Campbell Ferguson (OP Columnist)
WHEN there’s more people looking for property, than there are properties available, prices must rise.
When the cost of building materials increases by about 10% per month, new build prices are bound to rise. (Build Costs are Going through the Roof – Survey Spain)
When inflation reaches 10%, and there’s a shortage of skilled labour, wages will increase, so new build prices will rise.
These three facts are elementary economics, especially when property takes so long to build and so turning on a ‘tap’ to increase supply just isn’t possible.
The first, which was becoming apparent later last year, saw promoters scrabbling for sites and contracting with builders for fast construction.
However, the second and third have put the brakes on many, as appraisals don’t make financial sense anymore. Builders can’t survive building at a loss and so raise their prices, and those are passed on to the buyer, either as higher prices or poorer quality and specification ‘product’. This, in turn, should increase the value of quality resale properties.
However, it’s a fickle market, with moneyed demand much stronger for modern cubist, glazed homes, than for traditional style Andalucian, pitched roof and modestly windowed houses. Survey Spain have experienced this in recent valuations, where the value of new has led to higher expectations of value of all, but when the asking prices are compared, many older properties have dropped in value since a few years ago.
It’s been found over the past few years that the prices achieved for many new properties are way above those of their traditional neighbour, with scarcity of good sites leading to traditional houses being bought to demolish or reduce to the structural shell, and a new ‘cube’ being created.
There is the thought that the Andalucian style evolved because it was best for the area, but fashion moves on and, hopefully, the build quality will not be found to be high maintenance when we carry out Building Condition Surveys/Home Inspections in the future.
Which leads me onto high energy and water costs, being reflected in the energy certificates. A new house should be designed and built to be Grade A in both electricity consumption and CO2 creation. Older properties will struggle to be over Grade E. The EU is demanding that all properties should have at least an F rating by 2030. With the utility costs increasing so strongly, a good CEE rating is starting to be reflected in the price. Perhaps that’s why so few owners and agents don’t supply the certificate until everyone arrives at the Notary to sign and pay. It’s not right, and against the regulation that demands that the CEE should be displayed on all marketing, and heavy fines of agents and owners who don’t comply. So, buyers, demand that certificate well before you make your final decision. And remember, “the sun is providing energy at the same price as last week”. Install solar water heating and photo-electric panels, all of which are money saving investments that last for years. Water Costs in Spain – Survey Spain, Solar panels provide long-term savings – Survey Spain, How your Electricity Bill is calculated Changes from 1st June 2021 – Survey Spain
And lastly for now, there’s Reference Values (RV). These are a ‘cunning plan’ by the Spanish tax man to try to get round the chronic tax evasion when a property is sold. Calculated from the Notarial records throughout the country, a Reference Value has been applied to every property in Spain. If the declared price in the sale is less than this, the tax will be payable on the Reference Value.
If the price is higher than the Reference Value, then the tax will be payable on the actual price declared. That seems a great idea, but in practice it’s severely flawed.
The Notary prices referred to may have been under declared, and that’s why our valuation record since mid-February 2022, shows the RV to average of 75.2% of the Asking Prices.
The lowest has been 34%, with the nearest to accurate being one at 104%.
The highest is a whopping 138% higher than the agreed sale price, so both buyer and seller are taxed much more than is appropriate.
If the Courts of Appeal agreed that having to pay Plus Valia on non-existent capital gains was wrong, it surely is exactly the same principle for excessive Reference Values. Perhaps this can be the next campaign by Olive Press.
Sierra Bermeja up in flames, so summer must have arrived. I think it’s going to be a long, hot one for the brave firefighters of Spain. Good luck to them all.
READ MORE:
- ANALYSIS: How inflation and raw material shortages are pushing up building costs on your property in Spain
- ANALYSIS: Why property in Spain is retaining its value
- IT’S JITTERY: Campbell Ferguson gathers evidence to forecast the market trends for 2020 in Spain and further afield
