Eurozone woes boost Sterling, making it cheaper for Britons to buy a home and live in Spain

By Luke Trevail of TorFX

The Eurozone debt crisis, coupled with changes of government in the region, have shaken the markets throughout May, after a good April for Sterling.

The Pound has benefitted as a result, up 3.4pc in a month, and 7.5pc in 6 months, despite the UK being in a recession. The threat of the Euro weakening further is a real possibility.

The spike upwards last week provided Euro buyers with the best prices since late 2008, whilst sellers of the single currency take the pain.

Should Greece leave the Eurozone problems will still remain, as other countries like Spain may need help. The Euro will stay under pressure unless and until Eurozone authorities take action on a scale hitherto unseen.

In the meantime, British house-hunters in Spain with cash in Sterling will find themselves in an increasingly strong position.

Do you need to buy or sell foreign currency? Click here for a free quote and advice from specialist currency brokers TorFX.

Leading Spanish house-builder Taylor Wimpey España, a subsidiary of Taylor Wimpey UK, sees sales jump as buyers flock to quality.

Publicity

Tourist spending is up, as is the number of visitors deciding to take advantage of the market and buy a holiday-home on the Spanish coast.

Inbound tourists to Spain spent a total of €9.01 billion in Q1 2012, an increase of 7.4% over the same period in 2011 according to the Tourist Expenditure Survey conscripted by the Institute for Tourism Studies of the Ministry of Industry, Energy and Tourism.

While the survey identified that in March 2012 alone, inbound tourists to Spain spent €3.61 billion representing 11.9% more than in the same month of 2011, it also highlighted that the biggest contributors to tourist expenditure in that month were British tourists, who spent a total of €631 million euros in the month, a 10% increase over 2011.

“We are not surprised that tourist spend in Spain is on the up – in spite of the economic doom and gloom Spain will always be a top choice for tourists,” comments Marc Pritchard, Sales and Marketing Manager of Taylor Wimpey España. “Indeed, the pound is now at its strongest against the euro in nearly 2 years reaching an exchange rate of £1:€1.25 meaning that British families have more money to spend.”

More tourists with bigger budgets have been good news for sales at Taylor Wimpey, who have also benefited from a flight to quality. “We at Taylor Wimpey España have actually seen a 21% increase in the number of units sold between January and April this year over the same period in 2011 with Brits still remaining our biggest buyers,” explains Pritchard.

Taylor Wimpey España offer some of the best new homes on the Costa del Sol, Costa Blanca, and Mallorca, all with Taylor Wimpey’s trademark quality. For example La Floresta in Elviria Alta (pictured above), an exclusive development in a quiet area, with stunning sea and forest views. Facilities include the use of Soto Golf Club. From only €178,000.

For their latest offers on the Costa del Sol contact Taylor Wimpey España on 08000 121 020 or visit www.taylorwimpeyspain.com. Outside the UK call 00 34 971 706 244.

Foreigners might be buying more holiday-homes in Spain (see previous article) but it’s not enough to compensate for the collapse in Spanish demand for primary housing.

There were just 22,072 Spanish home sales in March (excluding social housing), 21pc less than a year ago and 28pc down in a month, according to the latest figures from the National Statistics Institute (INE).

2012 is turning out to be the worst year yet since Spain’s real estate bubble burst back in 2007, as illustrated by the chart above. Year to date the market is down 28pc on the same period last year.

The housing market in March was almost 70pc smaller than March 2007, when the boom was just starting to cool. Add in a price fall of, say, 30pc, and the market is down almost 80pc by value.

Unemployment heading for 25pc and a credit crunch in the Spanish banking sector help explain these remarkably awful figures.

The following table gives monthly house sales figures (excluding social housing) for the last 6 years. Click to enlarge.

The biggest jump since 2002, taking the level of foreign investment in Spanish property back up to where it was in 2009, according to figures from the Bank of Spain.

What is driving this increase in foreign investment in Spanish real estate? At least part of it will be due to a significant increase in the number of foreigners buying holiday-homes and retirement homes on the Spanish coast, which some of the estate agents and developers I talk to have noted.

Consumer confidence fell 13.4pc in April compared to the previous month, one of the worst falls since the index started in 2004.

43pc think that house prices will fall more next year than this year, whilst 46pc think prices will stay the same. Only 5pc think house prices will actually start to rise next year.

