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Relocation, Relocation, Relocation Why choose Spain?

Please note that the information provided in this article is of a general interest nature and intended as a basic outline only. You are well advised to contact a professional for advice specific to your circumstances. Nothing contained in this article should be seen or taken as the writer or publisher providing legal or financial advice.

Only sometimes in life can you take real pride in the feeling that you have got it right!

In moving to Spain four years ago our aim was to raise the quality of our family’s lifestyle. We enjoy working hard to achieve it and occasionally indulge ourselves with a self-congratulatory pat on the back when we hear that Spain remains the Number One destination for Britons buying property overseas.

For the many thousands of Northern Europeans who annually contemplate such a move, whether it’s a permanent leap, a move into retirement or to plant some roots in a favourite holiday destination, the choices of potential destinations are endless. Although some seem keen to buy in the US or Australia, the majority soon realise that there are no real language or cultural barriers in a move to Spain and are voting with their feet.

A recent report, commissioned by Barclays Bank from the well-respected University of Navarra Business School, observed that 65% of Brits would choose Spain as their Number One overseas property destination whilst for over 38% it would be the only possible choice. Additionally, complementing facts to statistics, the report also noted that by early 2005, Spanish town halls had registered 29% more British residents than in the previous year.

The results of this report are even more startling given the negative media reports that the Spanish property market has received over the last 18 months. I am keen to tell it how it is. My aim is to help those, like me, who “get” Spain but may have reservations about entering this market.

The scandals in the town halls of Manilva and Marbella are now out in the open. In the latter case, the committee appointed by the Regional Government to “clean up” has made many friends and some enemies as it goes about its task with obvious efficiency. I am convinced that the commitment from central and local government to change will ultimately be good for the region. However, such understanding in no way belittles the risk of hardship that may be suffered in the interim. Some illegally-constructed property is still under threat of demolition or, at best, the developers will face heavy fines for planning abuse.

When the dust settles, with new Marbella Town Hall elections scheduled for Spring 2007, I believe it will usher in a new era of well managed and sustainable development which makes sense commercially, aesthetically and environmentally.

Officials at the European Courts seem to be taking appropriate corrective action over the worst excesses of the Ley Reguladora de Actividad Urbanistica (LRAU) – the so-called “Land Grab” Laws. The results of such action should cause the Spanish authorities, particularly on the Costa Blanca where the more severe cases of abuse of LRAU have been seen, to control more carefully the ambitions of developers and local town halls; the aim being to achieve a sustainable level of development whilst ensuring that the interests of new purchasers and existing owners alike are properly protected.

We are very aware that there are some that have found themselves embroiled in certain disastrous off-plan purchases. These purchasers have usually optioned properties that turn out to be subject to planning irregularities, some of which may be insoluble. In seeking to recover sums paid by way of a deposit, if a settlement cannot be negotiated with the developer, the court system in Spain, which is slow compared to the English courts, may provide an enforceable judgement to the complainant’s satisfaction.

At the risk of teaching grandmothers to suck eggs, there has never been a better time to ensure that comprehensive and wholly independent professional advice is sought and received in relation to your potential purchase. For reasons, including the above, such legal advice must be totally independent of the seller, the developer of the property or their sales agent.

It would be wrong to think that the woes being experienced in the fast-maturing Spanish property market are in some way unique to Spain.

For those who are tempted to look elsewhere, reports are starting to surface from the so-called “emerging markets”; warning buyers against misleading promises of guaranteed returns and unrealistic rental yields. Bulgaria’s coastal resorts have received particular attention. The Sunday Times article entitled “Bulgaria? Beware” (16 July 2006), claimed that the promises of high capital growth, rental income to cover mortgage payments, and high tenant demand in long summer seasons were undeliverable.

The Sunday Times also made the point that many of the buyers questioned “were not worried about rents in Bulgaria as they had bought primarily for capital growth”. As a matter of simple economics capital growth may well suffer if rental income cannot be achieved. Significant capital growth is also less likely in a market that has an immature financial services community with limited access to high loan to value mortgages. Few people, particularly “investors”, are willing to use their own cash resources to make an overseas purchase.

