The Unique Property
Buying property in Spain & Portugal
In my previous blog I said I'd devote time to discussing prices
of property in Spain. I'll add in Portugal as well, because both
countries are, except in one respect, similar.
There are basically three kinds of financial decisions you have
to make when seeking to move to another country. The first
concerns whether you are simply looking to move house, or
whether the purchase is part of an investment strategy, or maybe
a combination of both. It will also be important to spare a
thought for where your income derives. If in another financial
region, be extra careful because exchange rates do change.
The second depends on the answer to the first question. If this
is meant to be an investment, or part investment deal, do
remember that you are, as I said in an earlier blog, investing
in the country of choice, so to a certain extent this also
becomes a matter of investing in the country. You wouldn't have
wanted to invest in Greece just before that country's crash. You
would never have wanted to invest in Turkey.
With Turkish property on your hands you would probably have no
chance of selling now, and when (if) you did sell, the local
currency prices would represent a nasty dent in the family
If you buy into any country in the EU you are buying into the
success or failure of that enterprise, but you are also buying
into the economic future of the individual country. I did, in an
earlier blog, mention the disastrous way the Portuguese escudo
dropped in value over the course of about forty years.
I can't predict what is going to happen in Iberia over the
course of even the next decade, but it is worth looking at some
of the possibilities.
Let's start with problems which don't depend upon the idiocies
of politicians. The weather might be an excellent place to
start. Difficult to predict, and in the eighties it was clear
that central and southern Spain was in distress over a lack of
water. At the end of the nineties Southern Spain was literally
awash with water, but one thing I have noticed living in
Portugal is that this part of the world is getting drier. Is
this pattern going to continue, or not? If it does, then the
Algarve is going to be teetering on the edge of water starvation
very soon. There is a river at the bottom of my garden. I may
take a photo to show you what it looks like at the beginning of
february. It is what is called a Ribeira in Portuguese, which
means it is a seasonal river. The water usually flows from
november to June. Since the end of summer we've had half a dozen
light showers that freshened the flowers, but didn't sink in,
plus three days of reasonable rain. That's all. The only reason
the reservoirs aren't running on empty is because last year the
tourist season was a half-hearted affair. If things dont improve
drastically over the next three months we are going to be on
rationing. That will affect the tourist industry, agriculture,
and just about everything else. Water is a basic necessity.
Portugal does not plan for the future until it has become the
past. There are no contingency plans.
The long term forecasts for southern Europe, and especially
Portugal, are that the climate is going to get drier. OK, I
know, since when did anyone take weather forecasts seriously?
but I mention it for what it's worth.
Next, there is the problem of the economic success or failure of
a country's industry and exports. Portugal relies on tourism. So
does Spain. Both sectors have been decimated by badly
thought-out health restrictions. Spain is the worse affected.
Both countries are likely to recover, but how long before there
is another hit? I cant help you on that.
What about interest rates and inflation?
Interest rates are mainly affected by the ten year Treasury Bond
market. That should be rising to counter the inflation levels
that are pounding the US at the moment. The US Federal Reserve
(Fed) is loathe to countenance much of a rise because of the
threat of bankrupting the US government. The Fed is even
reluctant to stop bond purchases despite the fact that the stock
markets don't really need government support. The real issue is
not whether the Fed will raise interest rates sooner rather than
later, but whether inflation will cause so much damage that they
Inflation is apparently raging in Northern Europe, but it
certainly isn't apparent in Spain or Portugal. Whether that will
last is another matter, but there are no threatening inflation
clouds on the horizon here at the moment.
However, that does lead me to the problem of house prices.
In Spain house prices have crashed. In that sense maybe now
could be a good time to buy, but make sure you don't over-pay.
Don't listen to over-enthusiastic estate agents. Look at the
market. Look at the sheer volume of property for sale. Last time
I bought in a crash I was offered properties at £20,000. They
were already down 60%. I offered £8,000, and finally did a deal
at £10,000. I could have held to my original offer, but I knew
the prices would bounce back nicely without screwing the last
pennies from the sale. Property prices in tourist areas in Spain
could be in a similar situation at the moment. Don't chase
Portugal is in another category altogether. The prices here are
well above where they should be. If you are concerned about
price, don't give it another thought, Spain is much cheaper.
There's not much more I can say, but if you want me to dig
deeper into this subject just let me know, but do point me in
the direction you'd like me to help.
As I check over this article I am aware that the Bank of England
has decided to raise interest rates by 0.25%. The really
interesting fact is that the minority view (by only one vote)
was to raise rates by 0.5%. Rates are clearly headed up. That is
going to impact upon house prices. I can't see them rising from
here, and in Portugal I expect a reduction, but that will depend
on how many idiots keep buying at unsustainable levels.
The argument against what I have just said is that the European
Central Bank is looking to lower rates. But that would indicate
that the financial stability of the eurozone is seriously shaky.
At the moment (but of course this could change) is that the euro
is weakening against sterling. We also have the base EU economy
of Germany dipping into recession. In other words the EU
economies are in trouble yet again. So nothing new there.
Final comment: If you are thinking of moving south, your best
plan is to rent for six months and see which way the wind blows.