Spain's economy is growing at twice the rate of its European Union neighbours, its economic surge fuelled by low interest rates and unprecedented demand for property, official data showed.
The economy grew 0.9% in the first quarter of 2005 from the last three months of 2004, and was up 3.3% from the same period a year earlier, according to final calculations, the National Statistics Institute (INE) said.
"Very few (EU) countries have recorded similar growth rates," Labour Minister Jesus Caldera said, predicting that the figures would get even better in the second quarter.
In the fourth quarter of 2004, gross domestic product expanded at a 12-month rate of 3.2%.
First-quarter growth was driven by surging domestic demand, up 5.8% on a 12-month basis compared with 5.5% in the previous quarter, the INE said in a statement.
Growth in the eurozone, which groups 12 EU countries, was 1.4% in the first quarter of 2005 from a year before and 1.7% in the entire 25-nation EU, according to provisional estimates by Eurostat, the EU's statistics arm.
Analysts and international organisations agreed on the reasons for the Spanish surge.
The country benefitted much more than others from low eurozone interest rates, said Henrik Lumholdt, an analyst with Inversis Banco.
Mortgage lending rates currently range between 3.0 and 3.5% in Spain. At the end of the 1980s they stood at around 16%.
The rates drop combined with strong job creation - more than 500 000 in the last year alone - have led to unprecedented demand for property, with construction becoming the motor of economic growth in Spain.
This led Spain's economics ministry to recently revise its statistics for 2004, revising GDP growth up to 3.1% from 2.7%.
Sound budget policy also helped boost the economy's health.
Jose Luis Rodriguez Zapatero's socialist government said last Friday that he was expecting a public deficit of 0.2% of GDP in 2006, against 0.1% this year, a surplus of 0.3% in 2007 and another surplus of 0.4% in 2008.
In marked contrast, neighbouring Portugal plans to adopt austerity measures to control a public deficit which threatens to hit nearly seven percent of output in 2005, more than twice the limit allowed for nations that use Europe's single currency.
The Organisation for Economic Cooperation and Development in its latest survey noted the exceptional growth of the Spanish economy compared to its eurozone neighbours.
But it warned that Spain's relatively high inflation, which stands at 3.5%, the surge in property prices, one of the lowest productivity rates in the EU and unemployment which is still relatively high could combine to undermine growth.
What could be better than owning a property in the sun and making money from it all at the same time? If you like the sound of that, read on...
Spain is one of the top overseas destinations for British property investors: a study carried out by Savills Private Finance, the mortgage broker, showed that Spain is still a favourite for investors hoping to combine pleasure and profit. And the gains in Spain have been as well documented as our seemingly insatiable appetite for overseas property investment.
The Economist magazine reported recently that Spanish property prices had risen by three times the average for the Euro zone from 1995 to 2002, while an estimated 600,000 Britons have bought in Spain. One such investor is Jim Bromilow from Liverpool who took out a mortgage with Banco Halifax Hispania and bought a two-bedroom bungalow on the Costa Blanca 25 minutes from Alicante airport about a year ago. Initially, Bromilow says that his purchase was, ‘part investment, part foothold to retire to when the kids go off'.
But after only a year Bromilow is considering buying another property and letting his current property out. He says, ‘I want to hang onto this one as a commercial investment and buy a bigger one as a holiday home.'
Ease of access from the UK was an important factor in his decision. ‘I booked two flights from Liverpool to Murcia – it was £102 return for the pair – and it costs me £50 to fill up my car. You can't get to London from Liverpool for less than £100', he adds.
He is hoping that his letting venture will go well. ‘If I let it for 22 weeks of the year at £200 per week, that's my mortgage paid for the year.' He has worked out the venture all the way down to the day-to-day running. ‘I have a lady over there with an independent cleaning team who will look after general maintenance and security.'
