As detailed in Part I, the style of the Report this quarter is substantially different from our previous report due to the effects of COVID-19 and the actions taken to stop it’s spread.
“Pending legal changes that could affect property values?”
This will be included when appropriate. However, we stress that we are not lawyers and thus can only comment to the best of our knowledge.
Lockdown – After easing the restrictions a week ago to permit construction and a few other non-essential workers to start again, Spain is now to ease the restrictions a little more, with children under 14 (and dogs) being permitted to walk outside with a parent/guardian, up to 1000 m from their house. Swedish epidemiologists predict it will take 2 months to leave a lockdown and we will not get back to complete freedom until a vaccine is developed.
Tourists to the Canary and Balearic Islands may be permitted only if they have a certificate stating they are clear of the virus, and who will be regularly tested during their stay. It may be that all inclusive holidays will be the first to open, where the tourist is not permitted to leave the hotel grounds. easyJet have declared that they anticipate demand returning quickly when travel is permitted, and they have the capacity and funding to cope with it.
Marbella Ayuntamiento has been notorious for the delays in granting the essential First Occupation Licences and Commercial Opening Licences. Now we have heard that they are considering granting architects the right to issue the First Occupation Licence. Already, Architects issue the Fin de Obras, stating that the property complies with all the construction regulations. This will give them the power to certify that the building also complies with all the other planning, etc regulations. That way, the intention is that licences would be granted in weeks and not many months as now.
This could lead to extreme pressure being placed on the architect by their paymaster, the developer, who’s contracts of sale are triggered by the issue of the Licencia de Primera Ocupación. It is not the protection of the buyer that it is now, where the independent Ayuntamiento (Town Hall) checks everything and then issues the licence.
Landlords and neighbours, are extremely concerned that the Regional Governments, who have responsibility to house the vulnerable, have been given powers to demand that vacant property be rented to victims of domestic violence, those who have lost their homes, the homeless and other vulnerable people. The maximum rent is likely to be in the region of 900€ euro per month, which is the aid given. With the loss of AirBnB short term rental, it may be that some landlords will welcome the income.
The Overall Market –
Demand has virtually ceased, though a few committed buyers are continuing and there are indications of speculative interest from individual groups looking for bargains from desperate sellers. They may be too early yet, but as time goes by, there are likely to be more opportunities available. However, as things ease, we anticipate that there will be a surge of interest from Northern Europeans who have been locked up for so long and have decided to move to the sun, with the charge probably being led by Brits keen to buy before Brexit makes life more difficult.
Encouraging 1: In contrast to the news of cancellations, we can anticipate many visitors and hopefully buyers when the restrictions are lifted. A digital marketing firm has reported that travel searches for trips in 2021 from UK to Spain this January were up by 1,626% compared to January 2019.
Encouraging 2: Survey Spain are still receiving enquiries for Building Surveys, from buyers continuing with their purchases. The market still has life!
Discounts, Agent and Buyer Incentives, Furniture packages and the like, are being offered by developers keen to sell their developments. With finance and other fixed costs continuing, delay in completion of construction has always been a fear as it inevitably brings additional costs and risk. There is the added fear that prices may drop, which would take only one or two developers to lose their nerve, and then the appraisal profitability disappears. That can also enable committed buyers to back out of ‘time sensitive’ contracts, demanding return of deposits, and so the whole development finance crumbles.
Valuations: The outbreak of Coronavirus (COVID-19) has required all RICS Chartered Surveyors to declare all valuations, until further notice, as subject to ‘material valuation uncertainty’. Note that the uncertainty is in the market and not the valuation. Survey Spain will be continuing to provide our valuations principally based upon adjusted current asking prices, and agreed sale prices, where these are supplied by pre-acquisition Building Survey clients. We consider that these sources reflect the current market more accurately than if we were relying on comparison to historic valuations or Registered sales, which information always lags behind the market..
Hotels, Restaurants, etc: All are shut down and it is predicted that up to 50% have decided not to open at all in 2020 due to the uncertainty of the return of clients, as it’s less expensive to stay closed than to open and run at a loss. Also, it’s estimated that at least 25% will not reopen even when they are permitted to do so. However, over time, it is probable that suitable buildings will be taken over by other entrepreneur operators. Indeed, enquiries have been received from operators and financiers seeking opportunities to purchase suitable properties.
Birds: To show how long is the chain of consequences, wildlife is also suffering. All the birds, etc, that benefited from the crumbs left on terraces are now starving, and groups are setting up feeding stations in appropriate locations.
Statistics – average difference between the Asking Price and Actual Selling Price
January to March – 7.61%
April to June – 10.69%
July to September – 9.7%
January to March – 8.66% – This figure is the average of a range from -2.53% to -13.69%
Whilst the statistical calculation is correct, it is very much biased towards the beginning of the year, when optimism was high and the virus was largely unknown. It should also be remembered that many of these reductions will have been achieved after we have provided the buyer with a building survey report, enabling them to point out to the seller the defects and quantify the costs of remedying them. With an average valuation over the period of 946,880€ euro, our survey fee is repaid many times over.
Areas where Survey Spain has Building Surveyors and RICS valuers.