Buy-to-let investment in Spain
Article Date : Wednesday, September 28, 2005
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What could be better than owning a property in the sun and making money from it all at the same time? If you like the sound of that, read on...
Spain is one of the top overseas destinations for British property investors: a study carried out by Savills Private Finance, the mortgage broker, showed that Spain is still a favourite for investors hoping to combine pleasure and profit. And the gains in Spain have been as well documented as our seemingly insatiable appetite for overseas property investment.
The Economist magazine reported recently that Spanish property prices had risen by three times the average for the Euro zone from 1995 to 2002, while an estimated 600,000 Britons have bought in Spain. One such investor is Jim Bromilow from Liverpool who took out a mortgage with Banco Halifax Hispania and bought a two-bedroom bungalow on the Costa Blanca 25 minutes from Alicante airport about a year ago. Initially, Bromilow says that his purchase was, ‘part investment, part foothold to retire to when the kids go off’.
But after only a year Bromilow is considering buying another property and letting his current property out. He says, ‘I want to hang onto this one as a commercial investment and buy a bigger one as a holiday home.’
Ease of access from the UK was an important factor in his decision. ‘I booked two flights from Liverpool to Murcia – it was £102 return for the pair – and it costs me £50 to fill up my car. You can’t get to London from Liverpool for less than £100’, he adds.
He is hoping that his letting venture will go well. ‘If I let it for 22 weeks of the year at £200 per week, that’s my mortgage paid for the year.’ He has worked out the venture all the way down to the day-to-day running. ‘I have a lady over there with an independent cleaning team who will look after general maintenance and security.’
However, no matter how substantial past price rises have been, future investors will need to be canny and buy wisely to make the most from their investments: some experts say that prices have now reached their peak and that the end is nigh for Spain’s booming property market. But in its 2005 report The Royal Institution of Chartered Surveyors European housing review said that, despite predictions that the Spanish property boom was set to cool in 2004, prices were still rising by 17-per-cent annually in the third quarter of 2004. John Howell, an international lawyer, who advises clients on where and what kinds of property to invest in overseas, urges investors to be cautious. He warns that the get rich quick days of double-digit price rises are over. ‘You will no longer see 20-per-cent growth; 5 to 10 per-cent is more realistic’, he says.
Howell feels that an important development will be the tax incentives of Self Invested Personal Pension Plans (SIPPs): ‘Anyone buying off plan in Spain can put their investment into SIPPS, so income and capital gains will be tax-free.’
Spain is still the most popular overseas holiday destination amongst the British – over 16 million visits were recorded in 2003. And as budget airlines open up more destinations, tourists are booking flights and accommodation independently – in the past six years the number of independent travellers has risen by 60-per-cent. This could be good news for landlords aiming at the holiday let market, but the competition is tough, so investors must think carefully about where and what to buy.
Howell advises investors to first think about what they want from their investment. ‘If you are buying for your own use, buy where you like. If you are buying for investment, that is different.’ He feels that the best place to buy is on or near a golf course. ‘The Costa del Sol is THE place for golf – for the average golfer it is the Mecca. Many of potential tenants will be flying in for the weekend – so you need to be near the airport. Golfers are nutcases – they go for a five-day long weekend and they want to play nine rounds of golf, each on a different course. There are a good half a dozen courses on the airport side of Marbella – I think they have a head start over the competition.”’
However, buyers on the Costa del Sol will need deep pockets. ‘On the Costa del Sol you are looking at a minimum of £300,000 for something on a golf course – you can get away with £250,000 if on a complex,’ Howell says. Alternatively the Costa Blanca is considerably cheaper and there are enough golf courses there to make it a viable golfing destination. ‘On the Costa Blanca you are looking at £150,000 to £175,000 for a property on a complex. The Costa Blanca will probably not be as strong as the Costa del Sol, but there are a couple of interesting golf course developments near Alicante. You are looking at 6 to 6.5 per-cent net [of running costs] for both the Costa Blanca and the Costa del Sol, but capital growth will be better on the Costa del Sol.’
By Lucia Adams of The Times
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