Investment property in Spain: 20% Net Profit in 4 Years?
Posted by admin on July 3rd, 2009
This week, the IMF is counselling prudence and continued financial vigilance because it, unlike the Spanish PM, believes that the global economy is a long way from recovery.
Meanwhile, Mr Zapatero simply has to promote the notion that the worst of the credit crisis in Spain is over - because the government cannot commit to any further stimulus spending. Spain launched one of Europe’s biggest economic stimulus plans, and if that hasn’t already done the trick, there’s no more where that came from. Worse, Spain borrowed the money to fund these incentives, and that money will need to be repaid by the taxpayer in the form of increased taxation. Unfortunately, charging people more tax tends to also suppress economic growth.
For what it’s worth, I agree with most economic commentators who say that Spain will be one of the last European economies to recover. Taking that into account, and the improved buying power of Sterling, I believe that we will see a fresh wave of Brits with a renewed interest in Spanish property over the next couple of years.
While a weaker Euro certainly helps make Spanish property more affordable, don’t get too carried away just yet. There’s always time for you to make a considered and informed decision.
Recently, I read an article in the OPP about a company intending to invest €200M in distressed or non-performing real estate.
Although not speaking specifically about Spain, the company’s founder commented: “.. some local markets offer tremendous potential for opportunistic real-estate investing in a bottom-cycle timing within a medium-term investment time frame.” Huh? “bottom-cycle timing within a medium-term investment time frame.” All was made clear a little later: “These assets .. can be acquired cheaply, with a three to four-year holding period and targeted returns of more than 20%.”
Are you wondering if now is the right time for such an investment strategy in Spanish property? I would say, probably not. The simple reason is that it costs around 10% of the value of a property to acquire it, and another 10% to sell it in Spain - and that’s before taking 18% CGT in to account. To net a 20% profit on a property investment in Spain over four years, property values would need to increase by 10% each year - turning a €200,000 property into €290,000 four years later.
While that’s not impossible, it is extremely unlikely given that, right now, nobody is brave or foolish enough to predict that kind of growth in any European property market. No, your reasons for buying property in Spain need to be more about a lifestyle choice than a pure investment play - something I was reminded of when reviewing a new book by Nick Snelling.
Source: Martin Dell, Kyero.com
Tags: investment property in Spain, Spain economic crisis, spanish property crisis, Spanish property investments
