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Einblicke in den Immobilienmarkt von Marbella: August 2012 Analyse

In response to our latest Marbella Property Market Report 2012, one of our readers, Som, has put forward very interesting comments. Christopher Clover’s responses to Som’s points give a good insight into the market evolution today, which we share with you as follows:

Som: Hi Chris, I am afraid I don’t agree with “most” of the important points you have raised in this article (of course no one can argue against the most obvious i.e. climate and cosmopolitan nature of the place, etc). I have seen properties that claim were in the market for 3mm and now reduced to less than a 1mm and they will take “reasonable” offers. It gives no confidence to perspective buyers in terms of what is a good offer.

Chris: Dear Som, I really welcome the opportunity you have given me to respond to your points, which I do so as follows:

Every property is its own world, as every owner. Although you make reference to a property on the market for €3m reduced to less than €1m, and still negotiable, I’m sorry to disagree, since we have been in the market for more than 40 years and we have no properties meeting the case scenario that you are presenting. There may be a property or more than one, where an owner was asking a ridiculous, exaggerated price in 2007, therefore, nobody was viewing it, and might have today been reduced by half, or a little more; but reducing it by 2/3 with room to negotiate? We don’t have any, we haven’t seen any. Although you might find one or two, this is certainly not the market in general, , and you should look carefully at the agent who might be making this sort of claim to entice clients. And finally, it makes no difference at all what a previous asking price was or might have been. What counts exclusively is the current asking price compared with similar properties recently sold.

Som: The best a buyer can do is to value a property based on the price of a “similar” property. And trust me, owners don’t like it. It took me money and efforts to find out the sale price of a similar property that I was interested in but when I made an offer based on my findings the owners flatly rejected it. And there was no reason apart from “we won’t sell below this price”. Which planet the “sellers” are living in!!

Chris: If you have discovered this through your own hard market research and house hunting efforts, this is a clear message being given to you of the situation of a quality market. We also are finding that when a property is sold in a certain urbanization at an amazingly good price (for the buyer), it is often not replaced by a similarly priced property. What does that indicate to you about the market? It does not mean that sellers who do not accept a similar price are (necessarily) crazy. It does indicate:

  1. A tight market (supply) for quality properties in quality areas.
  2. A large demand factor for quality properties in quality areas. You must remember that Marbella is a Multi-source market, with a local, regional, national and especially international markets. Marbella is a totally different scenario from the 900,000 or so new, unsold living units spread out in every municipality of Spain, with an average price of €100,000, and exclusively a local market within the same municipality to sell these properties to.
  3. There will be a difference between sellers of the more expensive properties in the more consolidated residential areas, compared with sellers in non-consolidated areas. People who bought in great areas, paid more. And many of them are still well-off, with no real financial need to sell; although that said, there are many other reasons to sell other than the money. Sellers in the lower-lowest price range are more desperate and a buyer will find the best deals and largest discounts in the lower priced properties. I believe the market under €500,000 will still go down further in the next year, as you have suggested, with the exception of those properties in the very best residential areas in this price range, which are probably scraping the bottom right now. But one would be wise to remember that many sellers of these properties are already discounting them to take this probable further drop into consideration, which is one of the main reasons so many sales are taking place right now in this price category.

Som: I think anyone who believes Marbella real estate would appreciate is grossly mistaken. Actually if you care there is an excellent report published by Greek central bank on Spanish real estate and it gives all the reasons as there is no reasonable chance of asset prices going up. Actually I would recommend looking at Greek property prices, how they have evolved in the last 4-5 years and that would give us a good indication how Spain may behave. I would say Spain is behind economic curve of Greece by probably a year or two.

Chris: I am sorry, Som, if you are talking “Greek prices” with respect to the whole country of Greece and/or the small groups of holiday homes in highly seasonal tourist areas there, then your comparative should be with the whole of Spain. You should be comparing Marbella with high quality, wealthy residential areas of other parts of the world, if you are really looking for the truth!

