Costa del Sold

Diarmaid Condon pays a visit to Spain's famous Costa del Sol to see if there really is tumbleweed blowing down Puerta Banus or if there is still a reason to buy there.

How things have changed in a few short years. Those of you old enough to have witnessed the dark and distant nineties will no doubt remember that you would see precious little outside of Spain referenced in an overseas property column (we'd never even countenanced an ‘overseas property section' until we headed toward the newfound wealth of the current decade). From reading the overseas coverage in the media these days you could be forgiven for thinking that Spain had almost ceased to exist as a place in which the Irish buy property. There are many other areas which have stolen its thunder in the interim and, in fairness, Spain had its share of the limelight in the last decade.

But Spain has not gone away, the Irish still buy property there and, although there are no verifiable figures to back up the assumption, it is certainly likely that Spain is either still leading or, more likely, second behind France in terms of Irish property ownership abroad. When you look at factors like ease of access, large quantities of cheap flights, access out of season, short flight times and a very attractive climate you can see the attraction. Throw in plenty of amenities and home comforts - particularly along the southern coastline - then it is easy to see why Spain retains a huge attraction, particularly for Irish lifestyle purchasers.

The foibles of the Costa del Sol's property industry have been well documented down the years; problems with spiralling prices, widespread corruption, rising living costs, overbuilding and mis-selling, environmental issues and the fact that the Costa blossomed on income derived from drugs and criminal activities abroad, have all left the market in somewhat of a mess. Last Spring's unseemly squabble between high profile agents formerly united in the Interagency Network, a co-operative network where agents shared listings and commissions, shows the depth of despair among agents along this highly visible stretch of coastline. Neither has it helped matters much from a positive PR perspective. Andalucian Dream Homes and Viva Estates entered into a very public feud following Viva's hasty decision to leave the Network and drop its resale agency commission to a flat rate of 3%. It didn't last long though and would all appear to have been somewhat of a failed attempt at gaining some PR. Viva's top dog, Chris McCarthy, was subsequently fired, and then rehired, following the debacle. The upshot is that Viva's agency fees have shot back up to 7.5% again, even though you can get companies to sell your property for less than 5% if you look hard enough. There is a lot of product on the market at the moment, though, particularly at the lower end.

This has been heaped on top of agents' misery of the past half decade which has been the rockiest patch in the Spanish coastal property industry for many years. Scores of estate agents have gone to the wall along the coast and most of those still existing are clinging on for dear life, hoping the good days will return sooner rather than later. This is all the more perplexing for coastal agents and developers when you consider that the indigenous Spanish property industry has been experiencing the biggest boom in its history over the same period.

OverseasCafe.com visited a couple of companies on the Costa del Sol, with Irish connections, to gauge what the market is like these days. Direct Auctions is a young company co-owned and operated by Monaghan man Barry McEntee and his business partner, Inez Rix. The company is indicative of the shift in market conditions since the start of the decade. It deals specifically in property which is valued at 70% or less of the bank valuation of the asset, in other words those prepared to take a cut to shift their units, which is, according to the company, still a very sizable chunk of the investor market from the last five years. By their own admission the company is not very well liked by many agents along the coast as they show clients that property can be bought at significantly under market value and for lower commissions than traditional agents charge.

Kandy Paterson is director of sales and marketing with the Alanda Group, owned by Irish builder McInerney, which has a wide range of experience in the Costa del Sol market stretching back over two decades. Iberia and the leisure market became a focus for the company in the 1980s and it developed a number of exclusive high quality country club resorts in Portugal and Marbella. Formerly trading as the ‘Four Seasons' in Marbella with its flagship development beside the Don Carlos Hotel in Elviria, the company has been renowned for building high quality property in the region since its inception. The company underwent a rebranding in 2002 and all its building, sales and rental activities now come under the auspices of the Alanda Group.

