The Price of Property: Balearics 3rd Most Expensive, But Taken Alone Ibiza Equals Cantabria, Spain’s Most Expensive Region
- Nick Gibbs
The latest Spanish property prices have been released by property portal Pisos.com.
The disparity from lowest to highest continues with the lowest at 908€ m2 in the interior region of Castilla-La Mancha, to the highest of 2,654€ in Cantabria.
Next comes the Balearic Islands at 2,192€ and in third comes Madrid at 2,040€.
We wanted to find out how relevant the Balearic price was to the Ibiza property market…
Ibiza’s property market is unique and not affected by its neighbouring islands, although its big sister Majorca would account for the vast majority of data used in compilation of the property statistics.
- Graph shows average values by Spanish region. Source Pisos.com
We found that although the government do not maintain any official statistics for Ibiza separate from the Balearics, it does maintain a property price index for all municipalities with a population of over 25,000.
In Ibiza’s case, this applies to Ibiza Town and Santa Eulalia only.
Looking at the numbers it will come as no surprise that both Ibiza municipalities have prices considerably higher than the Balearic average.
Ibiza Town stands at 2,690€ and Santa Eulalia at 2,465€. The official government price for the Balearic’s is 2,041€, close to the Pisos.com survey given it was taken slightly earlier in the year.
- Graph shows the official price per square metre of residential property in Ibiza Town and the Balearics as a whole. Source Institut d’Estadística de les Illes Balears (IBESTAT)
These figures for Ibiza and Santa Eulalia would indicate that the Ibiza property price index is on a par with that of Cantabria.
Though it is hardly needed, it gives a further reinforcement of the property market pricing out local residents.
A major difference to Ibiza compared to Cantabria, Madrid and other expensive areas is that people in Ibiza cannot choose to move further away to take advantage of cheaper property prices and commute to work.
Sometimes these raw numbers mean little in isolation, and so to give some real context, we have applied the rates to a 200m2 property. The price difference is startling.
Ibiza Town: 540,000€
Santa Eulalia: 490,000€
Balearic Average: 410,000€
To show an example we found a property representative of these figures—see below.
Though the high value of property will undoubtedly have an effect on the rental market, the long term trends in the Ibiza Town values indicate that it cannot be the high price alone that is causing our current problems in available long term rental stock.
2,690€ is high by any standard, but the value was higher still between 2005 and the end of 2008.
In this boom time immediately prior to the crisis that hit Spain’s property market very hard, Ibiza Town actually peaked at a much higher than current 3,489€m2, yet none of us remember the problems the Island is experiencing now in its lack of affordable rental stock.
The big difference now to then is the rapid growth of the owner self-let websites such as Airbnb.
Whatever the reasons behind the problems, there will be many people hoping the next property bubble predicted by Ignacio de la Torre (see article ‘Bubble Ahead) does not materialise. Given the island’s inability to bring in daily workers to run the businesses on which our tourism relies, there must surely be a limit at which the island economy would implode.
After all, there is no point attracting VIPs if there is nobody left to pamper to their VIP needs.
Reflecting official statistics we found this frankly unremarkable terraced house for sale on Pisos.com for 580,000€
The 3 bed property is 205m2 and situated in Can Misses.
A modest home for a young family, you certainly wouldn’t call it a palace.
To buy this house the family would need to find 120,000€ deposit, plus around 80,000€ to cover taxes.
If they ever could raise the 200,000€ to buy the property, they would then have a 25 year mortgage with a monthly repayment of 2,083€
Even if you scale it down to a starter home or apartment for half that size and price, the sums would be completely unachievable for many young couples.
It is important to remember that not only have they got to raise around 100,000€, to cover the 20% deposit, taxes and fees, they have got to save that amount whilst in all likelihood paying a well above average proportion of their income on a rental.
The situation becomes impossible. Not only have they got to raise considerably more to buy a house because of Ibiza’s inflated property market prices, but that same property market prevents them from doing so because most of their income goes on a higher rent.
You can see why native Ibicencos are concerned for their children’s future.
Mixed Messages With The Return of the 100% Mortgage Alongside Warnings of a New Bubble
There May Be Bubble Ahead …
Another housing bubble will inflate between 2018 and 2020, warns Ignacio de la Torre, economist and head of the investment firm Arcano, speaking at a recent industry conference. An association of Spanish estate agents has been echoing similar concerns, albeit for different reasons.
