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Will Strong Demand For Costa Del Sol Property Continue?

Tue, 25 Apr 2006 00:00:00 +0200

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.

Despite the many factors that adversely affect the property market here over the coming years, strong demand should continue. The Costa del Sol is an extremely desirable location that is lively year round, and easily accessible from major airports in Europe. The area also benefits from years of investment in its infrastructure, golf and amenities and enjoys fantastic weather.

These factors are important for the many people with 30 to 40 years worth of savings who are approaching retirement in northern Europe. The Marbella area also attracts the wealthy and this will continue to positively influence the demand for high end property.

Conversely demand from clientele with low budgets who have less to spend on their holiday home purchase are currently buying property in the emerging second home markets of Bulgaria and Turkey. This in our opinion bears good news for the long term growth in value of the Costa del Sol property market. We are convinced that it will mirror the trends seen along the coastline of California.

Over the mid to long term the coming downward turn is good news for the market: there will be an end to unrealistic price expectations, increased customer expectation and industry regulation will lead to higher standards of service and an end to unsound business practices. These and many other factors will lead to a market correction in property prices, which in turn will lead to increased demand.

The time for conservative diversified investment in property based on careful evaluation and clear analysis will be possible again soon. There will be a growing availability of desirable property at reasonable prices soon.

At Fincalena.com we have positioned ourselves to help you find the good value properties so that what ever your reason for investing in property in Spain, be it for holiday use, rental or resale your costs are minimized and the service you receive goes beyond your expectations.

Our final piece of advice is to keep an eye out for the bargains and don't be shy of investing in a downward market. The long term growth predictions mean that if you buy correctly you will do very well when you decide to resell, particularly if you make use of the property while you own it.

Why Fincalena Portfolio Should Be Part Of Your Investment Portfolio

Tue, 25 Apr 2006 00:00:00 +0200

"A good investment is buying a property at a price that underestimates its real value or the return it will generate in the future." Even if you are looking for a holiday or retirement home, you should treat this potential acquisition as an investment and an integral part of your overall portfolio. Every investment portfolio should be intelligently diversified in order to present a good balance between risk and return. We exclude bonds or putting money into a savings account as viable options for investment because of their low actual return. In our opinion the ideal investment portfolio is a mix of property and shares.

Where shares historically give the highest returns, they also carry the biggest risk. Our own investment portfolio contains several property investments (on the Costa del Sol) financed with an optimum mix of equity and mortgages and funds in shares. The shares have proved to be more time-consuming to manage due to their associated risk and reward. Over the last 6 years we have established that shares have only recently started to generate a superior return over property. Markets are always moving so there is every possibility the pendulum could swing once again to the side of property, getting the timing right is somewhat harder though.

Here are some future scenarios where property could end up becoming a better investment:

A rise in the rate of inflation: while official data suggests inflation is under control, people experience that differently in their day-to-day lives (restaurant, gasoline, etc.). On the stock market we have also seen a dramatic rise in the prices of gold and silver, which are textbook examples of rising inflation concerns. In an environment of rising inflation people prefer to hold on to tangible assets such as property.
An intense recession: if the economic recovery in Germany and the rest of Europe is not as robust as suggested (unemployment benefits and taxes still too high, nave confrontation to the challenges of globalization, demographic worries, etc.) this could trigger a recession and create the need to lower interest rates again to support the economy, which in turn supports the real estate market.
Political instability resulting from the tensions in the Middle-East: we should consider the possibility of a serious escalation in the amount, and the intensity of confrontations due to religious tensions and terrorist threats. This could have a negative impact on the stock market (i.e. the stock market after 9/11).

In a diversified Portfolio you can combine having shares and property and enjoy the benefits of both investments. The property part of our investment portfolio is easy to manage, is stable and predictable and gives us a good return. We expect the rental return of the property to be an increasing guaranteed monthly income. Shares, on the other hand, are an ideal diversification which can generate impressive returns, but require more skill and a higher level of risk and uncertainty.

How Fincalena Will Help You Locate The Best Property

Tue, 25 Apr 2006 00:00:00 +0200

Over the last ten years the Costa del Sol real estate sector has experienced tremendous growth. Spain's southern coastline was the first tourist destination to boom from the drive for overseas holiday home investment from Northern Europe and the Costa del Sol has the longest and steadiest history of price increases in the region.

Real estate speculation, sales techniques and marketing were the major driving force that helped create the booming market for Costa del Sol property and the rapid increase in prices throughout the late 90's and the first three years of 2000. Spain's construction sector grew significantly through the same period with year on year housing starts being higher than the combined number of Germany, France and Britain. The Costa del Sol market like many of the other locations round the Spanish coastline is now in over supply.

Certain sectors of Spain's real estate market are now showing the first signs of over heating. The tried and tested methods of marketing and sales are no longer returning the sufficient return on investment resulting in certain sectors of the market facing some tough times over the coming years.

