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The 2006/2007 Marbella Property Market Report
This article has been submitted by:
| This article has
been submitted by: Christopher Clover of Panorama Real Estate |
| PANORAMA, established
in Marbella since 1970, specializes in the sale of quality properties in the Marbella
area, both new and resale, including commercial and investment real estate. PANORAMA
is Marbella's longest established Real Estate Agency. | |
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a reputation equalled by few estate agencies for honest and straight-forward treatment
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and sales and after sales services; and full coverage of the residential, commercial
and investment property market, not only in newly built but with speciality also
in resales properties. Please
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Since 2004, the property market in Marbella and the Costa del Sol in general has entered a new era, with new trends emerging. The boom prevalent from the mid-nineties until 2004 has cooled off, and the market is returning to more normal and healthier conditions. The market remains, in general, solid, but with adjustments. In the higher priced and best-located properties, the market remains strong.
A little market history….
Following a deep market recession in the early nineties, recovery began in 1993 and 1994, led by purchases at rock bottom prices by savvy Spaniards from Madrid and the north of Spain. Around 1996, due in part to new infrastructure coupled with a public relations drive during the first term of then-mayor Jesús Gil and his now-disgraced team, Marbella reached a “critical mass” of residents, including a floating population which does not enter into the official census, of about 160,000 people. This generated enough business for restaurants and facilities of all types to remain operative 12 months a year, turning Marbella into the only resort city on the Mediterranean Coast with a 12-month season. Starting then, a veritable explosion of growth occurred, not only in Marbella but also along the entire Coast, real Boom Days with prices increasing annually anywhere from 15% to over 20%, year after year.
 This market comprised two basic types of purchasers. First, the pure speculators, who were buying properties “off plan”, paying from 20 to 30% of the price during the construction period, counting on selling these apartments before or near completion, and doubling or more their money invested due to the strong price increases coupled with the leverage of having only paid a small percentage of the price.
The second type of purchaser was the classic buyer who planned on using his property all or part of the year, or counted on a longer-term investment by renting the property out to third parties to produce a reasonable income from the investment.
Boom starts decelerating in 2004
Starting around 2004, the percentage of annual price increases started to decelerate quickly, reaching this past year around 11% in the Province of Málaga (Diario Málaga, 05/06/06) - a little less in Marbella - and the volume of sales began to decrease. This is not an abnormal event: property prices simply cannot withstand annual increases of 15 to 20% year after year, as they reach a limit where people simply cannot afford to buy.
Some of the less solvent buyers who purchased properties “off plan” were able to sell, but with much smaller profits than those anticipated. Others, who bought multiple units and could not sell them or, in some cases, could not even complete their purchase, have run into serious problems. End users and longer-term investors will gradually absorb these units within the next couple of years.
Less speculation and more personal use result in a more healthy market
So what has happened? The end user is the dominant player in the market today. The pure speculator for lower priced off-plan properties has all but disappeared.
The “in-and-out” speculator buyer in fact distorts the property market, and that the “off plan” purchaser is having far less influence on the market than in the past is a very healthy indicator of a return to more normal conditions than those of the last 7 or 8 years.
However, the speculator hasn’t totally left the scene. Instead, he is more cautious, looking for very well located developments with excellent amenities, right at the start of construction, when he can get the very best choice and price. Location, quality of design, quality of construction, facilities, security and timing are the key factors they look for.
A more sophisticated investor
 The sophisticated, very selective investor is also still present in the market place, purchasing the more expensive, best-located units in high-class developments, at price tags over €700,000 and up to even €2,000,000, for use or resale, often both together, enjoying the property for a few years and selling it on. There is also a definite tendency towards investment in Hotel Apartments, where a reasonable return can sometimes be achieved through leaseback or management contracts and, at the same time, the owner can enjoy his holidays with full hotel services.
Does there exist in Marbella the much feared “real estate bubble”?
In other cities in Spain, this can be true to some extent, if you look at the statistics: Spain broke its own historical building record in 2005 with over 800.000 new homes, 50% of which were built or sold on purely speculative criteria. (El Mundo, 13/06/2006).
But with respect to Marbella, and the Coast in general, there is a multi-source market, not only a local or a national market, with its roots throughout Europe and beyond, a market which is almost unique in the world. When the market of one country cools off, another steps up to take its place. The newest emerging market is that of the new EU member Baltic States.
Marbella itself is a beacon for the more wealthy citizens of Europe and beyond who desire the quality of climate, lifestyle and installations that only Marbella can provide.
Today there is more individual wealth in the world than at any time in history, and it is only normal that part of this wealth should end up in second or third homes in this special area. The potential for future growth in the Costa del Sol is very solid, and although there will be some variations in the market, as supply and demand are never in equilibrium, there is currently no crisis such as in the early nineties, nor is one expected. Just look at Florida or Southern California, which have been growing consistently for decades, as a result of people who want to move away from the cold winters in the north. The Costa del Sol is just the same, with Marbella as its quality capital, the only resort city on the Mediterranean Basin with a full 12-month season.
