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‘The property market has gone mad’: Valencia real estate expert

A cocktail of economic volatility, low mortgage rates and 'you only live once' spirit is making the Valencia region's property market more interesting than ever, writes real estate expert Graham Hunt of Valencia Property.

'The property market has gone mad': Valencia real estate expert
A balcony view of Valencia. Photo: Fernand Rivero/Pexels

I wrote something on Facebook last night about what is happening in the Valencia Property market and I promised to expand on why I think this is happening.

Let’s get the caveats out of the way. We are sure to be called liars and typical agents talking up the market and stuff but, as Rafa Benitez once said, here are some facts:

Today we tried to arrange some visits for a client for Friday. Out of the ten properties we wanted to see five have sold in the last week. All have deposits left on them and mostly at asking price!

Last week we took a client to see some properties in Pobla de Farnals. They wanted a second visit and over half the properties had sold in three days since our first visit and all with deposits left.

One of our clients was gazumped this week by a full price, no mortgage needed offer from another agent’s client. In twenty years of doing this work we have previously only ever seen three gazumpings, two have been in the past year.

We have nine sales in the process of completion at the moment including our highest Valencia City sale price ever.

We are in the process of making a couple of totally remote sales without any visit or the clients having ever been in Valencia.

A bank put a property near to the Torres Quart in Valencia on Idealista, the largest Spanish property portal, on Tuesday night. They had ten full price offers on the property within 24 hours and the property was taken down.

How do we know this? We called them at midday on Wednesday to ask for a virtual viewing for one of our clients who was willing to make a full price offer if the property was suitable in the video and they told us not to bother because of what had happened.

This is all happening without people being able to travel and visit properties. This is local demand.

What does this mean and why?

Firstly, you can surmise that the market is hot right now and when you come here when borders open and you expect big discounts due to the pandemic, it isn’t going to happen. There are plenty of buyers and the sellers are willing to wait it out. Don’t tell us that factors influencing price rises elsewhere are the complete opposite here as mentioned in the last post on site here.

And you need to be able to move quickly.

The best stuff sells fast. Once foreign buyers are easily able to get here the market is going to go even more completely mental. People have realized you only live once and they want that Place in the Sun now. Contact us of course but make sure to read the essentials here first https://valencia-property.com/new/essential-reading/

Meanwhile let’s look at what are the reasons we think are behind this situation:

Covid-19

We spoke late last year on these pages about the continuing resilience of the market due to the desire for larger spaces, outside space etc… See our article here. What we perhaps didn’t realise even then was the permanent mindset change that the Pandemic seems to have made to people in Spain. I say permanent mindset change but it has been a year now since lockdown started and we may find that the mindset change is diluted with time if things get back to what we previously considered normality during this year.

However, Covid19 has changed the way Spanish people look at their home. Previously the home was just somewhere they slept and made breakfast. It has often been said that the Spanish live in the streets, they meet up with friends at cafes and bars, they are outdoor sports lovers, they go away to their villages for the weekend. Their house was just a base for their lifestyle. It didn’t matter to them if the apartment was relatively dark and interior or overshadowed if it was in the right location for them because they were hardly ever home and at night the blinds would be lowered and it would be completely dark anyway.

Now people work from home more readily and they have discovered in many cases that they like it, avoiding commutes, not being judged all day by overbearing supervisors and having more time to themselves as a result.

What they don’t like is that much of this was done in properties that didn’t suit this type of lifestyle. Trying to work from home while children studied at home was a strain. More space was needed and as a result they determined that a larger property with extra rooms and outside space when required to get some exercise or just fresh air was attractive. We have talked about the flight from interior city apartments to places with terraces or the towns surrounding Valencia in other posts and this tendency continues even as restrictions on movement ease.

The Desire To Buy

There is a big recession coming in the whole world because of the pandemic of that there can be little doubt. This has meant that there is a desire to buy now before banks make lending criteria stricter, before inflation (See below) eats into savings and before the best deals are gone.

It seems craven to say it but the recession and the job losses do not affect the vast majority of people who were thinking of buying property before the Pandemic. They are those people in safe, or safer at least, jobs, guaranteed until they retire (Think civil servants), people whose work can be done from home and is not public facing and who see the situation and current mortgage availability (See below again) as an opportunity to get a bigger and better place to live.