The typical client who looks at property in Spain is now more informed than they were three years ago, has a high expectation for service and wants the information they receive to be presented in a clear and concise manner so they can understand and choose to be involved in every step of the process. Most importantly they feel that market has become advantageous for the buyer and they are expecting to find a better deal than was available last year.

The role of good real estate company will now be to provide a better more informative service for a lower fee. We at Fincalena.com have created this website to become a nexus of good advice and insight to finding your property. We hope that you enjoy reading through our analysis, and if you are interested in finding a villa or town house on the Costa del Sol be sure to read through our Property section. In it you will find an individually selected a range of properties, with in depth financial analysis, our overall investment rating and a full property description and background check.

Now is a great time to invest in Property

Sun, 21 May 2006 00:00:00 +0200

Few people who have bought property in the last three years have made a return on their investment that was high enough to justify the risk that they undertook. This has decreased the popularity of buying property as an investment and it has especially hurt the off-plan purchases of still to be built units.

Most of us know that people tend to move in herds, and they all intend to invest in the same assets at the same time. We also know that superior returns on investment can only be realised if you are willing to go against the general trend. That is why the best moment to start investing in property was before 2003 at which time the stockmarket leveled out and became attractive again. Lately we have seen commodity prices, especially gold, making a spectacular and unexpected come-back.

If you look at off-plan investment options in todays markets than you can see that availability is high, the quality specifications are increasingly superior and the building promotors are giving various interesting incentives. Nonetheless, people are for the moment not returning; on the other hand I see some wealthy professional investors, who I haven't seen buying since 2003, now visiting these projects. What are they seeing that most of us are missing?

Let's have a look at the fundamentals: Property prices have stagnated for the last two years. People may be asking more, but they are not selling (any notary's office seems to be less chaotic these days). Rather, the low interest rate (still negative if you take in consideration inflation) allows most of them to hang in there in an attempt to ride out the storm. Some, on the other hand, have overstretched themselves and their ARM's (Adjustable Rate Mortgages) are increasingly start to hurt them. In the meantime, inflation has been creeping up; officially it stands at approx. 2-3%, but that is excluding price changes in housing, gasoline, luxury products and even food. Logically, a lot of recent debate is centered around the accurateness of these numbers. To some, real inflation can best be measured by the growth in Money Supply, which currently stands at approx. 8-9%.

What we are really seeing in the economy is a strong resurgence of inflation and property prices which are stagnating. When Interest Rates on a mortgage go up from e.g. 3,15% to 4,25%, the interest repayments on their mortgage surge by 30% (!!) meaning that they have less money to spend on other items. On the other hand, people wanting to take out a new mortgage find that they can borrow less money for the same monthly repayment. On top of that, inflation is making the cost of living more expensive. Existing home-owners have to tighten their belts and new ones are likely to postpone the purchase of their new Home/Vacation Home.

If you believe, like I do, that inflation is approx. 16% for the last two years combined, then houses have become a lot cheaper in real terms. Historically, hard assets such as Real Estate and Commodities have been the best protection against inflation. In my opinion, it won't take long before property prices start rising fast again and it will be the perfect way to protect your hard earned money against the devastating effects of the inflationary period ahead of us.

Building a Villa on Flamingos Golf (1)

Thu, 22 Jun 2006 00:00:00 +0200

Since the 23 of June 2005, Fincalena has been doing the building coordination for this rather exceptional villa and on this blog we would like to comment about the project, i.e. all the steps involved in building a villa in Spain, the things you have to look out for, a general guide for prices etc. The goal is to give the interested reader a good view on the challenges that one has to face when he decides to build a house in Spain.

The client of this particular villa hired us on the basis of our small and specialized knowledge and dedication. He preferred us above the likes of bigger companies such as MDCI, mainly on the argument that he gets our full attention and that we look for the best architect, the best builder etc. as opposed to the ones linked to the house. The most important thing was that he was convinced that he needed a project manager; some people here try to do everything themselves leaving the road wide open to all kind of unpleasant surprises during construction, not to mention that it is very difficult to have a good approximation of the real building costs if you are not surrounded by the best people in the field.

The first task was to find the architect that would fit our client, who was looking for a unique villa respecting Spanish architecture but not copying too much of the Hacienda-style either.

My first thought was to use Melvin Villarroel, who we worked together with on a previous project and is the most famous architect on the Costa Del Sol. Three important reasons why we decided not to use him was that he has become so famous that you do not get his personal attention anymore, rather, the drawings would be done by some talented kid in the backroom, but it would not be by the hand of the master himself. Secondly, his office has expanded so much that it is suffering from bureaucratic disease; it took me 3 days to get a simple copy of the general plans of the houses we built with them, not to mention the backlog that was created when we solicited the license of first occupation. Finally, there is also a price element to have the best of the best: architecture charges can go up as high as 10% of the building cost. So we decided to search for an equally talented but less famous architect.

