Once Europe's hottest second-home property market, the Costas have caught more than just a minor chill.
Corruption, bulldozing of illegally built homes and an oversupply of expensive properties have all conspired to create a crash, helped along by the credit crunch. Investors are staying away, and prices are dropping rapidly. Home sales fell by 27 per cent in January compared with the same period last year, Spain's National Statistical Institute (INE) announced last week. You would, on the face of it, have to mad to buy a second home in Spain right now.
Or would you? No downturn lasts forever. As prices fall, they must eventually level off. And then the worst time to buy suddenly becomes the very best time – the time when you can pick up a good home for tens if not hundreds of thousands of euros less than you could have a year ago, and still not lose any money on the home you've bought.
Of course, no one can be sure when that will happen. Prices could well fall further. But if you're interested in the idea of owning property in Spain, it may well pay to familiarise yourself with how asking prices have already been slashed.
According to Derek Blaney, of the independent agency Links Estates, buyers who until recently were deterred by the high costs are now taking advantage of falling prices. "All the reasons people love to own in Spain are still there," says Blaney. "It's two hours from the UK, the weather is great and it offers good beaches and all the amenities people like. But the market has changed and the people who will benefit most are those who want a holiday home, rather than a pure investment."
Many developers and bigger agencies are trying to sell off surplus newbuilds at the same prices they were charging before the market stalled. You'll find the more tempting deals via independent agents who are being approached all the time by individuals keen to sell as fast as possible, because they're having trouble servicing their mortgages – distress sales. And there are plenty now along the Spain's coastlines.
It's possible to find lovely villas and quality apartments in good locations that have dropped by as much as £20,000 to £80,000. Some high-end properties costing over £1m have lost £200,000 off their initial valuations in the past few months.
Sellers are also gravitating towards auction houses, where properties can achieve a fast sale at knock-down prices. Inez Rix of Direct Auctions says she has seen a huge increase in business from owners desperately trying to offload property. "Things are getting worse and people are dropping prices drastically where they can."
On Direct Auction's website, properties are being listed as much as 60 per cent below their original valuations. Banks have been incredibly slow to alter their valuation criteria and take account of the crash, but nonetheless, their figures show the kinds of reductions that are now available. A one two-bedroom apartment near Fuengirola, for example, was recently valued at £148,000 and has dropped to £84,000 – that's £64,000 less. Another two-bed property in the same location is listed at £44,000 less than its valuation. One lovely villa in Marbella valued on paper at £570,000 is now on the market at £492,000, a drop of nearly £80,000.
As property prices dip, Rix has seen an increase in the number of owners falling into negative equity, and the banks are sitting on a growing cache of repossessions. One would expect the institutions to sell them off at rock-bottom prices but this is not happening, because there is no precedent of mass repossessions in Spain.
"Many people realise they aren't going to sell their homes in a month of Sundays and are just walking away," says Rix. "The banks are being slow to sell properties to cover their costs but we expect more properties to come on to the market over the next two years." Which means anyone prepared to play a waiting game could bag a real bargain.
Most properties showing big reductions are new-builds, bought by investors hoping to sell before completion and in advance of the mortgage kicking in, a practice known as flipping. However, there are also rural properties and exclusive estates being sold at rock-bottom prices by owners who have simply been caught out by the upheaval.
Derek Blaney stopped selling off-plan several years ago when he saw the market becoming overheated and says more responsible agents are glad that the recent scandals and market forces have made the industry more transparent. "Things had to be cleaned up," he says. "Property was being seen as a sheer commodity, people were buying through greed and with no emotional attachment."
Who can blame buyers when they were being wooed with promises of huge returns that now seem impossible? With the credit crisis biting deep, there may be further room for prices in Spain to fall. For those who bought in Spain a year or two ago, none of this will come as any consolation. But for those looking to buy a place in the sun, it's worth following the selling prices of the nicer properties, and steering well clear of vast developments. At some stage, the outlook will change. It may not boom, but it must at some stage level off. And buyers who get the timing right could be on to a good deal indeed.
Links Property: 00 34 952 493 395, www.linksproperty.org; Direct Auctions: 00 34 952 859 913, www.direct-auctions.com
*Many agents and auction houses list the bank valuation, which may not be recent and might not reflect current prices. Do your research and visit several agents.
*When buying at auction you need to arrange any financing up front. If your bid is successful you'll need to sign a reservation contract and pay a deposit to secure the property. You then have six weeks to do all legal searches and surveys before completing.If the details are not satisfactory, you can pull out.
*For the best deals go to registered independent agents rather than developers. They will have a better selection of property from vendors who need to sell fast.