February 22, 2008

More news on inflation and its potential impact on the US economy and the impacts this may have on the Costa del Sol's housing market.

I just read a really good article on future scenarios that may play out in the US economy and the whether we are in for an inflationary or deflationary period.

The article puts strong emphasis on the inflationary outcome: as "For a sufficiently motivated government, inflation breaks deflation. Always and without exception, period, end of debate". It points to the US governments continual efforts to print money "out of nothing" and redistribute this money as a tax rebate stimulus. The key economic concepts behind the article's promotion of the inflation hypothesis is

1. The potential supply of money is infinite for a nation that issues its own currency.


2. The supply of resources to purchase with money is always limited at any one point in time.


3. By sufficiently raising the supply of money relative to the finite amount of desirable goods and services, there will necessarily be more dollars competing to buy each asset, and the dollar denominated price will always rise for the asset.


4. The meaning of inflation is an increase in the dollar prices of goods and services, which is the same thing as a decrease in the purchasing power of every dollar.


5. So long as a government is willing to sufficiently increase the supply of money, it has an absolute power to destroy the value of its own currency through the oversupply of money relative to assets, which is an absolute power to break deflation with inflation.

(Taken from the article by Daniel R. Amerman, CFA)

With the potential supply of money being unlimited and tangible resource being limited the stimulus package will have a quite real and direct effect: that of diluting the value of the dollars held by savers, through increasing the number of dollars in circulation, with no corresponding increase in the amount of real resources.

The article pushes for inflation planning scenarios for investors and points to portfolios consisting of tangible limited resources such as houses, commodities, metals, etc. There does seem to be some silver lining for all the people holding investment properties on the Costa del Sol. Property is a time proven instrument for withstanding the devaluing effect of inflation provided the investor can meet the costs of finance. IMO its time for everyone to start fixing those mortgages as I did with mine one and a half years ago.

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February 18, 2008

Is inflation that bad for property owners in Spain.

You can't open a financial paper these last weeks without being confronted with the word 'Inflation'; it is the talk of the day and it is responsible for rising interest rates which make our mortgages more expensive. Now, there is a big difference between the causes and the consequences of inflation, something that confuses a lot of people. Rising prices for goods and services are the consequences of inflation not the cause. The cause of inflation is monetary policy realised in the form of credit expansion.

The money supply statistics which can be found at the back of the Economist magazine, showed us in MAY 2006 that Denmark now has 12,8% more money in circulation than the year before. Since all this money needs to go somewhere it is no surprise that the Danish economy is grew strongly and that Denmark was at the top of the international house price index. There is a big correlation between the money supply and economic growth and real estate prices. The problem is that governments want to avoid the effects of inflation filtering through to our wages. This is because it would make the western economies export markets more vulnerable to the stiff competition from the East. To combat this they raise interest rates which in turn impacts on the consumer.

Even though interest rates are still at a very low level currently, this means nothing since this has caused more borrowing than would have occurred with higher rates. An startling fact is that an interest rate rise from 3% to 4% is actually an increase of 33% on any mortgage repayment. Furthermore, the knock on effect to credit controls means that fewer people will qualify for a new mortgage and some people will actually fall behind with their repayments to the bank. So, how can all this bad news actually be good for property owners? Here's why:

Initially it will put extra pressure on the real estate market since people cannot borrow as much anymore given that their wage has stayed the same, furthermore this can lead to a small chain reaction: as real estate activity slows down, fewer new projects will be started leading to job losses and it will negatively impact consumption since there are many people out there who took a mortgage on their existing home simply for consumption purposes. In my opinion this will mostly affect the 'marginal' buyer whose bank repayments are a monthly struggle. The average consumer will become a more cautious, perhaps try to save a little bit more and it will stop them from speculating with off-plan properties. The off plan sales pitch for international investments will end soon and off-plan property will become very 'unfashionable' and extremely risky.