Back in the boom years Spaniards went on a reckless investment spree fueled by easy credit and the mistaken assumption that real estate was a one-way bet. “Property never lets you down” was the popular slogan at the time (el ladrillo nunca te falla), used by sales-types and investors alike. We all know how well that turned out.
Back then the investment logic was prices will always rise, in a classic bubble dynamic. The more people invested, the more prices rose, so the more people invested, and so on, until the bubble burst.
This time round it’s different, at least for now. Spaniards have sound arguments for investing in their property market today. What other options does the average Spaniard have, given that knowledge of financial investments is lower in Spain than other Western countries? In the bank for a pitiful interest rate, and the nagging doubt that banks can’t be trusted? In stock markets that many Spaniards don’t understand and vaguely distrust? Or in property – an asset that everyone is familiar with that now looks cheap after capital values were hammered by the crisis? It’s easy to understand why more and more Spaniards opting to invest in local real estate, many of them using mortgage financing that has never been so cheap.
The problem is, the attractiveness of property as an investment could inflate another bubble in the next two years, argues De La Torre. “Speculative money will go to the residential sector in search of yield, and prices will rise further than expected, and than salaries,” he said. “And it will all happen sooner than we think,” he warned, calling on the ECB to stop banks lending more than 60% LTVs. However, if he is right, I think there is only a bubble risk in some hotspots in the big cities and on the coast, and not all over Spain, as happened last time around. In many parts of Spain the property market is still depressed.
Estate Agents Raise The Alarm
The Association of Spanish Property Agents (API) has also warned of another bubble in the making, and called on the Government to take measures to head it off.
The Association has called for “urgent measures to increase market transparency and consumer protection,” to make the market “safer and more stable” and avoid a repeat of the disastrous consequences of the last boom and bust.
Diego Galiano, President of the association, claims that the bad practises so common in the last boom are starting to appear again, making Government intervention necessary, including tightening up mortgage lending.
The API association has a vested interest in exploiting fears of another bubble to call for more regulations if it means more members and fees for the association, and less competition. But I have to agree that regulation is necessary. Almost anyone can set up as a broker in Spain, so professional standards can be dismal, especially when it comes to selling property to foreign buyers. In the last boom some of the biggest companies in the business were nothing more than unscrupulous hard-sell operations, and I hear that some of the key players from those companies are back in business preying on unsuspecting buyers in the new cycle. When sales boom, and especially when bubbles form, unsuspecting foreign buyers walk into a minefield.
Return of the 100% Mortgage …
- Leading Spanish property sales portal Pisos.com have reported a questionable return of the 100% mortgage ,despite many seeing it as one of the causes of the crisis that has caused havoc to the Spanish property sector, not to mention ruination to the lives of thousands of people.
100% Mortgages, i.e. lending the full amount a property is worth, were very popular during the years before the housing bubble burst in the financial crisis.
Though many will question the wisdom in their return, it is inevitable that there will always be a market for people wanting to borrow money to buy property that do not have a deposit to put down.
Whether in favour or not, Pisos.com have given 10 common questions surrounding the product.
- What they are exactly?
The most common lending ratio in Spain today is that banks finance up to 80% of the appraised value of a home. However, 100% mortgages have recently reappeared, which, as explained by Maica López, head of content at Bankimia.com, “finance the entire value of the appraisal or the total value of the sale of the property.” According to Estefanía González, personal finance spokeswoman of Kelisto.es, the choice between “buying and selling” or “appraisal” as a reference indicator depends on “what each entity decides”, although as a general rule, this specialist ensures that banks ” Usually opt for the lowest figure between the two.”
- Do they include costs attached to the purchase?
100% mortgages do not include the additional costs of any purchase, as the registry, notary, of agency or taxes. This is because the bank is financing 100% of the property value, so the customer has to pay this money, which according to calculations is usually 10% of the property. However, as stated on Kelisto.es, there are exceptions and it is possible to find special offers. This is the case currently maintained by Banco Popular with its Mortgage Aliseda, intended for the purchase of real estate from its portfolio. In this example, says Gonzalez, “the entity grants the customer 100% of the purchase price plus the money needed to meet these expenses.”
- What banks offer them?
To date, virtually no bank offers mortgages for 100% of the valuation or purchase value of a free home. Or at least, as Gonzalez points out, “they do not advertise them as such.” In contrast, 100% mortgages are common when financial institutions have homes in stock. In these cases, says López, this is a strategy that seeks to “promote their sales”, for which they offer mortgages “with more attractive conditions.” Among the financial entities that trade with 100% mortgages for this use are Bantierra, Liberbank, Banco Popular, Banco Pastor and Deutsche Bank.
