Today Spain is not only a wonderful place for summer vacations, but also one of the most profitable European options for investing in real estate. According to forecasts by the Spanish Association of Mortgage Creditors, in 2004 housing price growth will maintain its pace and will amount to more than 10%. Other realtor associations go up to 14.7% in their estimates, noting that high demand for housing will remain in the country for at least another three years.
To date, Spain remains almost the only European country with a developed economy where real estate prices have not declined for 40 years! It was in 1965 that Spanish realtors date the first sharp jump in real estate prices. At that time, the main reason for it was the mass migration of Spaniards themselves to large cities, which caused a boom in demand for real estate in the largest cities - Barcelona, Madrid, Bilbao, Palma de Mallorca. After that, a slight and smooth price increase persisted until 1988, which marks the beginning of the "German invasion" of unconquered Spain. The jump in prices lasted a couple of years, and in the early 1990s again turned into a smooth line of moderate growth. The next historical milestone is 1999, associated both with the beginning of the "Russian seasons" in Spain and with the increased attention to the country from various European investors, who quite rightly thought that Spanish real estate looked somewhat undervalued compared to other eurozone countries. The result was another price jump.
Over the past five years, says Lidiya Sapunova, a consultant on foreign real estate at Kirsanova Realty, the annual price increase averaged 15-20% per year. With the beginning of the new century, the pace slowed somewhat compared to the record 1999-2000, but they continue to please investors. The largest increase was shown by real estate in Costa Blanca - about 50% over the past three years. In second place is Catalonia (and especially the most sought-after Marbella) with an increase of 38% over the same period. Other areas have risen in price by slightly less than 33%.
Buying is a pleasure, but with local peculiarities
Entering into ownership of Spanish real estate is extremely simple, but in Spanish style - a bit long and a bit expensive. In principle, both a resident and a non-resident can become a property owner, i.e. an organization registered in the territory of another state or an individual(s) who is a foreign citizen. There are no restrictions on the acquisition of real estate by non-residents. Ultimately, the owner is the one who is recorded in the official document - the escritura (Eskritura Publica). After the purchase and sale transaction, the escritura signed in the presence of a Spanish notary is sent to the territorial property register, where it is assigned its own registration number, record number, sheet and volume numbers.
True, this simplicity costs a certain amount of money - entering into ownership rights under Spanish law costs at least 10% of the property's value. According to Lidiya Sapunova, this amount consists of the following mandatory payments: notary fees require 0.4-0.8% of the property value, documentation of legal acts costs 1-2% of the fixed price, and about 0.5% of it goes to registration costs. The main costs when processing are payments of the Spanish sales tax: 6% of the value of the property if it is purchased on the secondary market, 7% if a new apartment or house is purchased, and 16% of the value is paid when purchasing a free land plot.
The registration process itself is carried out in Spanish style - leisurely, with breaks for siesta - and takes about three months. Significantly, only the notarial signing of a real estate purchase and sale contract without using a mortgage loan takes, according to Spanish standards, from seven to 20 working days, and with a mortgage - from 30 to 40 days.
How to buy on installments
As in the entire normal world, housing in Spain is almost universally purchased using mortgage loans. According to the Spanish Association of Mortgage Creditors, the debt of the Spanish population on mortgage loans amounted to 369 billion 619 million euros at the end of the reliably calculated 2002, and in 2003 it grew by more than 20%. According to specialists from the foreign real estate department of Kirsanova Realty, the conditions are good by European standards: the average loan term is 15 years, the interest rate ranges from 4 to 6% per annum. However, there is local color here too - mortgage banks in Spain prefer to issue loans in amounts not exceeding 50% of the property value.
According to Lidiya Sapunova, floating interest rates are more profitable (in the case of long-term loans), when the loan rate is made dependent on market conditions, the refinancing rate of the European Central Bank and the general state of affairs in the economy. Loans with a fixed interest rate, which remains unchanged throughout the entire repayment period, are more often used for loan terms of five to seven years. Another local feature of mortgage lending is the mandatory collection by the bank of penalties in the amount of 1% of the early repaid amount, regardless of the repayment period.
Annual taxes on Spanish real estate are 0.3% of its value in rural areas and 0.4% when it is located within the city. Insurance is also not too expensive - 100-250 euros for an apartment and 250-400 euros for a detached house. Interestingly, these rates are approximately two times less than the cost of a Spanish annual motor third-party liability insurance policy (OSAGO).
And property maintenance costs are simply low by European standards. Electricity costs approximately 0.1 euros per kWh, water costs 0.42 euros per cubic meter for the first 45 cubic meters during the first three months, and 0.84 euros per cubic meter when this volume is exceeded during the same period, telephone subscription fee is no more than 20 euros per month. Annually you also need to pay 50 euros for garbage disposal and 100 euros for the maintenance of urbanization. As a result, for a year it is quite realistic to fit into 400 euros for an apartment without taking into account the cost of consumed water and electricity - the Germans, when calculating this, click their tongues in surprise and envy.