Properties in first class, consolidated residential areas that are very well-bought today, will, in my opinion, and in light of history, certainly appreciate in time. As you yourself noted, there is a strong resistance level to dropping prices to distress levels in these residential areas and there are very solid reasons for this, simply those of supply and demand.
But you are ignoring perhaps the most important factor involved in purchasing properties in Spain today: that of the investment in a higher sense, in one’s lifestyle, and that of the family, in an area which enjoys a way of life unique in Europe. There is a pent-up demand for people who have been waiting for prices to drop for the last 4 or 5 years, and prices are today at an incredible level of around 12 years ago, except for the more expensive properties.

The buyers who have waited for years to buy have watched time go by, like the pages of a calendar in the old movies, blowing in the wind. They are watching their children grow up, and the opportunity to enjoy a the special lifestyle that Marbella offers, at least with respect to one’s family, is quickly dissipating, and people do not get younger with the passing of years. Many of those buying today feel that the timing is right, that they have waited long enough, and they are less concerned if they pay 5% more or less at the current incredible price levels. This important segment of the market wants to move on with the best buy they can find at this time, to enjoy the fruits of their hard-earned cash and their years of dedication to their work.

Som: In the same report their base case scenario is Spanish real estate would fall another 20%. I think I will give you that the lower end of the market would fall more and better ones would fall less but fall none the less.

Chris: You fall into the “trap” of including Marbella as if it were the market in the rest of Spain. Please refer to my response 2-b above. That said, and as I mentioned before the lower end of the market here will likely drop further. The interest we have had for properties priced €500,000 and above has surged this year, despite the crisis. And where no more than 30-40 properties over €3,000,000 were sold between mid-2010 and mid-2011, there have been at least 80 properties in this price range sold so far this year alone! Of course, sellers of these properties are far more realistic than in years past, but does that indicate to you a market which is getting a lot worse?

Som: I can easily paint a picture whereby Spanish property market could fall “massively” from here. The risks to Spain are twofold: a) Spain government bailed out by ECB/IMF/EU troika and Spanish banks are “forced” to offload there bad loans (NPL incidentally is highest in last 20 years at 9%). What this means is no “dodgy” affair of trying to offload a property by giving close to 100% mortgages even now. I have seen many properties which boast “100%” or close to 100% mortgage offered on properties. I am not talking about properties only at low end, they are across the board. Come on, who we kidding here! Banks want to move the loan from one person to another but keep it in their balance sheet. Crazy! b) Worst case scenario is Spain and Italy coming out of Euro and that’s catastrophic. I don’t even know how to asses that risk from a real estate point of view. The pesetas would devalue anything from 60-80% in value overnight, there could be a social unrest and I can go on and on.

My point here, I agree that there are many “pluses” of Marbella real estate compared to generic Spanish property but there are massive risks nonetheless. I don’t think the sellers still realize it. They are still living in denial.

Chris: Sorry again, Som, but you continue to compare the market in Marbella with that of Spain in general. I believe that you could probably find exactly what you might be looking for in the Coastal areas up towards Alicante or Valencia. There are in fact very few bank repossessed properties in Marbella, except at the bottom of the market, in lesser desirable residential areas. And no resale property (which comprises 97% of the market here) offers 100% financing, unless it is with the cheapest bank repossessed sector.

As far as Spain coming out of the Euro, if one really believes this to be a serious risk scenario with a consequent devalued new currency; I have been through 7 devaluations from 1970 to 1992, and what happens? The inexpensive end of the market is clearly affected. But most of rest of the owners, more often than not, simply raises their prices to compensate, especially the foreign owned properties, and wait it out! There are far fewer high quality properties in great, consolidated, secure residential areas for sale than you might think.
The market must be allowed to speak for itself, and you have to be a keen observer. People analyze their risks in different manners. If it is a pure investment only that you are looking for, without personal use, for rental return and with good financing also (provided you can prove your ability to finance it without rental income, which is the only type of loan being given) you would be better off looking at property in big cities.

