SpanishPropertyBuyer.com

Homebuyers still prey to uncertainty: Should I buy now, wait… or what should I do?
It now appears that home prices have not fallen as much as everyone thought, or at least according to the most important statistics. And that is not all, as the Government also believes that the sector will stabilise in the “near” future. How soon this will happen is not clear, although it will probably not be before the VAT increase, which will increase home prices by an average of 2,000 euros, and may take place before 2011, when the deduction for habitual residence purchases is to be abolished, a measure which will bring about a hidden increase of 8% in average home prices, according to calculations by economists.

Therefore, and bearing in mind that buying a home is the biggest investment that most people make in their lives, is it worth buying now, while you can still take advantage of the deduction and without being penalised by higher VAT? Or is it better to wait until 2011, when the era of low-priced homes may have finished? Should I sell? Should I lease with an option to buy? There are too many questions, and the answer to all of them is discouraging: “It depends”. The experts consulted by EXPANSIÓN did not have any general solutions, although they did have an answer for each question

Is it a good time to buy a home?

If the price of a property has dropped considerably, don’t take too long over your decision, because house prices have probably hit the bottom.

Bear the following in mind: “Prices can fall between 20% to 25% on average in the housing cycle”, and: “It is a good time to shop around carefully, because there is a wide range of homes for sale, and you will find some properties at a good price.” However, a word of caution if you want to buy a property on the coast – it would be better to wait as “prices are going to fall further”.

Is it worth buying a home before the tax hike in July?
This year is a good time to buy your first home: “If depreciation rates  were between 4% to 5%, the VAT increase and the elimination of the mortgage tax deduction would cancel out the lower prices. But in fact I do not believe that house prices have fallen 4%”. They must have fallen “by least 10% to 15% (depending on the area) in 2009, and in 2010 they will probably drop by around -10% to 20%, which means that this year will be a good time to buy a home, and a terrible year for selling”.

Does it make more financial sense to wait?
“The longer you wait the further house prices will fall, although it will be harder to find great home buying opportunities. If you buy now it means that you will not be affected by the VAT rise from 7% to 8% in July. In addition, you will be entitled to a deduction of up 15% on the first 9,015 euros spent on mortgage repayments each year in your personal income tax return, even though you earn over 24,000 euros a year. However, this must be balanced against the fact that next year promises to be a very good one for homebuyers.
What is going to happen in 2011?
The tax rise and the government’s promise to abolish the mortgage tax deduction “are going to encourage homebuyers to buy this year, even though the market has not yet bottomed out”.

What about if I want to buy a property in order to lease it for rental income?
This is another good option. Buying a rental property is a good investment at the moment, as due to the crisis there is a very wide range of opportunities to choose from. Now is a good time for medium and long term investments, even though “prices are bound to fall even further next year” according to real estate analysts. “Anyone who buys now will see a good return on their investment in ten years´ time” advises Izquierdo.

Should I sell?
The experts recommend that “sometimes it is better to make a loss than wait for the situation to get better”. If you set a realistic sale price, the property will sell. However, you should remember that t the property’s current worth will almost never be as high as during the property boom. THREE TIPS
1. “The whole of 2010 is a terrible year for selling, and a good one for buying. The best time to buy is probably before the summer”, as that is when VAT goes up.
2. “Now is the time to look for low-priced homes. The longer you wait, the more prices will fall, but it will be harder to find great home buying opportunities”.
3. Look for properties selling at very reduced prices, because it is unlikely that they will fall any further. “It would appear that the homes for sale at reduced prices are the homes that are selling”.

Credit:- www.spainsolicitors.com

Many of the Britons who let out their second homes in Europe could now be eligible for a tax rebate windfall paid back to them by HM Revenue & Customs.

Although the most published elements of the recent Budget concentrated on tax increases, much less published is a new opportunity for owners of holiday lets in Europe, who have been given the chance to apply retrospectively for tax repayments going back up to a full five tax years. But, according to Conti, the UK’s leading overseas mortgage specialist, anyone who thinks they may be eligible should act quickly, as the tax breaks will cease in April 2010.

This change in taxation is applicable where either of two circumstances has arisen:
1. Where owners have incurred losses from the letting of the property since 6 April 2003
2. Where a property used for holiday lets has been sold at a profit since 6 April 2003

How the rebates work in practice

Example 1
Mr. Smith owns a Spanish villa that, apart from a couple of weeks’ private use, is let commercially throughout the year. Whilst Mr. Smith tries to let the property all year round, the seasonal nature of the business means that, year on year, a loss of around £5,000 is incurred. Mr. Smith may now be able to make a claim to offset this loss against UK income tax over the last five years. As a higher rate taxpayer, this would generate a tax repayment of around £10,000 (5 years x £5,000 x 40%).

