October 22, 2005
Comparing the Spanish holiday home market with other emerging markets on the Med
The Spanish market is not as in the same level of debt as the UK. The spanish residencial market round the major cities IMO is in better shape than the UK residenctial market. The Spanish second home market is potentially facing a correction in 2006 or 2007 and unless you find the right property at the right price now is not the time to invest.
However, Bulgaria and Turkey are not long term (10 to 20 years) and "Bulgaria in the EU next year" probably won't happen. According to the Economist article in May this year. I´ll have to go home and see if I can pull out the issue number. Bulgaria will probably not get into the European Union next year and even in the unlikely event that it does it will not be granted full membership.
The five countries that have recently joined ie Poland etc,. have all limited membership and will do so for the next 5 years. The article stated that countries like Bulgaria and Romania still had a long way to go and that acceptance in 2007 was unlikely. It also stated that Turkey stood very little chance. (According to the Economist’s Special Report: European Union enlargement April 30th 2005)
Property prices in Bulgaria and Turkey are booming and there is a buy to flip market atm. However, one of the major points from my first post is that Spain and particularly the Costa del Sol led the boom for second home markets albeit for holiday home or investment. So what is currently happening in these markets is just mirroring what has already happened here. One day very soon prices will be unreasonable there too. Many Spanish agencies who honed their skills in Spain have upped shop from the CDS and moved to easier pickings such as Bulgaria. Their marketing and sales style are suited to cheaper properties bought to flip (these techniques are not always ethical) and are costly resulting in the huge commissions charged. I have heard some of these companies are charging upwards of 30% in Bulgaria, but because property is so cheap no one really bothers to look into it.
The reason why some of the bigger named agents used to charge between 7 and 12% on the Spanish Costas was because of the huge amount of money used to promote marbella, etc as being the investment hot spot during the late 1990 and early 2000´s. Bearing in mind that we used to be talking about between 7 and 12 % of 100,000 in 1998 for a 2 bed apt (an average price that quickly grew). Normal commissions ar now running at between 3 and 5%.
So what does this mean: Prices in these new areas will go through the roof at a much faster rate than they did in Spain. People will ineveitably be caught up in the new gold rush phenomenon and be left at the high tide mark, agents will be loathed to drop commissions to match the change in prices and will use the extra revenue to push the marketing campaign harder. We´ll be looking at an average price of 120,000 euros before long and the market will start to slow considerably, just like it did in Spain.
Major difference
Its a mature market now although there will be a correction, but I am beginning to see some very interesting bargains, with investor needing to sell and get part or all their money back.
If you buy a 40,000e apt in Bulgaria on a new build development on their version of the Costa del Sol (Sunny Beach area I think) you are buying into a dead area during the winter months. I feel that the majority of the smart money has already moved on.
IMO a 2 bedroom apt in a bad location will always be a TWO BED APT IN A BAD LOCATION despite what the agent tells you. Yes there are areas like this in Spain too and they mostly cater to the cheaper package holiday 18 to 30´s style tourism, but there seems to be shift in this form of tourism to cheaper countries round the med (i.e. Bulgaria).
An investment term of 15 to 25 years is the kind of profile I refer to in my first post. By reasearching and finding a deal (a property value in accordance with those from 1999 to 2002) you will be walking away with a good level of capital growth and potentially a return on your rental as well (if this is what you want to do). Furthermore, you will have a great holiday home in a good location (depending what you are into) that will be available to you when you want to use very few investment calculations factor in this important consideration.
The time to reinvest in Spain will here again one day in the meantime there are more and more deals coming onto the market from distressed investors who got caught out by the same game thats being played out in Bulgaria.
Final point: Land Grab, addressed in my previous post. What do Turkey and Bulgaria opaque legal systems have waiting for the unwary British buyer? The La Salle index quotes Turkey and Bulgaria as being extremely two of the least transparent systems to buy property in.
Category: The Costa del Sol Property Market.