We were recommended Gustavo Kloster, but we decided after a first drawing that the style my client liked and the one that is being used by this architect were just too different to each other. The third one, Francisco Martinez, came recommended by my previous boss and he earned his reputation by drawing the very successful project Golf Gardens in Rio Real, Marbella. This guy is extremely talented, young and ambitious, but still hasn’t really made in the big leagues mostly because of his age (32). He made an original drawing and it was love at first sight: Both the client and I were very impressed by the quality of his drawings and the unique style that appeared to be exactly what we were looking for. We made the decision to continue with this architect and we made arrangements to negotiate the contract. He asked for 6% of the building cost, which was fair given the fact that 10% is quite common here. After some negotiating, we closed of at around 4,5% of the total building cost. I was very happy to have him on board as I knew he was going to be very dedicated to the job and I was satisfied for the price that we obtained. After that, the real work could start and the first year was almost entirely dedicated to designing the perfect house, given the fact that my client is not in a hurry and a true perfectionist. But that will be the subject of the second blog about the project.

Why inflation is great for property owners.

Sat, 24 Jun 2006 00:00:00 +0200

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 easing mainly in the form of credit expansion.

The money supply statistics which can be found in the Economist, show us that e.g. 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 growing strong and that Denmark was on top of the house price index. So clearly, there is a big correlation between the money supply and economic growth and real estate prices. The problem is that governments want to avoid that inflation filters through to our wages, since that would make us even more vulnerable to the stiff competition from the East. Hence they raise interest rates and this is when it starts hurting you and me and all consumers out there.

Even though interest rates are still at a very low level historically, this actually means nothing since that has caused us to borrow a lot more than we would have with higher interest rates. What also needs to be considered is that an interest rate rise from 3% to 4% is actually an increase of 33%, so it has quite a spectacular effect on our mortgage repayments. Furthermore, 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. For most people this will mean that they will become a little bit more cautious, perhaps try to save a little bit more and it will stop them from speculating with off-plan properties, but that’s it.

Now comes the good part: as fewer people will be able to buy and given the fact that everybody needs a home, rents will go up and so will rental yields. 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:

As fewer people are able to qualify for a mortgage because of the higher interest rates, rental demand and rental yields will dramatically improve.
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.
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.

Cost of living in Spain Estimate from kyero

Mon, 10 Mar 2008 00:00:00 +0100

The results of our Cost of Living in Spain survey are in. On average, a couple can live on € 644 per month in addition to any rent or mortgage payments.

Taken from a wide range of locations in Spain and calculating average (median) monthly figures, visitors responding to the Kyero.com survey gave the following figures: One-off Charges Gas Bottle Deposit € 25 Telephone Installation € 107 ADSL Installation € 50 Satellite TV Installation € 500 One-off Total € 682 Monthly Charges Buildings Insurance € 17 Contents Insurance € 8 Council Tax € 20 Community Fees € 20 Administrative Fees € 7 Electricity € 50 Gas € 12 Telephone Standing Charges € 20 Telephone Calls € 30 ADSL € 40 Mobile Phone Calls € 28 Car Insurance € 35 Car Road Tax € 7 Car Service Costs € 30 Grocery Bill € 300 Satellite TV Subscription € 20 Monthly Total € 644

A visitor living on the Murcia / Alicante border on the coast summarised the cost of living in Spain: “Most things are two thirds the cost of the UK, however, the odd thing like phones and adsl are considerably more due to the Telefonica monopoly”.

Communication costs seem to be higher in Spain (or cost the same as the UK but for a lower level of service) – mainly due to the lack of competitive forces in the market. One respondent from Spain’s most affluent province, Girona, added: “Living in Spain did seem cheap when there were no bills to pay but .. electricity is expensive and petrol costs have gone up. I wouldn’t say living in Spain is cheap.”

A visitor from Huelva province – an area that has seen very strong house price increases in recent years agreed: “Market, supermarket and household commodity prices are continuously spiralling in line with fuel cost increases.”

If the cost of essential purchases in Spain are increasing, it seems that the ‘little extras’ still compare well to UK costs. One visitor compared London to Almeria: ”.. Having come from London where we would say it costs 50 quid to walk out the door, here it costs us a fiver – and that’s drinks and tapas for two!

Another respondent from Murcia agreed: “Average meal out in Spain for two with bottle of wine under 25 euros. In UK in excess of 55€.”

Perhaps the secret of living cheaply in Spain is to live like the locals? “Groceries depend upon how you live – if you insist on English bacon, it costs are a lot more than if you buy local produce”.

Choosing the area of Spain in which to live also has a big impact. Provinces like Barcelona, Madrid and Girona will demand a cost of living premium for their superior infrastructure, accessibility and work opportunities. Provinces where less is on offer, typically cost less to live in.

Hopefully, one thing the survey successfully achieved was to put a stake in the ground for people assessing the cost of living in Spain. Many people arriving in Spain are on a limited income and it’s far from easy to find employment in many areas of Spain. Knowing how much things cost in advance is an essential step in preparing for a new life in Spain.

The Menace of Inflation: what are safe investments

Sun, 10 Feb 2008 00:00:00 +0100

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

The potential supply of money is infinite for a nation that issues its own currency.
The supply of resources to purchase with money is always limited at any one point in time.
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.
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.
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.