Why Simon Cowell and More Than 750,000 Britons Vote for Spain; Cheap Flights and the Enduring Strength of the Euro Have Meant That Investors in Property on the Costas Are Virtually Guaranteed Ongoing Healthy Returns. or So It Is Claimed. Martin Baker Weighs Up the Evidence.
To some, Spain is a version of Blackpool - chips and cheap beer heaven, with sun to boot. To others, it is the height of sophistication, with its fine Riojas and wonderful food. But to those who buy property in Spain, the country is just one big investment. And what an investment it has been, with research from Mintel showing that Spanish property is doing exceptionally well, abetted by the strength of the euro.
The increased availability of cheap, regular flights to dozens of venues in Spain has also had a markedly positive impact on property prices, according to Parador Properties, which covers “the whole length of the Spanish coastline”, according to director Jack Hamilton. According to Parador, prices are moving ahead rapidly in the area served by Murcia airport.
“Properties near Alicante have done very well, and we’ve seen strong growth in the Costa Calida, near the Costa Blanca. That’s a direct result of air travel bringing easier access,” says a Parador spokesman.
The British are buying into Spain in ever greater numbers. Many see their investment as an alternative pension plan, as the high charges, stealthy tax increases and general complexity of “normal” pensions can be off-putting. Others point to a unique benefit of committing capital to a house or flat: it’s just about the only investment you can live in.
Marry those two lines of analysis together and you end up with a boom market in buying property in locations all along the Spanish coastline. Industry estimates put the number of homes owned by British citizens at 750,000 in Spain, compared to 500,000 in France, the second most popular country for investors.
Demand has long been high in the Costa del Sol, according to Angelique Todesco, a director of the Majestic property company: “Marbella is 12 per cent-owned by foreigners, mainly British investors,” says Ms Todesco. Majestic develops and sells properties to a mainly British client base, and numbers television celebrity Simon Cowell among its clients. “There are people who want to live here, perhaps retire here, and there are people who buy as an investment, given all the problems there are with UK pensions.” And this, crucially, is having a huge impact on boosting the “jet-to-let” set.
Mintel’s research, commissioned by specialist foreign property agency Parador Properties, shows that the Spanish property market attracts some pounds 12 billion per annum from British investors. That figure is projected to rise to a spectacular pounds 21 billion in 2009.
The reasons for this are very simple, according to Parador director Jack Hamilton: “Investing in Spanish property looks great, especially when you’re coming from a cold climate like ours. Clients walk out of the door of the airplane and it’s warm. It’s not that difficult to sell.
“Another factor working in favour of investing in foreign property is the Self-Invested Personal Pension (Sipps). Changes in legislation allowing foreign property to be held in Sipps have led some commentators to talk about `a wall of money’ to be invested.”
Mr Hamilton claims that “every single one of our investors is sitting on a capital gain” since investing in Spanish property. Costa del Sol properties are most popular and most expensive, with typical purchases at the pounds 220,000 level. Elsewhere on the Spanish coastline, a residence would cost about pounds 120,000, with the cheapest property inland going for as little as pounds 50,000 to pounds 60,000.
While there are plenty of people willing to talk up the investment prospects and the balmy advantages of Spanish property, there are some pitfalls to be avoided. One, says Chris Raggett, financial services partner of accountants Warr & Co, is the currency factor: “There’s some simple stuff to be considered. First of all, when you invest in a property in Spain or France or Italy or wherever, you’re making a major capital outlay on an asset which is priced in euros. The local market might go up, but if sterling appreciates sharply against the euro, an investor could be sitting on a loss in terms of UK currency.”
Expenditure should also be considered, according to Mr Raggett: “You will have outgoings in the form of utility bills and local taxes. If the property is let for part of the year, that shouldn’t be a problem. The idea is to match liabilities against assets or income in the same currency.”
Would-be investors should also consider the tax implications of buying abroad. Companies such as Majestic and Parador have panels of approved, English-speaking lawyers who will offer advice, and also effect the conveyance. Key issues to consider include the terms on which the property is owned. If a couple is buying, should the ownership be joint, single, or through a company? Inheritance tax (IHT) and capital gains tax will depend on individual circumstances which need to be examined very carefully.
But, ultimately, investors need to be able to have confidence in the place that they are buying. Choose a location, look at the different types of homes offered and the facilities that might attract tourists. Will your return be reasonable and how many other places are there to rent in the area? Too many and obviously you are looking at a potentially saturated market; too few and possibly there is not enough to attract renters to your home. Look hard before you leap in.
Following several years of working all hours to sustain his London cab firm and put his sons through university, Joe Daniel (above, with his wife, Christine) was miserable. What’s more, Christine had developed a condition made worse by the cold British climate. Eventually, Joe decided enough was enough: “It wasn’t a life, it was survival. We were living to work.”
The couple decided to look to sunnier climes for a solution. Relatively close to home, Spain seemed the perfect location. They saw an advertisement for Parador Properties and, after talking things through with a sales representative, flew out on an inspection tour.
In time, they reached Playa Flamenca on the Costa Blanca and fell in love with it. They bought both a villa and a townhouse since, having given their sons half the proceeds from their London sale, they were able to purchase two properties. Their investments have been spectacularly successful.
Having committed capital in March 2003 for properties priced at about pounds 75,000, the sale prices “have now easily doubled”. ”
Living in Spain has given Joe and Christine a whole new lease of life. Both intend to work, but the lower cost of living and their shrewd investment have allowed them time to relax and become familiar with Spanish life and culture. They have let out their other property, and the income is a significant boost to their bank balance.
- Source: Martin Baker, The Daily Telegraph, May 7, 2006