- What conditions are applied?
The conditions that the banks demand from the applicants of this type of mortgages are not far from the remaining ones. Among them, according to Bankimia.com, “have a justified minimum income and a good credit history.” Similarly, from XTB, they add that financial institutions require borrowing capacity “not to exceed 35% of the total income of the borrower”. “If the borrowing capacity exceeds 35%, the mortgage transaction could be reinforced with some type of guarantee, economic or home guarantee, depending on the criteria of the bank,” says Arco.
- What links and commissions entail?
Some 100% mortgages exempt the client from the payment of commissions. This is the case, says González, of the mortgage Mihabitans of Liberbank. By contrast, most credit institutions that grant these mortgages apply the same conditions as loans with lower percentages. In this context, he puts as an example the Mortgage Altamira, of Banco Santander, “which charges an opening commission of 0.5%”.
With regard to the bonds they require of customers, these are usually identical for all mortgages. Obligations, according to Arco, that are marked by law and extend from the domiciliation of payrolls and bank receipts, to life insurance and credit cards. These links, according to this analyst, “lower the cost of the mortgage”.
- What type of housing?
100% mortgages are, as a general rule, offers designed for the purchase of housing from banks. However, as underlined by Kelisto.es, there may be exceptions to this type of loan. The first one refers to the amount liable to be borrowed. In this sense, González says that although “most mortgages for bank properties offer 100%” there are some that do not, such as Mortgage Solvia, Banco Sabadell, “which offers a maximum of 80%.” This cap, he stresses, is typical of mortgages intended for free housing, although in the case of a customer with a more solvent profile “this can negotiate and get a personalized offer that does reach 100%” of the total Value of the property or its appraisal figure.
- Who can obtain a 100% mortgage?
100% mortgages are open to all types of clients, from those who already have financial institutions to those who enter for the first time in one of its offices. However, there is a profile that monopolizes the largest number of such loans. These stakeholders are, he argues, “those who do not have enough capital to acquire the property plus the costs of the sale,” but who need financing and maintain a solid image regarding income, with credentials to present alternatives to payments and access to guarantors. “All this is according to the criteria of the risk department of each bank,” he adds.
- What is the repayment term?
According to the experts consulted, it covers between 10 and 40 years. This margin is verified when analysing the maximum period of offers from entities such as Liberbank, Banco Popular, Banco Santander and Bantierra, which are already outstanding for extending the maximum amortization period of their 100% mortgages to 40 years. This last extension, González says, is a clear differentiation from the rest of mortgages, since it deals with “exceptions”, they do not usually present “so high” amortization periods for mortgages “intended to pay for free housing”.
- Do they offer fixed or variable interest rate?
Most of the 100% mortgages that are signed in Spain do so at a variable interest rate. This trend is in line with the general trend and responds to the current situation of the Euribor, the interest rates that are referenced most mortgages in our country. In these cases, says Lopez, it is loans ranging “between Euribor +0.80% and Euribor +3.2%.” All this, is based on the linkages assumed by the holder. For its part, Kelisto.es confirm that most of these mortgages are signed to a variable interest rate. However, Gonzalez also notes that “there are some fixed rate” such as the Fixed Mortgage Solvia offered by Banco Sabadell, “with a fixed interest rate of 2.80% for 30 years”.
- Are the fees are higher?
Since it is a mortgage that finances 100% of the value of the home, customers who purchase them receive a higher amount than if they opted for a mortgage that only granted 80% of the value of the sale or the valuation. However, Gonzalez stressed that the amount of dues to pay “depends on the repayment period” to sign customers. That is why, he says, that 100% mortgages offer “more flexibility, as they hardly require to have savings,” but at the same time requires contractors to be cautious. In this sense, it advised to consider what is important.
Ibiza Property Awards
The Ibiza Property Awards project has been created to draw international attention to the property market of Ibiza and to celebrate the innovative turn the island is taking when it comes to quality and sustainability.
On the 28th of April 2017 the first edition of the Ibiza Property Awards will be held.
The Ibiza Property Awards program will consist of a day of conferences with key industry speakers and a gala dinner with awards show judged by a renowned independent international judging panel that will award the very best within the Ibiza property market. The following day a tour of the island will be organized showing off some of the island most exclusive properties.
Throughout the year the Ibiza Property Awards network will be organising several smaller events for information exchange and networking, the first of which will be held at Hotel Montesol on Vara del Rey 2, Ibiza on December 12th. Please contact Ibiza Property Awards via their website for more information.