Now comes the good part: as fewer people will be able to buy (but everybody needs a home) rents yields will start to creep up. Where many markets are now facing oversupply (Costa del Sol being one of them), this will gradually start to diminish as inflation will make new built or drastic reforms too expensive. In times of inflation people are looking for defensive means to invest in, which will at least secure their purchase power; historically real estate has proven to be the best investment in the beginning of an inflationary period. Eventually, this new demand will start pushing prices further up. So do I suggest buying tomorrow? Yes, as long as you stay away from 'generic' properties such as two bedrooms, two bathrooms apartments: there is an oversupply in those and most of them lack every minimum of both creativity and quality. Much more promising are e.g. townhouses, since a lot of people who now live in apartments will want to upgrade to a better, more ample property. On the property section we focus on those unique properties that will definitely better preserve and increase in value, some of them can now be bought 30% cheaper than a year ago (check out this one in La Quinta). So inflation is nothing to worry about if you are a home-owner, it's actually great news as long as you make sure that your properties are well managed and well financed.

So to recapitulate, here are three super reasons why inflation is good for property owners: 1. As fewer people are able to qualify for a mortgage because of the higher interest rates, rental demand and rental yields will dramatically improve. 2. As inflation filters through in wages and material cost, new built is becoming too expensive to be economically viable which in turn will divert home purchasers to existing homes. 3. In times of insecurity, such as inflation, people tend to look for defensive investments that will preserve the purchasing value of their money. Historically real estate is second to none as a defensive investment.

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November 14, 2006

Recent article in the SUR in English

The Recent article in the SUR in English pretty much encapsulates the point of my posting at the begining of the year. We are now in the phase of the GLUT. The huge number of standard two bedroom apartments that were started over 2 years ago are begining to come online.

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November 13, 2006

Viva commissions reviewed by the agents

I have some interesting points of view from recent conversations with the directors from several real estate companies on the subject of Vivas recent tactic of lowering commisions, droping the MLS system they shared with numerous small agencies along coast and charging an upfront fee for the conveyancing of the property when is registered in the company.

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October 5, 2006

Interview with Connected Property Solutions

This is a short interview with Nick Alderton from Connected Property Solutions a real estate company that sells property within the Elviria area of the Costa del Sol.

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September 1, 2006

Viva Estates set the standard by dropping real estate commisions on the Costa del Sol

Latest news from the Costa del Sol is that Viva Estates has apparently dropped its commission rate to 3% (2% for the sale and 1% for the conveyancing). It was only a matter of time before one of the larger players started the price war. I am sure this herlads the beginning of other large agencies lowering their fees.

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June 17, 2006

The End of Corruption in Marbella

With the current state of the scandal in the town hall in Marbella it is hard to determine when exactly things will get back on track. Planning and development and the departments that had the responsibility of issuing licences are in complete dissary and many of their responsibilities have been removed by the Junta de Andalucia. Regional government has also stepped in with a team of specialists and an interim mayor, to ensure that no further corruption continues. It seems very probable that this will be the way things will be run for the next few years.

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May 22, 2006

Regulating real estate

It's going to be a tough call to reintroduce regulation of the industry in Spain. Trouble with the existing regulatory bodies such as FODPAC and GIPE is that they are usually subscription based communities that really do not offer much in the way of a guarentee of a good service. Disciplining memembers is unheard of.

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May 1, 2006

Predictions For The Costa Del Sol Property Market 2006 Onwards

Current economic analysis would suggest that the Costa del Sol is in state of oversupply, with many of the units started two to three years ago completing in 2006. This has led to a glut of properties for rental and/or resale in certain sectors of the market. This situation looks set to continue due to the backlog of properties being finished off over the next few years.

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Will Strong Demand For Costa Del Sol Property Continue?

The Costa del Sol is an international market affected by factors that are different to the provincial markets in a local town or city in your home country. Demand here was triggered by the desire for a property in the sun by the millions of people due to retire over the coming thirty years. The local market is not entirely dependent on the state of the national or local economy but on the economies of many countries throughout Europe, Russia and the Middle East.

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March 27, 2006

Problems in the Country

An email I recently recieved:

I need advice please, having bought a property with 30,000 sqm, we now have the local estate agent selling part of our plot for building another house, we have the relevant papers, escritura etc, all logged at land registry. Since he originally sold the plots, he is re-distributing the boundary lines and stealing 10,000 of our land for another house to be built. town hall have told them they cannot build there, but they are selling the house in all its glory on the internet on several sites. advice, please please please please.....