Example 2
Mrs. Jones acquired a holiday property in Portugal in 2001 for the equivalent of £100,000. The property was let out for five years, on a holiday-let basis, and sold in 2006 for £200,000. She paid capital gains tax in the UK of £30,000 on the sale, after all available tax reliefs. It may now be possible to go back and amend the calculation to include further reliefs, which would reduce the taxable gain to around £2,000. This would save Mrs. Jones £28,000.

Free tax review

Conti is offering property owners who think they may fall into either of these categories the opportunity to obtain a free tax review from one if its partners, Target Chartered Accountants, which specializes in UK and European tax. Target will offer clients a free initial consultation and has also agreed not to charge a fee for any tax repayment claim made as a result of the review. A fee will only be chargeable if a successful tax refund or reduction has been achieved.

More than two million Britons currently own a property abroad, and according to Conti, a number may recently have become eligible for one of these tax breaks. Many owners who previously kept their homes for private use have been renting them out to holiday makers over the last couple of years, to generate an extra source of income during the economic downturn.

Limited opportunity

This is a one-off opportunity in the 2009/10 tax year to secure a unique tax rebate. In 2010/11 the set-off or carry back allowances which create the rebate will no longer apply.* To be eligible for the allowance, properties must have been let for ten weeks a year and available to let for 140 days.

Opportunity to remortgage

This could also be a good time for landlords with European property to consider remortgaging. With interest rates at an historic low, the number of people looking at the refinancing options available is increasing dramatically. In addition, the strength of the euro means that equity in many second homes abroad is now worth a great deal more when converted back to sterling. It’s also important to remember that in some countries, if you’re remortgaging a property, a percentage of the rental income received can be taken into account by the lender when calculating how much they’re willing to lend. In addition, mortgage interest may be an allowable tax expense against rental incomes.

Credit: Spanish Property Insight : Posted May 11, 2009 – Spanish Property News

The property business gives an insight into the deep recesses of peoples’ thoughts and often we have used our knowledge to lighten the blackness! Why do people generally hate Estate Agents? Is it because they are not aware of the property selling industry or is it because the industry puts up a barrier against the client and as such there is little real communication on a personal level? Then again we all remember the bad things that go wrong and not the good. It is a service industry and no matter what a service is expected and must be given.

In the UK and Ireland when buying property, buyers and sellers usually use the local papers to pick one or more agents to deal with or go on recommendation. They walk in discuss their requirements and leave and then the only contact is when they have viewings or want to see a property from the information sheets they have been given or phone the agency to see if anything is happening. A property is bought or sold, the public deal through their solicitor and the agent passes into the night probably to be forgotten for ever.

In Spain it is different, potential clients may use advertising material in glossy magazines, papers or exhibitions to find out details of property available or go on recommendation. Once they decide to actually look at properties they either come through an agency or come alone to look and buy or find a local agent. That is of course if they know where they want to buy. Some buy on a whim, some with long hard thought and others buy without any knowledge at all. Overall, there is much more contact (or there should be) the client is taken on viewings; they eat and drink with the agent and generally have on going contact before and sometimes after the sale and in some cases become good friends.

It could be said that when dealing with a large company the client feels safer, they see other clients, big offices and copious amounts of advertising material, therefore it must all be true, but is it? In a crisis it has been just those companies who have struggled to survive. Also, many misery stories have been generated from large company sales. Pressure from the large company comes out of necessity to sell and if the client isn’t ready or just doesn’t see what they want, they may be cast aside.

Looking at the smaller company, they have to be competitive; they have a small slice of the market but must increase their personal knowledge of the industry because there are no “in house” experts to pass clients on to. That also gives rise to the fact that “in house” experts will not necessarily give independent advice and is that advice free? Invariably no, it is an extra cost. In that respect we have found that potential clients were happy to take advice from a small company but some then bought from a large company, feeling safer as one of many. Also, it must be said that there are illegal sellers still in Spain and you should check that the company you are dealing with is properly registered in Spain or the UK.

It is always better to take independent advice from a Spanish speaking lawyer and when asking for that advice don’t stint on the questions you ask, no question is silly if you do not know the answer. Make a list of things you want to know about and make sure you fully understand the answers and the implications of buying abroad. So many cases exist where buyers have lost their life savings or large deposits through going it alone because they thought they were saving the solicitors and agency fees. In many cases it can be money well spent; you obtain the right property and have a guiding hand throughout the processes. Buying a property does not have to difficult if you go about it the right way.

 Editor, original script, copyright reserved.

Many people decide to buy a foreign property for use as their holiday home and for use by close family/friends, some buy and decide they want to cover their annual running costs by letting it out and others buy solely for the purpose of renting out the property which was originally purchased as an investment to generate income.

You may have the financial means to buy a property but many do not think about the maintenance and running costs. If it is only close family and friends who use the property make a pact that everyone puts in the “pot” for the upkeep, even if only a small amount. If you decide to rent your property to others, be aware that not everyone will maintain the property as you would like, there will be breakages and wear and tear on fixtures and fittings and regular cleaning bills.