I have studied this market for my entire life. It is true, what you say, that the mentality of sellers is often in denial of real sales value. It is a well-known fact that sellers in Marbella are often unrealistic and overprice their properties. But we have seen “asking prices” drop year after year until: bingo! the asking price starts generating viewings of the property since it has become perceived by the market as “worthwhile seeing”. And if these viewings become more frequent they create a market where owners will eventually receive offers that they can freely take, negotiate or wait for a better one.
More and more sellers are becoming keenly aware that their properties are not really worth what they thought they were, and, consequently, doing what is necessary to adjust their prices to encourage viewings. But make no bones about it, no seller achieves a sale today unless he/she is open to negotiate and make a deal. There is of course the exception of some top end properties which are not reproducible, where the owner says “if a buyer wants the property, he has to come close to my price”, and if the price is not ridiculous, he will end up selling. A front line duplex, 4 bedroom, 350m2 apartment in Oasis de Banús just sold last week at €3,750,000, to give you an example.

So, in summary of this point, the risk is in the eye of the beholder and everyone is different. We are receiving perhaps 10-15 price reductions from sellers every single week. Asking prices have become much more realistic. Sellers are not so much “in denial” as in the past, and those still “in denial” will come around in time, always, if they really want to sell!

Som: I think buyers should evaluate the risks thoroughly and offers should be made rationally and not based on “Oh! I can’t offer 50% or 40% of asking” just because it’s already been reduced and owner would be “annoyed”.

Chris: We deal every week with buyers looking at properties and making “offers” of half of a seller’s asking price which has invariably already been reduced up to 30 or 35% or more. Sorry, Som, the Marbella market has not, nor will it, reach the point where properties in up-market consolidated residential areas sell for, say, 30-35% of an asking price of three years ago. For a buyer to achieve success, he must determine what the property is probably really worth in the market based on comparable sales of more than one similar property, then, what the property would be worth to him/her, and then go in to negotiate at a figure that will achieve or better his objectives, and the lowest figure which would have a probability of engaging the interest of the seller.
We constantly see buyers making these “offers” of 50% below reduced asking prices, who do not bother to investigate current market value, and many of them, “conditional to financing, or I get my deposit back”. No seller wants to give a buyer a free option, and the market is simply not one where “silly offers” are achieving success.

Som: Yes, you risk not getting the property but a) the prices are going nowhere (at least not up) and b) there is a chance that prices will come down (based on the risk scenarios I outlined), and you don’t take a hit on your asset just after you buy it.

Chris: I agree with you that the low end of the market, the broad, bottom end of the pyramid of property prices, will probably get worse before it gets better. But there are “deals” out there which can easily compensate for this. The only problem is that there are scores of people, including many residents here, of all nationalities, looking EVERY SINGLE DAY for that incredible buy in the great residential area.

Why is there such a demand factor in Marbella and very little demand elsewhere in Spain? What is it that makes Marbella different, special?
So you might move here, dedicate a couple of months to joining them and you might have greater luck! Or, other great coastal areas in Spain, where there are a lot more of the bank repossessions, but where you do not have the quality of environment, facilities or unique lifestyle and 12 month season that Marbella and only Marbella affords.

Som: I believe in “fair” value and it should take account of all the risks and must be quantifies. Seems most of the agents/sellers in Marbella area have failed to grasp this point.

Chris: You know, Som, it is a willing buyer and seller that make a market. There is a very active market in Marbella today, quite unlike the period between 2008 and 2010. Negotiation is more difficult than ever before. Fortunately this is one of our strengths, and the reason Panorama is a successful agency. It is the aggressive seller who is winning and achieving his objectives mostly with the help of a good agency. But aggressive does not mean accepting an offer of half of what may be an already severely reduced asking price!

Som: Looking forward to your counter on my comments.

Chris: I am grateful for your giving us the opportunity to respond to your points, Som, and we welcome anyone to put forward their comments, on this or any other topic related to the Marbella Real Estate market.