Commenting on the market in general Inez Rix says; "There is still a lot of ‘distressed' investor product finding its way on to the market, the cut they are prepared to take depends on the level of distress." Direct Auctions, as their name suggests, run regular auctions in Spain itself as well as in Ireland and the UK. A reserve price substantially below the bank valuation is necessary for a property to be included in any particular auction. If a client buys a property at auction, using a refundable deposit, there is a 14 day cooling off period allowing them to visit the property, ensure that it is what they require, or pull out of the deal should they decide that it is not to their liking. It is a business plan which has worked well for them, but Rix insists that this is not simply because the Costa del Sol market is in turmoil. "It will work equally in a rising market," she insists, "once there is a reserve placed on the property which is acceptable to the seller it is then a very transparent process. The buyer knows the reserve and can bid over this should they feel it is worth the extra cost."

Kandy Paterson says that while there is a surplus of product at the lower end of the market, the higher end has maintained its value and is, at this stage, a good investment for those who want to buy into the Costa del Sol lifestyle. "It is very much a lifestyle market," says Paterson, "we have found that the level of investment purchasers is now a lot lower but there are those beginning to look for value in the marketplace."

Rix suggests that while there has been carnage in terms of agent loss along the coastline, the shakeout is not fully complete yet. Her company charges a flat fee of 2.5% for selling a property, far below the standard 5% commission usually charged for resales and 6-12% for property sold off plans.

For those looking to purchase value property in the Costa del Sol market there may be some disappointment. While there is a huge glut of mid-priced property on the market, none of our interviewees advised purchasing any of it. Sizes of properties have suffered significantly with the huge land and construction price increases the area witnessed over the past decade and there is simply too much of this type of property around to justify paying even reduced prices for what is on offer. They suggested that the best deals are to be had at the higher end of the market where purchasers can hope to achieve prices on newly completed properties commensurate with what they were purchased for off-plan two to three years ago.

"Quality always maintains its value," says Rix, "high quality beach areas such as Elviria and upmarket golf developments such as those promoted by Taylor Woodrow and McInerney's offer good value as they are built to a high standard and are very spacious." She warns that buying cheap property in this region simply means you lose out either on quality or size and neither scenario, she maintains, plays out well for an investment. "There is still plenty of newly completed property in this sector coming on to the market just now, this oversupply may take several years to clear out," she says. Should the owner so desire, she says, it is possible to obtain 100% financing as Spanish banks lend on their own valuation, not the sale price of the property. Such deals will, she continues, offer value down the line when the market has corrected as there is still a shortage of really good value, high quality development in the area.

When asked whether buyers should consider new build properties off-plan or opt for second hand units, Rix says the power is most definitely with the buyer so resales are the way to go. "There are many people willing to take what they paid for the property off plan two or three years ago simply to avoid financial calamity," she says, "you don't get access to this type of leverage with off-plan purchases even though developers are finding the going very tough these days." Indeed it is now very common to see developers throwing in everything including the kitchen sink and even your first two years mortgage paid in order to drum up sales. How times have changed!

Both Rix and Paterson are in agreement on the legacy of disgraced, and now deceased, ex-mayor Jesus Gill. He is often likened to a CJ Haughey figure, who did much good for the area while also helping himself along the way. Paterson feels that by increasing the police force he certainly helped the region, saying that it has not felt as safe or clean since his tenure. Rix also feels that there was as much positive contribution from Gill as negative, "he brought a lot of investment to the Marbella area when no-one wanted to know about southern Spain so most people are prepared to overlook his misdeeds," she concludes.

On the question of government threats to knock property along the coastline, neither feels that anything currently built will be knocked, although they do think that there will still be a good deal of uncertainty for those with buildings which have been partially built but are now precluded from completion. Both feel that they will eventually be completed once the Town Hall gets its house in order but neither would hazard a guess as to when that might be. Dublin based Solicitor Tom McGrath says that no licences are currently being issued and the authorities are dealing with each developer individually. McGrath says it may be the case that there will be a small number of buildings demolished as an indication of the board's intent but overall the feeling is that demolishing any significant number of properties would be highly detrimental to the tourist industry.

For this and other similar articles on the overseas property industry visit Ireland's premier property portal at www.OverseasCafe.com.