79pc think the economic situation is worse today than 6 months ago, and more than half think it will get harder to find a job.

All things considered, house prices in Madrid didn’t do too badly last quarter in a global city ranking published by Knight Frank.

Property prices in Madrid fell just 4.3pc over 12 months to the end of March, less than cities like Paris, Geneva, Shanghai, Monaco, and Sydney.

Mind you, the figures do smell a bit fishy. I can’t believe that property prices are falling less in Madrid than Geneva. That doesn’t make any sense (though it does make sense if you consider that Knight Frank use official figures, which as regular readers will know, are highly suspect in Spain):

Interesting to note that Miami is enjoying a strong recovery with prices up almost 14pc in a year, to some extent because prices fell so quickly in the crash. If only Spain had done the same we might be seeing some light at the end of the tunnel.

Monthly planning approvals for new homes are close to record lows, and might create a shortage in the next 5 years.

There were just 4,600 planning approvals for new homes in February, down 44pc on the same month last year, according to the latest figures from the Government (Fomento).

Compared to February 2006, when Spain’s building boom was in full swing, planning approvals are down 93pc. That just shows you how badly the Spanish house-building industry has been hit by the bust, as illustrated by the chart above. From being the driver of Spain’s economy it has collapsed to almost nothing, which helps explain why unemployment is close to 25pc and heading for 30pc.

As a result of the collapse in planning approvals, I believe there will be a shortage of newly-built homes in the next 3 to 5 years. This despite the fact that there is a glut of something like 750,000 newly-built homes on the market today.

The problem is that many of those homes are typical of what gets built at the peak of a boom: badly-built in a hurry, in undesirable locations, with scant regard to what house-hunters actually want. There is demand for new homes, just not those new homes.

As a rule of thumb, you should try to buy off-plan in the depths of the bust, not at the peak of the boom. In reality, though, most people do the opposite.

I forecast there will soon be a shortage, if there isn’t one already, of the kind of new homes that people actually want: better designed, better built, more generously-sized, more energy efficient, better located, and significantly cheaper. And that is what developers building today can offer.

The problem is, there are hardly any developers left standing, as you can see from February’s planning approvals.

Asking prices for Spanish homes fell 9.5pc over 12 months to the end of April, according to data from Idealista.com, a leading Spanish property portal.

With Spain back in recession, and banks refusing to lend on anything but their own properties, home owners trying to sell have no alternative but to drop their prices. Judging by the ongoing collapse in sales, it looks like it hasn’t been enough.

The average resale property in Spain now has an asking prices of 1,993 €/m2, down from 2,202 €/m2 a year ago. On a monthly basis, asking prices fell 1pc in April.

Asking prices fell the most in Castilla La Mancha, Navarra , Murcia, and Extremadura, and the least in Castilla y Leon, La Rioja and Galicia.

You can read the full monthly house (asking) price index report from Idealista here (pdf in Spanish)

A crisis for Spain but an opportunity for foreign buyers to bag a bargain on the Spanish coast. That is the way at least 9,200 foreigners who bought holiday homes on the Costa Blanca last year must be looking at the situation. Buyers were led by Russians, Britons and Norwegians, who made up 80pc of the market. This is a sign the foreign market is starting to recover, albeit slowly.

José Vicente Dómine, Director General of Public Works for the Generalitat (Valencian regional government), was quick to point out that more foreigners bought homes on the Costa Blanca last year that in Madrid and Andalusia combined, and almost as much as Catalonia, the Balearics, and Murcia combined.

According to Dómine’s figures, obtained from Spain’s notaries, home sales to foreigners last year by key region were as follows: Catalonia – Costa Brava / Dorada 5,200; Malaga – Costa del Sol 4,600; Balearics 2,700, and Murcia 1,500.

The Generalitat recently set up a commission to help sell more homes to foreigners.

The latest Spanish mortgage and Euribor news

Euribor (12 months), the interest rate normally used to calculate mortgage repayments in Spain, fell to 1.37pc in April, 34pc lower than the same time last year.

As a result, repayments on a typical 25-year, €150,000-mortgage resetting now will go down by around €50/month or €600/year.

But cheaper borrowing costs only apply to those who already have mortgages. New lending collapsed 47pc in February, the 22nd consecutive month of falls, according to the NIE. Increasingly, the only buyers in the market are cash buyers.