Property Sales Still On The Up …
Figures published by the INE (National Statistics Institute) demonstrate that on a year-upon-year basis, the number of property purchases in Spain increased by 10.7% in July—the biggest increase since March and the 5th consecutive month of increase.
According to the INE a total of 28,583 homes were sold in July, of which 63% were re-sale properties. This equates to 18,082 re-sale homes and 10,501 units, 37%, were new builds.
On a month-to-month basis, the number of property sales increased by 6.9% over June.
Contrary to the positive feel from the recent figures the number of house sales overall is said to have dropped 3.3% in the last 12 months as a whole.
By area Andalucía lead the way with 5,954 sales, followed by Valencia, with 4,231, Cataluña, 4,230 and Madrid, with 3,995.
Chief of studies, Fernando Encinar, from Idealista.com says that this is good news, yet we still have to be cautious. “Figures are exceptional this year because last year was so bad in terms of property purchases. It was, in fact, one of the worst years in Spanish real-estate history, meaning that most figures will come out positive when compared to them.” He went on to say that “Many people are slowly returning to real estate as a means of safe investment, taking advantage of the low interest rates around at present”.
Floor Mortgages—and who applies them.
If you are looking to take out a Spanish mortgage you need to have an understanding of Floor mortgages.
Despite the controversy last year surrounding floor clauses contained within some mortgages granted by a number of Spanish banks, they have still not been made illegal, and banks can continue to apply them. In fact, 4 of Spain’s major banks still do.
In May 2013, the Spanish Supreme Court declared all floor clauses in mortgages that did not comply with the required transparency requisites null and void – but not illegal.
This sentence affected 400,000 mortgages from the BBVA; 90,000 from Novagalicia Banco; and approximately 100,000 from Cajamar.
As soon as the sentence was passed, some banks decided to eliminate mortgage floor clauses altogether from all of their loans. Nevertheless, there are still other that choose to apply this unpopular, and basically crafty, clause.
The way in which banks sold mortgages with a floor interest rate was to tell clients that interest rates were rising and that by taking out a mortgage with this clause would mean that if interest rates rose above the rate that they then imposed, the client would only have to pay the lower rate at which the floor clause stood.
What the clients at the time didn’t know, though, was that interest rates were about to drop – and fast at that.
However, whilst there was a maximum ceiling rate in place, so was there a minimum floor rate, which meant that if, say, the floor rate was 2% interest, but the Euribor and benchmark interest rates fell below this (like now, the Euribor is around 0.5%), the client would still have to pay the 2% rate and lose out on a lot of savings.
According to a new report from Kelisto, the four banks that still apply mortgage floor clauses are La Caixa, Banco Sabadell, Bankia and Banco Mare Nostrum (BMN).
Whilst floor rates are not illegal, they must be transparent. The bank that provides the greatest amount of transparency is Banco Sabadell, followed by BMN and Bankia, who allow the client to negotiate the rate of the floor clause.
La Caixa’s mortgages with the floor clause in place show the most ambiguity, so clients are advised to take more care if taking a mortgage out with this bank, especially now when the Euribor is so low.
Furthermore, 80% of mortgages taken out with the aforementioned banks contain this clause, therefore, depriving around 5 million families of savings on their mortgage repayments.
Kelisto advises people who are looking to take out a mortgage to consider the following:
- Look for mortgages where the differential rate is less than 2%
- Look for mortgages that don’t require you to take out additional products such as insurance etc
- Check how much commission is being charged for setting up or cancelling the mortgage
- Check the small print before signing. There may be abusive clauses
- Don’t limit yourself to choosing a property owned by a bank, which many entities do if offering more money
What Price Ibiza?
We had a look at available property prices in Ibiza.
- The very cheapest property currently available on Idealista.com is a studio apartment in Cala Vedella at 44,999€ (1,125€/m2).
- 1 bed apartments start at 75,000€ for a 52m2 property in San Vicente (we ignored the 65,000€ 1 bed as at 25m2 something seems amiss).
- 2 beds are priced from 89,000€ in San Antonio at 60m2.
- The cheapest detached house with land we could find in our search was 210,000 for a 2 bed in the north, and for a larger family home 280,000 for a 4 bed property in the south.
- There are many duplex and terraced houses staring at 80,000m2 for 1 bed properties.
In terms of availability the website has most properties for sale in Santa Eulalia, 465, followed by San Jose with 387, Ibiza town with 288, San Antonio 135, and as might be expected far fewer in the rural north with only 71 in the whole of San Juan.
Expert Predicts Sales Surge
Fernando Encinar, director of studies for the leading Idealista property website, predicts a surge in property sales before the end of 2014 due to changes in Spain’s financial law relating to properties purchased before 1994.
In essence the new law will mean a big loss for anybody selling a house which they purchased 20 years or more ago.
Encinar expects the law to come into force on 1 January 2015.
From this date, the abatement tax applied to the sale of properties that were purchased before 1994 will be eliminated and the Government will alter the method of calculating the level of capital gains is tax payable.
In simple terms, the discounts that were applied to properties purchased before this year will be removed, meaning that the seller will have to pay a much higher amount of money to the Government in tax.
The English language business and property website on the pulse of Spain explain the changes in detail.
“Up until now, a reduction coefficient was applied when calculating how much capital gains would be achieved on such a sale. This coefficient took into consideration the variation of prices over this long period of time.
With the elimination of the reduction coefficient, the calculation will be made on the difference of purchase and sale price.
So, for those people that sell their old property (purchased 20 years or more prior) after 1 January 2015, they will now have to pay 55% more in tax – unless they can close the sale before 31 December 2014.
It is clearer to see with an example. You buy an 80 m sq property in 1990 for 75,000 euro (933 euro/ sq m). At today’s values (1,459 euro/sq m), the property would be worth 116,000 euro. That’s a gain of 41,000 euro in 24 years.
Using the current calculations, the taxable amount would be reduced to 10,459 euro, and after applying the 21% VAT on patrimonial gains, the final amount to pay in tax would be 2,375 euro.
However, with the new law, if the same property is sold in 2015, the seller would be taxed on the full 41,000 euro gain, leaving him with a tax bill of 8,900 euro – almost four times the previous amount.”
Encinar predicts a surge of people trying to offload properties before the year end, which he claims could lead to property prices being reduced substantially.
He goes on to say that any increase this year is likely to be offset by a reduction in the early part of 2015, and then anticipates the general rise to continue again in 2016.