However, no matter how substantial past price rises have been, future investors will need to be canny and buy wisely to make the most from their investments: some experts say that prices have now reached their peak and that the end is nigh for Spain's booming property market. But in its 2005 report The Royal Institution of Chartered Surveyors European housing review said that, despite predictions that the Spanish property boom was set to cool in 2004, prices were still rising by 17-per-cent annually in the third quarter of 2004. John Howell, an international lawyer, who advises clients on where and what kinds of property to invest in overseas, urges investors to be cautious. He warns that the get rich quick days of double-digit price rises are over. ‘You will no longer see 20-per-cent growth; 5 to 10 per-cent is more realistic', he says.
Howell feels that an important development will be the tax incentives of Self Invested Personal Pension Plans (SIPPs): ‘Anyone buying off plan in Spain can put their investment into SIPPS, so income and capital gains will be tax-free.'
Spain is still the most popular overseas holiday destination amongst the British – over 16 million visits were recorded in 2003. And as budget airlines open up more destinations, tourists are booking flights and accommodation independently – in the past six years the number of independent travellers has risen by 60-per-cent. This could be good news for landlords aiming at the holiday let market, but the competition is tough, so investors must think carefully about where and what to buy.
Howell advises investors to first think about what they want from their investment. ‘If you are buying for your own use, buy where you like. If you are buying for investment, that is different.' He feels that the best place to buy is on or near a golf course. ‘The Costa del Sol is THE place for golf – for the average golfer it is the Mecca. Many of potential tenants will be flying in for the weekend – so you need to be near the airport. Golfers are nutcases – they go for a five-day long weekend and they want to play nine rounds of golf, each on a different course. There are a good half a dozen courses on the airport side of Marbella – I think they have a head start over the competition.”'
However, buyers on the Costa del Sol will need deep pockets. ‘On the Costa del Sol you are looking at a minimum of £300,000 for something on a golf course – you can get away with £250,000 if on a complex,' Howell says. Alternatively the Costa Blanca is considerably cheaper and there are enough golf courses there to make it a viable golfing destination. ‘On the Costa Blanca you are looking at £150,000 to £175,000 for a property on a complex. The Costa Blanca will probably not be as strong as the Costa del Sol, but there are a couple of interesting golf course developments near Alicante. You are looking at 6 to 6.5 per-cent net [of running costs] for both the Costa Blanca and the Costa del Sol, but capital growth will be better on the Costa del Sol.'
Contact: JOHN HOWELL, www.europelaw.com, 020 7420 0400. John Howell runs seminars for overseas investment, see the web site for details; Banco Halifax Hispania, www.halifax.es
GROUND RULES
The first decision for anyone hoping to let their property, is whether do to it for longer periods or on a short-term basis. This will for many people be decided by how much they want to use their property themselves.
On the face of it, income for short holiday lets can appear very attractive, but be wary of calculating profit by simply multiplying those high weekly rates by number of weeks in a year. You will have periods when the property is empty, taxes will have to be paid, and running costs are high as the property must be prepared for each new arrival. Do your sums and be realistic about income from letting.
Long-term lets provide a regular source of income, but the weekly rate when compared to a short-term let, will be lower. And, of course, this option is not suitable for people who want to use their property themselves from time to time.
Be clear from the outset on your reason for buying: if you aren't relying on extra income to meet your monthly mortgage bill and you only want to let for the odd week here and there, you will probably want to concentrate on finding a property that meets your personal requirements. However if you are banking on regular income, you will need to buy with your tenants in mind. If you are aiming at tourists, think about access to airports, beaches, sports facilities and restaurants. If you want to let on a long-term basis, consider access to places of work: a shack in the mountains will not be attractive for a tenant who works in a city and takes their children to school.
Maintenance is a responsibility that comes with any property – a dripping tap is one thing, but a dripping tap hundreds of miles away is more time-consuming and complicated to fix. If you are short on time, consider employing a letting agent.
Do plenty of research before committing and ask agents and other landlords about demand and rental rates in your area.
The trend for Europeans buying a second home is growing, but it is probably not the time to buy as an investment, according to the European Housing Review.
The review, written for the Royal Institution of Chartered Surveyors by Professor Michael Ball, says many people across Europe are purchasing a second home either in their own country or abroad.