Where to Multiply Money Fastest
The huge popularity of Spain among small foreign investors has led to the fact that, according to The Economist magazine, the cost per square meter in Spain has grown six and a half times faster over the past two decades than the world average. Moreover, a certain undervaluation of Spanish real estate is not the main thing here - in Turkey, housing is much cheaper, there are also many Germans, only there they prefer to live in hotels, while in Spain they buy their own house or apartment.
If an apartment or villa in the country is bought exclusively for a short summer family vacation, you will be able to earn very little from renting out your property for the remaining period. The rent for any property, with the exception of the luxury sector, is quite cheap - the annual income from renting ranges from 3 to 6% depending on the location and its prestige, which only allows covering the interest payments on the mortgage. Therefore, the main income on invested capital is brought by the actual growth of real estate prices. As already noted above, now on average in Spain it ranges from 12-14% per annum. There are exceptions to this rule, primarily including prestigious old houses in Madrid and Barcelona and elite villas in the most popular European resorts in Marbella, Costa Blanca and Costa Brava.
However, elite mansions in Madrid and Barcelona have shown steady growth of 18-20% per year over the past four years. As Barbara Dorado, manager of the prestigious and unique property division at Knight Frank in Madrid, notes, the growth of prices in the Spanish capital is primarily facilitated by the very small number of new properties that, due to their location and quality of construction, can be classified as elite. Therefore, the market is based on sales of old houses, which are put up for sale very rarely and at prices deliberately exceeding the previous similar sale.
Currently, the cost of prestigious houses in Madrid and Barcelona is around 10,000 euros per square meter, but this value is rather conditional, since one of the main price characteristics of a building in the center of Spain's largest cities is its historical value, determined individually in each case. Two other parameters that can significantly affect the price of an elite apartment in Madrid are the presence or absence of proper building security and a concierge, as well as the availability of parking. The serious crime situation in the capital can indeed reduce the cost of an apartment in an old building without a concierge, and this is by no means a rare case for Madrid. With parking, things are even worse: “Many buyers compromise on parking. Even not all new buildings are allowed by local authorities to have parking for private cars,” notes Ms. Dorado.
The growth in the cost of villas in elite resort areas also exceeds the Spanish average and has been 17-18% in recent years. According to Lydia Sapunova, the most popular, liquid and expensive real estate properties on the Costa Brava (apartments cost from 3,000 to 7,000 euros per square meter, villas - from 4,000 to 8,000), in Marbella (apartments from 3,000 to 6,000 euros per square meter, villas - about 3,000 euros) and the Costa Blanca (apartments cost on average about 4,000 euros per square meter, and villas - from 1,500 to 2,000 euros). Real estate prices in other coastal Spanish regions - Costa del Maresme, Costa del Garraf, Costa Dorada, Costa del Sol - range from 800 to 1,800 euros per square meter depending on proximity to the sea, view characteristics and popularity of the place.
How to Do Business in Spanish Real Estate
Profitability indicators are also high for various options for investing in new construction. True, outsiders have nothing special to do here, since the Spaniards have quite seriously monopolized the sector of new cottage and bungalow construction and the creation of urbanizations (development of coastal territories for residential construction).
In this respect, Spanish customs are very similar to the realities of our capital: in order to acquire a large piece of agricultural land and re-register it for housing development, it is necessary to have a certain administrative resource - at least, that is what the Spanish realtors themselves claim. With a successful outcome, the profitability of such operations can reach 100%: in cases where the land is located in a kilometer-long coastal zone or one to two kilometers from the sea, but on some elevation with good view characteristics.
Smaller Spanish investors who invest in the purchase of land plots with a construction contract (the cost of construction in Spain everywhere is 700-900 euros per square meter) in new urbanizations for the subsequent sale of ready-made villas earn about 35-40% on invested capital depending on the success of the project. Although the best plots are still distributed according to unofficial local customs “to their own”, non-residents can also try their luck in this sector.
Spanish real estate agencies are actively promoting among foreigners projects related to investing in various types of commercial real estate - from standard restaurants and mini-hotels to specific lemon and olive plantations and vineyards. Perhaps our compatriots have already started acquiring industrial enterprises engaged in the production of canned food and local wines. However, so far there are far more examples of investments in the restaurant and hotel business.
Reviews vary, but most consider investments in similar domestic enterprises to be more effective. In Spain, the cost of interesting options with the purchase of a restaurant or mini-hotel in resort areas starts from 800,000 euros, and they can bring a profit (before taxation) of around 100,000 euros per year. A simple calculation shows that the payback period for investments in this case will be about 12 years - taxes of about 40% will have to be paid on the profits. For Europeans, such a payback period may be considered good, but for most of our compatriots it is still too much.