The majority of the younger generation in Spain struggled to get onto the housing market ladder prior to Covid19 due to the precarious nature of their employment, the gig economy and wage rates. The bank of mum and dad have seen an opportunity to help their children move out of the family home because 24 hours sat in each other’s presence all day every day meant that however much the mum of the family wanted the family close it maybe became too close! (The average age of leaving home was 32-34 before the Pandemic and this age may well get higher now due to the pandemic).

Sunset over Alicante. Photo: Artem Sapegin/Unsplash

Interest Rates and Inflation

The bank of mum and dad have decided that when interest rates are around 1% on mortgages and the banks are willing to give a fixed rate mortgage for 20 years and even in some cases make the first five years of that interest only it is much easier and cheaper to buy a property for their child with an 80% mortgage than to help them with the money to rent a property (rental prices are also resilient, especially for better properties in more desirable areas.)

As long as bank mortgage availability continues to flow at cheap prices then the Spanish Bank of Mum and Dad see property as a hedge against inflation in the property market which is driven by inflation in the general market which will inevitably happen because of all of the money printing going on by the ECB, Bank of England in the UK and the Fed in the States.

How do they get the 20% downpayment and the costs of purchase? Oftentimes they will mortgage their current property by extending the amount they owe, usually also at 1-2% fixed rate, to make the downpayment.

Inflation will rise considerably in the next few years and assets that rise with inflation traditionally like housing are seen by the Spanish as a safer haven than leaving the money in the bank, where they get little to no interest meaning that inflation eats away at their savings, investing in bonds, where the yields are lower or negative against inflation, or going into new investment vehicles such as Cryptocurrencies which they don’t understand and they view as too volatile.

Buying a property for their children or one to rent out and get a return which can be anything from 3%-8% typically and where you can guarantee rental payments through an insurance contract for very little money is a bit of a no-brainer as long as they can raise the money for the deposit.

YOLO

Like every other country the Spanish have been restricted in what they can do on a day to day basis for a whole year now. They are straining at the leash to be given back the freedom that they took for granted prior to the Pandemic hitting. Everything they put off and then suddenly were stopped from doing is in play now when things open up again.

This “You Only Live Once” idea has always been a factor in the low savings rates of the Spanish compared with other nationalities. In the last year though those who have not been affected too much by the Pandemic, those who have kept their job, have been saving as they had nothing to spend their money on. They were even offered mortgage holidays by their banks on the properties they already have which many people were forced to put into savings because there was nothing to spend it on! This has meant that suddenly a lot more people have been able to raise the cash for buying property.

The Spanish collectively seem to have decided, now is the time because tomorrow may never come!

The Internet

The Pandemic has dragged people, and more importantly companies and administrations, kicking and screaming into the 21st Century. So much of what was taken for granted that required in person visits, interminable meetings and a physical presence has been turned on its head that Spain has accelerated a whole decade in a year.

Online commerce has moved forward massively and the Amazon delivery van is taking over the roads and the World it seems. Cardboard recycling bins are constantly filled with large Amazon smiley face packaging. Spanish businesses have suddenly developed e-commerce arms and made it easy to order online and have that order delivered quickly and efficiently.

Also the fact that most towns and villages now have cable internet with really rapid upload and download speeds means that houses that were previously not options for people needing to work from home are now perfectly acceptable. It is one of the first things we check for many of our international clients, what internet speed is available in the area for their work!

Villamartin plaza golf, Orihuela, Spain. Photo: Ralph (Ravi) Kayden/Unsplash

Value For Money

Spain is still considered value for money compared with many other places, and within Spain, Valencia is considered very good value for money for a big city compared with the only two larger cities in Spain, Madrid and Barcelona. There is also less traffic, less pollution, better communications and fewer tourists (Especially at the moment). A similar property in Valencia compared to Madrid or Barcelona might be between 30-60% cheaper per square metre.

Of course Valencia has it’s own more expensive and cheaper areas but on average you get a lot more for your money in Valencia than in other well known places in Spain. The property in the image below is priced at 420k Euros which compares nicely with a one bedroom apartment in Hackney for slightly more. And I know where I would choose to live if I could work from anywhere. (Clue: It’s not Hackney)

Lifestyle

Lifestyle in Spain has changed markedly due to the pandemic but the Spanish are expecting to be able to meet up with friends again, go away constantly, sit on terraces while supping on cheap beer and wine very soon. The speed of vaccination is increasing rapidly and the Spanish regional governments seem to be concentrating on vaccinating the vulnerable first; older people, health workers, teachers, front line workers etc…

Once the Spanish lifestyle returns, assuming it does, then we expect another push in the numbers of people wanting to live in Spain because as mentioned earlier, you only live once and Spain is generally considered to be one of the better places to live and Valencia considered to be number one in the World.