After the “boom” there remains a very stable and healthy demand for property in the Marbella area
 The market in general terms is consolidating and there is less volume of sales than in years past. A great part of this lesser volume is a result of less speculative activity as indicated above. Another reason, in Marbella, is that there is little zoned building land available for new construction due to the delay in the approval of the new General Plan.
The real estate agencies that have made fortunes in years past through exhibitions abroad and “inspection flights” are having a much tougher time today, and some of the smaller and even larger agencies have closed: this is a perfectly normal part of a market adjustment witnessed many times over the past 35 years.
In the last three years there has been a leveling of prices, an integral part of the consolidation of the market. Properties are taking a longer time to sell today than two or three years ago, as the market returns to normal from the “boom” years. However, prices for properties in the €800,000-€1,000,000 and over, have been maintaining their value extremely well, due to the factors already indicated, and continue increasing, albeit at normal levels, sometimes reaching record prices. There are sales every single day of properties priced at €2,000,000 up to over €5,000,000, a market which virtually was non-existent before 1996, as most of these luxurious properties have been built since then. Prices for properties under €750,000 have been weaker, although the market for resale or second-hand Marbella properties has been underpinned by the dearth of new products on the market in Marbella, which in turn has been a result of not having a new general plan, pending now for over nine years.
Corruption in the Town Hall
 The corruption which has been brought to light in Marbella thanks to Operación Malaya, which has been covered in the world press, is unique in its magnitude, stemming directly from the enormous demand for properties in this very special part of Spain and the consequent amount of property development from which this corruption was born and fed. Unfortunately, however, corruption linked with politics and city development it is not unique to Marbella, but rampant in many Town Halls across Spain, as observed in countless articles in the national press: In Valencia province, for example, 31,3% of citizens recently ranked corruption as their most serious problem. Part of this problem is the system for financing Town Halls, which derive between 40 and 60% of their income from different levels of urban development activities (La Gaceta de los Negocios, 24/05/06) a system devised by the political parties themselves, of course. Operación Malaya in Marbella has been a welcome “house cleaning” event, although easily a decade late, signaling what is unquestionably the beginning of the end to such abuses, not only in Marbella but also throughout the country.
With respect to owners as well as potential buyers of properties in the Marbella area, notwithstanding the negative press the city has received, it is still “business as usual”: the shadow cast over the integrity of the politicians has now been dispersed with the dissolution of the Town Hall and the installation of the “caretaker” government. There is a clear and well-defined path ahead for rectifying the abuses of the past, including the urban planning scenario, through the present government and the future elected leaders. And there is solid support and confidence to this end from our Community. For this reason the perspective for the future is bright.
What does the future of Marbella hold?
• Marbella itself, the lifestyle, the market, will evolve favourably. A new general plan should be approved within the next couple of years by the Regional Government, which will take into strong consideration the protection of the environment, as well as protection from overbuilding and overcrowding, and a variety of future infrastructure and service improvements. A new, clean municipal government will be elected in May 2007.
• The new territorial plan, the Plan de Ordenación Territorial or POT, will be approved in the immediate future and will ensure the coordination of the growth of the whole western Costa del Sol, with emphasis on environment and infrastructure, including the new Coastal Train. Additional important infrastructure works include the expansion of the Malaga Airport, a massive project to increase the airport’s capacity from around 12,000,000 passengers a year, to over 20,000,000 passengers a year, the new “AVE” or fast train service between Madrid and Malaga, which will connect the two cities in only two and a half hours travel time from early 2007, giving passengers a really viable and very rapid alternative to air travel, and the tunnel under San Pedro finally approved, which will eliminate this age old bottleneck on the Coastal Road.
• Sellers of properties will continue to be more realistic, and there will be less “overpricing” in terms of asking prices than in the past.
• Resale or second-hand properties will continue to dominate the market as less land is available for development, and as Marbella continues to consolidate into mature, fully-developed groups of residential homes and apartments. Prices of resale properties will be strongly supported by this lack of new products on the market.
• The trend of the younger generation of businesspeople to purchase homes here, as a base residence from which they conduct their business by Internet and e-mail, will strengthen.
• The trend just now emerging of an influx of new millionaires from the new EU member Baltic States, looking for the lifestyle provided by a holiday home in Marbella, will grow.
• The trend towards more “intelligent” properties, with high technology and security, and special features and services, will continue unabated. The old model of property developing - “build them cheap, sell them and run to the next project” - is virtually dead. The model of the caring developer, giving great value, installations and services, is the model of the future.
• Marbella will continue to attract purchasers for quality properties, who want to enjoy the marvelous lifestyle available in this special multi-cultural community, and the property market will continue to be strong, especially with the more expensive properties, though not “heated up” as it was in the years prior to 2004.
© Copyright Panorama Properties, S.L., 2006
Christopher Clover is graduate cum laude in Economics of the University of Virginia (1969); a permanent resident of Marbella since 1973; and the founder, owner and Managing Director of Marbella's longest established Real Estate Agency, PANORAMA, with offices opposite the HOTEL MARBELLA CLUB, in the HOTEL PUENTE ROMANO and in the HOTEL NH ALANDA.
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