The loss of the 2014 Winter Olympic Games, with a commensurate decrease in rental demand, may also cause some to question whether a purchase in the Bulgarian winter sports regions is worth the investment risk.

A marketing device that used to be a core feature of Spanish property marketing is the rental guarantee. There are several examples of genuine arrangements that deliver a real return primarily because the sale organisation has existing rental demand, but the “guarantee” was often achieved by simply inflating the price of a property by the level of the required guarantee. This would then be paid back to the purchaser over the agreed period. A 6% guaranteed yield is promised for two years, so the price is hiked by 12% and placed in a “guaranteeing” bank! Hogwash! Would even the most naïve “investor” purchaser be duped into such an arrangement? It seems unlikely, but in Bulgaria, as also observed by the Sunday Times, this ploy continues to be used.

Whilst Bulgaria may suffer from some eye-opening bad press, our colleagues at Overseas Property Professional Magazine have reported that even mature markets such as the US are not free from criticism. They interviewed Peter Stanhope, President of the Florida Brits Group, who has in his sights “five Central Florida projects, maybe even seven, which were being fiercely promoted on the UK market two years ago where homes still do not exist”. The failure to deliver projects more than two years after initial promises were given should give rise to grave concerns for potential purchasers in this popular US destination.

In the US, it seems there are many “investors” who have deposited millions of dollars in purchaser/developer-held escrow accounts where on-site construction has stood still for months. It seems that a lack of planning permission for certain projects that are being actively marketed may be the real reason when disgruntled purchasers are fobbed off with environmental excuses.

Arriving by air into Nice Airport the deep ribbon of development of the Cote d’Azur – maybe 10km deep in parts – is testament to over a hundred years of commercialisation. The Spanish model is at least 60 years behind the French and, whilst they won’t want to admit it, they have already learned from the French many of the more negative lessons, particularly those relating to infrastructure. I am told, for example, that from June to August it is almost impossible, because of the sheer weight of traffic, to enjoy the main coastal road running through Cannes.

In London we used to view Bath, a mythical hour-and-a-half down the M4, as the perfect weekend or holiday getaway. I am told that on a sunny Friday, from midday onwards getting from Hammersmith to Bath can take anything up to four to five hours depending on the traffic. The concept of a weekend home thus becomes a difficult reality.

Using a similar formula, and drawing a circle of 100 km around the airports in Málaga, Granada, Murcia, Alicante or Jerez, the open, relatively traffic-free and often toll-free roads from these locations serve the Costas as well as the vast tracts of rural land in between. These include the familiar Costas del Sol and Blanca but also encompass the emerging Costas Calida and de la Luz.

A boost for the property rental and sales markets of the South and South-West of Spain comes from the sometimes “frosty” waters of the Strait of Gibraltar. Spain, Britain and Gibraltar have announced, amongst other things, that they have come to an understanding over the use of the Gibraltar airport originally built on disputed land. With Britain and Spain sharing the use of Gib’s airport it greatly increases the potential for low-price carriers to deliver visitors into the Western Costa del Sol and the Costa de la Luz.

A number of property purchasers who arrive at one of Spain arterial airports are increasingly seeking a more rural prospect. As an alternative to the coast they are equally enticed to turn inland. Particular caution should be observed in relation to the purchase of country property. Legal advice should always be obtained from a lawyer that is based in the region where the purchase is to be made and who has experience of purchases in the campo. Country land does not always benefit from a local authority denomination. The outer wall of a ruined property may be the “extent of permissible building” line for a “reformed” property. The title to the property may be divided as a result of the death of the registered owner. As a consequence, the property may be held by many generations of the family, adding further complications such as unpaid inheritance taxes and the need to transfer the title into the name of surviving owners before good title can be passed.

It’s clear that popular confidence in Spain may have been a little rattled in recent months but there remain many excellent opportunities to find your place in the sun. With a little research and advice the process can be relatively stress-free and the result should deliver years of pleasure.

© Mark F R Wilkins 2006 (Marbella)

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