Another cost is advertising your property for rent or employing a letting agent to do it for you who will charge a fee. Whatever means you choose costs are involved and the property may not be let for all 52 weeks of the year, therefore you must cover the times when no one is there.

Consider the following:-

1. Who do you want to rent to family, friends, family groups, mature people or anybody?

2. What will your clients expect and what will you offer them?

A clean property, security, facilities for the disabled, general facilities e.g. TV, music, books, cooking facilities, washing machine, clean linen, furnishings and a community pool. Where are the local amenities i.e. the nearest shops, restaurants, beach and transport?

3.  What income do you expect, a small profit or a high income after costs? Another consideration is long term renting.

4. Who will look after the property, you, a friend, or a responsible renting agent?

History suggests that all three may cause problems. If you, then you must live in the country and be on hand to supervise the letting, including all the cleaning! If a friend, can you trust them entirely? There have been stories of sub letting and letting to friends without the owner’s consent or knowledge and of course the owner receives no money. If a letting agent, again stories of sub letting by employees and lack of standards, so make sure their reputation is good. Ask to see some of the properties they let or even speak to some of their clients.

5. What costs are involved?

Total cost of buying and furnishing a property specifically for renting, utility bills, and maintenance and repairs, the cost of replacing items and agents fees if applicable. If you have rented a property and then decide to sell it, it may be necessary to replace the furniture or make a financial adjustment due to wear and tear.

In our opinion the main factors for letting are price, location and cleanliness.

If you charge too much the clients may come once but never return, check out what other people charge, most have rates, for spring, summer and winter. It is better to charge reasonable rates and mostly clients will book again.

Pick the right location, sometimes people do not want to drive when on vacation, so is there public transport or a handy taxi service in a nearby town? Is there enough to do and can people walk to different places and find the local amenities? Place a folder in the property with some local information and maps, it is always appreciated. Also, place a list of emergency numbers in a prominent place or in the folder.

Last but not least cleanliness! Oh, our favourite subject and one that brings the most anxiety. There is nothing worse than arriving for a holiday and entering a dirty house, only to find horrid sheets, grime laden kitchens with dirty crockery, cutlery, fridges, ovens and washing machine. Drawers laden with other people’s half used items and half eaten things in the fridge!

You wouldn’t like it and nor will the clients.

Once you have thought about and have answers to all of the above, you will then be ready to look at suitable properties.

Editor: 16 June 2009

Sun, sea and sangria but when you put your feet back on the ground and take off the rose tinted glasses how do you survive?

Living in Spain is basically the same as living anywhere else in Europe, in that there is the initial language barrier and a different culture. The sun is a bonus but there are dull days too.

Next step… pro’s and con’s, make a list of the reasons why you do or don’t want to move, what will alter in your life, is there anything you will miss? At the end of the day can you afford to move? Do not come on a wing and a prayer! Think everything through, thoroughly.

Most important of all, what is your financial position now and what will it be like if you move? How will you support yourself?

WORK - What do you want to do?

If you are going to work, is there a job for you?

Or, are you thinking of starting your own business?

What business and where? Location, location, location!

Where will you feel most comfortable and will it be profitable? Who will you cater for and does that clientele exist?

If opening a shop, bar, restaurant or other business consider the following:-

What will you sell and is there a market for it?

Check out the competition, it can be fierce, especially if it is a catering business. Think of something as a back up to the main business, can you wholesale to others or provide a special service for special occasions? BUT is there a genuine ongoing market for it?

How big a shop, bar or restaurant do you want, staff cost money but on the other hand a bigger space could generate more business?

Will your business be year round or seasonal?

How many hours do you expect / want to work?

Any business is hard work especially in the early days. Do you have the necessary experience for what you want to do? Many people open bars or restaurants, sometimes having no experience of the catering trade at all, only to find that they are out of their depth and close down within 6 months. Not the dream they thought it would be.

FINANCE.

Make a list of everything you will have to do and cost it.

Including selling up, moving out, setting up home and/or a business and providing working capital and living expenses.

How much set up capital can you reasonably afford bearing in mind premises are not cheap, some are for rent but most are leasehold (lease, ingoing fee plus monthly rent) or freehold(to buy).

What are the set up costs?

What other expenses are there?

Where will you live and how much will that cost?

Health services, what are your needs?

Will you still maintain a UK home or move everything to Spain?

Remember, financially you are on your own, what if the business fails or you decide Spain is not for you after all? Make provisions for all events. Then if all goes well, you have that “rainy day” money still behind you.

Always work on the worst case scenario for expenses then there are no surprises.

Most of all, don’t be daunted, everyone goes through periods of doubt and worry, just work through the processes slowly and decide after due consideration, what the best thing is for you. At the end of the day base your final decision on facts not wishful thinking.

Editor 16 July 2009