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Holiday Homes - Part 1

This is the first part of a three-part talk about holiday homes.

I have made several references to the habit of buying holiday homes over the past couple of years. I think the whole concept of owning such a property is deeply flawed. Let me revisit the idea, and discuss alternatives.

First, I will repeat the reasons I think the holiday home idea was a great scheme back in the seventies, but that it is yesterday's great idea. The world has changed.

Secondly, I will go into the whole process of funding your holiday by other means. And I will also mention the whole business of owning things.

Okay, let's get started.

Once upon a time it was fashionable to own a place in the sun. You could not only spend a few weeks there, and enjoy yourself, and think how lucky and privileged you were, but you would have the satisfaction of knowing that you could rent it out for at least half the year to less privileged souls who didn't own a pad of their own, and that rental income would pay the mortgage. Twenty years down the line the place would be paid for by all those tourist chappies, and you would have a nice little retirement home paid for by other people.

That idea worked well in the sixties and seventies. Then in the eighties every Tom Dick and Harriet got into the game, and the rental returns started to look a little shaky. However, the average investor likes to follow a trend, and when the property market started to recover towards the end of the nineties, everyone who had a spare ten quid went out and bought an apartment on the Spanish Costas, in the Algarve, in the Caribbean, and just about everywhere else.

Ninety percent of these places were bought on highly leveraged mortgages. The result is that now, fifteen years later, every holiday resort on the planet is littered with empty apartments, and abandoned cranes and cement mixers.

I have put up pictures of empty apartments, empty villages, empty beaches, even whole empty towns. But there is this lingering belief that buying a pad in the south is a great idea.

I'll say it again, but I've said it several dozen times over the past decade, behind my house are two villages. One is completely empty. There are about 200 town houses. Not a soul inhabits the area. The other village has one permanent inhabitant, and maybe a dozen folk who come down for the odd couple of weeks in the summer.

As I drive over the river and into Spain, to my left is the town of Esuri. It is vast, and goes on for miles and miles. I dont know how many houses and flats there are in the place, thousands and thousands. There are probably a couple of dozen permanent residents in the whole town, and maybe a hundred or so visitors at easter. That site is not particularly unusual. I can drive from Ayamonte on the Portuguese border right the way round to Rosas on the French border, and pass a million or two empty apartments.

Those apartments represent a massive investment fuck-up. They represent wasted money, and a commitment to a crucifying mortgage.

How many times have you seen the ad? Only £5,000 deposit and no more to pay! Big deal. No more to pay? Big joke. You just pay that £5,000, but then you have a twenty year mortgage to pay, or a default somewhere along the line.

The big question is: Are you getting your moneysworth?

The latest batch of buyers went into the market on the basis that they'd buy now, and sell later when the prices went up. Only the prices didn't go up, and there were no buyers left.

That's where we are now. The market is saturated to such an extent that it will take maybe twenty years to get rid of the backlog, maybe longer.

Those of you who have been following my writings for some time may remember that I started warning my readers to stop buying in Spain and the Algarve back in 2005. Those who didn't listen will now be sitting on some serious losses.

Three bed apartments were selling on the coasts at insane prices. You could buy a three bed terraced house in the Algarve for £600,000. And if you subscribed to the long since bust Hot Property Alert you would have been told by Peter Parfait what great value that was. Heck, it was three times the price of a similar property in London!!! Nowadays you cant sell those properties for even the London price. And what must the mortgage payments be? If you bought with cash, you've just lost half a million.

I follow prices very carefully. I am on record as saying (four years ago) that the price of the average 2/3 bed apartment along the costas will come down to €60,000. A particularly nice apartment in a good area will always get more (say a 50% uplift).

Three years ago those prices were hovering around €150,000. That's less than half what they were selling for at the peak. However, even now, that's way too expensive. The agents were saying "buy now while prices are low". And why not? An agent has to live and he wont make a living if he doesn't sell something.

However, the following year those prices were down to €130,000. The year after that they were about €115,000. Last year they were around €90,000, and they can now be bought for about €80,000. And there are still few, if any, takers, so prices will naturally go right down to the real value, which is around €60,000.

Point one therefore has to be, that until prices reach bottom, dont buy. Not only that, prices overshot too high, they will probably overshoot too low. You will be able to buy a pleasant enough average apartment for €50,000 sometime in the near future. You'll be able to get a really nice place for €80,000. Pay more and you're a mug.

Okay, that's part one of today's sermon. I'll wade into part 2 next week. See you then.


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