Typically, they are purchased for leisure purposes and may be rented out. But the investment aspect is a significant one as they tie up a significant amount of household assets.
The market in second homes has boomed in many European countries over the past five years, and the review warns that while an imminent crash is unlikely, the second homes market is at a greater risk of crash than the primary homes market.
Professor Ball comments: "Europe has had some of the liveliest second homes markets over the past five years, but if people are looking for a second home as an investment rather than a holiday home, it is probably too late to expect good returns as the market is currently at its peak."
Southern European countries, such as Greece, Italy, France and Spain, are the most popular countries for second homes both due to local and tourist demand. As much as ten to 15 per cent of the housing stock in these countries can be second homes.
And despite believing the market to be at its peak, Professor Ball believes lower living costs abroad and cheap flights make the trend for second homes only likely to continue to increase in the long-term.
Earlier this week a survey for Homebuyer events found that 72 per cent of the nation's youth are considering moving overseas, with one person in five saying that if they came into a large sum of money they would pack their bags.
And last month property investment specialist Assetz International tipped France as the next big thing for property investors.
Prices in the Cote d'Azur and Languedoc are reportedly rising between ten and 15 per cent per year, while Paris and the Alps are still enjoying a strong property market.
Prices of resale homes in Spain are rising faster than those for new-builds for the first time in a decade, as ex-pats go in search of the 'Real Spain' inland areas in preference to the booming coastal locations.
New home prices in Spain rose by 16.19% last year on average, according to the latest figures from the Spanish College of Registered Homeowners but used or second-hand homes increased by 17.35% while new houses or apartments went up by 14.5%.
Analysts said the increase in prices showed a cooling in the housing market, but it was still very healthy and they highlighted the last quarter of 2004 when prices rose by 3.5% on average.
Member banks of the Confederación de Española de Cajas de Ahorros (CECA) are forecasting equity growth of 12% for 2005 and 2006 and their UK property partners, online specialists, Property in Spain, claim this level "is good for the market as it keeps Spain competitive in the booming second homes market, now competing with Bulgaria, Coatia and other East European locations."
Added a spokesman for the firm: "We have a growing number of registered buyers seeking only 'real' Spain inland locations and we plan to offer a further 8,000 of these over the summer, mainly in the Costa Blanca, Costa Calida and Costa Almeria."
"However, a lot of British buyers are missing out on the best buys as the Spanish are getting their viewings and offers in before them - not always the case on the coasts where domestic buyers are often priced out."
The CECA banks, who between them hold 68% of all mortgages in Spain, confirmed that second-hand or used homes were the most popular section of the market, adding up to 57% of transactions.
HOLIDAY park operator John Morphet is hitting the international takeover trail again with an £8.6 million luxury Spanish development.
His Yealand Redmayne-based group has bought the 140 acre Marbella Gun and Country Club for £1.6 million.
More than 100 luxury pine lodges are to be built on the site with work, estimated to cost £7 million, starting in May.
"This is a very exciting development for our business," said Mr Morphet, managing director of South Lakeland Caravans.
"When we came across the Gun and Country Club we recognised that it had tremendous potential."
The move follows his US$100 million takeover of the Royal Westmoreland golf resort for the seriously wealthy on the west coast of Barbados.
Marbella has been bought by Mediterranean Leisure Estates, which Mr Morphet co-owns with South Lakeland chief executive Graham Hodgson and which handles the group's European operations. The Gun and Country Club is set in stunning countryside in the foothills of the Sierra de las Nievas. It boasts a range of sporting facilities including clay pigeon shooting, quad biking and archery.
The latest acquisition is however not the end of the story.
Mr Morphet and South Lakeland are also on the look out for other acquisitions to help meet growing demand.
Mr Morphet is one of the leading players in luxury holiday pa-rk sector of UK leisure market. Since 1988, he has built a £31 million annual turnover business with 14 pine lodge and caravan parks in Lake District, on Morecambe Bay and in North Wales.
