well, we all know what happened next and for most it went pear-shaped.

And the prices they were paying! I met someone with an apartment in Elviria on the Costa del Sol, one of those locations where everyone prices their properties as if they are two minutes from Puerto Banús whereas they need to be 25% lower. He had paid €350,000 for his unit, had a mortgage of €260,000 so he couldn’t sell for less. However, he had it on the market from day one at over €400,000. He had found it impossible to rent, hardly surprising when there are thousands of identical units in the same area.  And why would anyone choose to be stuck up a hill in Elviria when they can pick and choose within strolling distance of Puerto Banús. Strange thing was he had really been aiming to buy in the Puerto Banús/San Pedro area.

Beware of the ‘next hot spot” Property Investment

Unfortunately, he fell into the clutches of an agent who convinced him that east of Marbella, around the Elviria area, was the next big thing.  So, off he went like, a lamb to slaughter. I can’t help being just a tad suspicious that the agent owned the apartment and was desperate to unload.  At the time he contacted me for advice about what to do it was possible to pick up good units in  great locations near Puerto Banús and San Pedro for between €250,000 and €300,000. As a result, I had to tell him I didn’t think his apartment was worth more than €175,000.

He was shocked but I told him there were properties in prime areas like Marbella and San Pedro on offer at prices that looked so good they could be called investments. That was his competition and he had to price accordingly. For example, there were new, never been lived in two bedroom apartments 200 metres from the beach in San Pedro. At the height of the market identical units in the same development sold for €520,000 but since the downturn kicked in the 40 unsold units had been listed at €480,000. The developer refused to listen to lower offers. Finally, he changed his attitude and prices tumbled to €320,000. As result, he was soon selling several units a month.

The Real Deal Property Investment

Then there was a small development of only 18 townhouses frontline to one of Nueva Andalucía’s best golf courses. It used to be a timeshare development but the individual freeholds were up for sale and a client of mine secured one at €230,000. It will rent like a dream and in a recovered market in the future will make €400,000 without difficulty. Buyers were  all over it and in just three weeks half the units sold. Some are buying for rental yield, others won’t rent at all but like the capital growth prospects.  However you slice it deals like this deserve the tag ‘investment’. Future ‘investors’ take note.

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