eeling the pinch on your Bulgarian holiday home? You could soon be hounded by your overseas lender, writes Róisín Burke.
Property consultant Diarmuid Condon remember watching cheque- wielding buyers clamour around a stand promotion holiday homes in Bulgaria at an investment show back in 2003.
“It was the first time I ever saw Bulgaria promoted at a show”, he said. “ I couldn’t get near the stand so I went and sat in a coffee shop opposite and watched people sign cheques. Most of them would have had no idea where these properties were located.”
Granted it was a scene from the extreme end of the holiday property market and Condon admits there was more balance in most cases and money was made by many.
Banks played an enthusiastic part in facilitating some of the worst of the high- risk investing, offering high- gearing mortgage products. Kildare- based property lawyer Alvaro Blasco represents Irish clients investing in the Spanish market, which has headed sharply south.
“Before (the Spanish property crash) you could get 70 or 80% of a E250.000 mortgage, not just on the current value of the property but actually on its future performance value,” said Blasco. “This meant that it reality mortgage finance ended up as much as 95% of the purchase price.”
Blasco is a Spanish lawyer and a qualified solicitor with the Irish bar.
At one point, Blasco says, banks including Halifax were offering 15- year interest- free mortgages for holiday property investments. It was possible to get a mortgage within seven or eight days. “Now a client is happy to just get a mortgage,” said Blasco.
Halifax even has its English- speaking Banco Halifax Hispania, which aims its services at Irish and UK buyers of Spanish property and has English – speaking Spanish lawyers on staff.
There was an extremely attractive seamlessness to buying off the plans for investors in Spain during the boom, as property regulations there allow for buyers to simply take over a mortgage taken out by the developer, so that stamp duty and fees paperwork are avoided. “It was also possible for the buyer to then extend on these mortgages if they wished,” Blasco said.
He is also working with clients who have fallen behind in their payments and assisting them in negotiating a settlement with Spanish banks, which are chasing repayments from foreign customers to an unprecedented degree, having given massive amounts of money to Irish lenders.
Irish property investors could be into the Spanish market for as much as E600m at even a conservative estimate. There were 484 residential units bought by Irish property buyers in the first three months of 2009, according to the Spanish building ministry figures. If some 2.000 properties are bought by Irish buyers in Spain this year at the lowest ebb the market has ever seen, then the number of properties bought at its height could have been double or treble that annually during the 10- year- boom.
There is still a substantial amount of activity by Irish investors in the Spanish market, Blasco says, particularly those with the cash to pick up bargain properties that have plummeted in price.
“There are bargains if you have equity, but banks are being very tough about releasing funds,”, he said. The asking price is never the best price right now. “We can negotiate on behalf of the client to get the best price in this market.”
Spanish newspaper Expansion reported last week that there were E 1m empty newly built residential units on the market, almost 50% of which are in coastal resort areas in Valencia, Murcia and Andalucía.
The newer the holiday- home market, the shorter its boom life cycle seemed to be. Condon estimates that it was all over in Bulgaria in two short years. Hungary was about five. More mature markets, such as Spain’s and France’s, had a 10- year boom, although Condon says that the best of the value in the Spanish market was over as early as 2001. “Coastal Spain has not been doing well since about 2001 and was wiped out by 2005”, he said. “Bulgaria was a speculative bubble waiting to burst because they sold so much property stock.”
Much of the stock sold came with guaranteed leasing agreements for the first two years or so, but these emerged not to be worth the paper they were written on.
Those who flipped early and got out in Bulgaria may have made money, Condon says.
In the late 1990s undersupply drove prices in the Spanish market, but huge oversupply and diminishing quality became a feature as its collapse approached.
Estate agents’ commission rates of 10 to 15% were enjoyed up to 2007 but have been forced down to around 3% now in coastal holiday resort areas in both Spain and Portugal, according to Blasco. The commission would usually be passed on to the vendor.