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February 6, 2006

Insights into the recent spate of negative press surrounding illegal build in Spain

I came across this interesting series of posts on an online forum that put across the arguments of illegal building and the recent spate of negative press on Spain. It ties in quite well with my post on the importance of using a lawyer in all conveyancing matters Read Post.

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January 22, 2006

The importance of using a lawyer's services in all conveyancing matters

For those who have had the misfortune of being ripped off in a Spanish property transaction I can only offer my deepest condolences. However, during my own research most of the people I have spoken to didn´t seek proper legal advice and the intermediary involved was an unscrupulous estate agent from their own country.

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November 22, 2005

Crime, Corruption and Scandal

Ben Johnson / Bright

The Costa del Sol has a tarnished reputation in the worlds media and tabloids today. Much of the planning irregularities and money laundering scandals are at the forefront of most of the press we encounter about the area. However, its an important point to note that the very reason why so many planning irregularities and fraudulent buisness practices are coming into the media spotlight at the moment is that regional and national authorities are finally getting around to tackling the problems with corruption and organised crime.

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October 22, 2005

So what does the future hold for the property market on the Costa del Sol

Over lunch today I started mapping out how I think the next year few years will go in terms of the property market here in Spain. I wanted to share it with you and see what you thought.

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Buying offplan in the new Med markets

I get asked this question a lot when I talk to people.

If Bulgaria and Turkey will follow a similar path to Spain and are due for huge, accelerated increases surely this means the time to buy is now then?

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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.

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The Land Grab Scandal

I want to dispel a few Myths!

Firstly The Land Grab Scandal In Valencia Province (under the LRAU Act or compulsory purchase law)

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Spain is still the best country for buying a holiday home

For me Spain hasn't lost it charm or its investment potential: One of the reasons I have started this weblog is to let people know that despite the negative press, the horror stories and the perceived attractiveness of NEW AND UPCOMING AREAS along the med.

Dare I say it, it is still one of the best second home markets in the world with plenty on offer for all. I really enjoy living here and I feel that there is a great long term potential for the property market, especially on the Costa del Sol.

I do want to be clear on certain points. I live here and have a business here so I have seen my stretch of the Costa del Sol change dramatically over the last 7 years. I am extremely realistic about the future.

Do I think the Spanish Costas have become overdeveloped? Answer Yes.

Do I think current market prices for property are too high? Answer Yes.

Do I think there will be a major correction rather than a soft landing? I think there is going to be a correction.

Do I think Spain could fall foul of the cheaper labour markets in Poland, ,etc leading to a manufacturing declining and a further strain on an economy that is already showing signs of overheating? Answer Yes.

Property prices have gone up more than 300% in some areas of the country over the last 12 years, similarly there has also been a significant increase in the cost of living. This has ended Spain´s affinity for cheap low cost package holidays. Tourism figures have been hurt up until recent years and Hotels in particular have been feeling the strain.

The Costa del Sol and Spain led the boom in the development of the EU gold rush for second homes in the sun. What ever happens here will follow in places like Bulgaria and Turkey. I am waiting to see the kinds of horror stories that come from these locations over the coming years, which are not EU member states and will never have the same levels of investment infrastructure (According to the Economist's Special Report: European Union enlargement April 30th 2005).

So for the record: I like thousands of other expats am very happy where I live, I had no problems buying my property (because I used a good lawyer), I got a good deal (because I did my home work and studied the market before rushing in) and I am really happy with my move. So just because Spain is sounding a little jaded at the moment doesn´t mean the magic is gone.

Is there anyone else out there who is happy with their Spanish property or life in Spain, or have we all fallen foul to the British love you one day, hate you the next scenario that constantly plays out between tabloid press and latest celebrities?

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October 9, 2005

Accurate Survey of Spanish Property Prices, Is It Currently Possible?

I received this article from http://www.ipropertysearch.co.uk/ today
which explains why, in the UK, different marketing groups often come
to different conclusions about housing market trends there.

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