The usual question applies therefore, when will YOU be joining us here? Let us know and contact us with your requirements and expected arrival. We are expecting a busy summer!

Graham Hunt is a real estate expert with years of experience in the Valencia property market. You can read more of his articles on his website Valencia Property.

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PROPERTY

How to contest the cadastral value of your Spanish property

The cadastral value and cadastral reference of a property in Spain affect various factors including how much yearly property tax and inheritance tax you'll pay. Here's how to change the valuation Spanish authorities give your home.

How to contest the cadastral value of your Spanish property

When it comes to taxes, everyone wants to know if there are ways to pay less. While it’s not always possible, there are certain factors that affect particularly taxes associated with your Spanish property – namely the cadastral value and the cadastral reference. But, can they be changed or rectified?

What is the cadastral value?

The cadastral value is applied to all properties in Spain. It’s the value applied to your property by the Ministry of Finance or Hacienda and serves as a tax base to determine how much IBI tax or Impuesto sobre Bienes Inmuebles you pay for example. This is a yearly tax for all those who own property in Spain.

READ ALSO: What is Spain’s IBI tax and how do I pay it?

The value will depend on the size of your property, the condition it’s in, the year it was built and the cost of construction, among other factors.

It differs from the cadastral reference, which is an estimate of the market value of a property and is used as a reference for the real estate market. It is also used as a tax base for inheritance and property transfer tax.  

How is it determined?

At the beginning of each year, the cadastral value of homes is reviewed, and as a result, it can increase or decrease. This is why your IBI bill can increase or decrease too. As a general rule, the cadastral value is usually much lower than the market price, but this is not always the case.

How do I find out the cadastral value? 

To know the cadastral value of a property, you must first know the cadastral reference. Then you can find the value in the corresponding public records online. You can find this reference on your IBI bills, as well as on your property deeds.

Once you have this you can go to the electronic headquarters of the Cadastre, and click on ‘reference value’. There you will find all the information about the cadastral reference and the corresponding cadastral value.

Even if you’re not the owner of a property, but want to find out the cadastral value of a property you’re considering buying, you can find it out here.

Can I change the cadastral value of my home?

Yes, it is in fact possible to change the value. If you believe that the cadastral value of your property is too high with respect to the market price of your home, you can request that it be reduced.

You may want to do this in order to lower your IBI bill or if you want to sell your property at a lower price than the market value.

How do I lower the value?

If you believe that you have a case for changing it, you can make a claim to the General Directorate of Cadastre, overseen by the Ministry of Finance. There are two different claims you can make:

  • The procedure for correcting discrepancies
  • The procedure for rectification of material and arithmetic errors.

Procedure for correcting discrepancies

This option is typically used when there is a large difference between the market price and the cadastral value of a property, as well as when there are errors or false data about the characteristics of your home.

To do this, you must go to the Cadastre office in your municipality or apply online at the Cadastre Electronic Headquarters.

Procedure for rectification of material and arithmetic errors

The second option is used when there are errors or incorrect urban planning information, which affects your home. Again you can do this in person or online. In this case, it will have a retroactive effect. If you have paid too much IBI in the past, then it should be returned to you if the application goes in your favour.

Can I change the cadastral reference of my home?

If the reference value of your home is higher than the market value, then you may be wondering if you can change the reference in order to lower your tax base.

Unfortunately, you cannot request changing this in the same way as you can with the cadastral value. But, the good news is that there is a way to challenge it indirectly.

To do this you will need to request an appraisal from a company approved by the Bank of Spain. If the result of this turns out to be lower than the reference, you can try to rectify your self-assessment tax return, providing the appraisal as evidence that you should be on a lower tax base. As mentioned above, this will only affect certain taxes like inheritance or property transfer. 

In order to approve this, the tax office will need a report from the General Directorate of the Cadastre who may be able to rectify the reference and provide a report to settle the matter.

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