Egyptians are the biggest foreign investors in the Spanish property market. - Egypt Today
CAIRO – 21 June 2018: With growing interest in investing in European property market, and Spain, Greece and Portugal offering their Golden Visa schemes, Arab investors have been increasingly interested in diversifying their portfolios to European real estate markets; and Spain is a top contestant on that list.
The United States Commercial Real Estate Services (CBRE), for instance, predicts a positive momentum for real estate in Europe throughout 2018 and 2019 in their ‘Europe Real Estate Market Outlook 2018’ study. The positive predictions are coupled with rising prices in the US, making the whole continent an attractive investment option for Middle Eastern investors.
But aside from it being a financially-sound investing option, starting 2013, purchasing property in Spain worth €500,000 or more also guarantees investors a family residency to be renewed every two years. This residency means visa-free travelling within Schengen countries and after amendment in 2015, the right to work in Spain. Investors then have the choice of applying for citizenship, although that would mean that they would have to spend a minimum of 183 days a year within the country.
Property expert Amr Shamel, Head of Sales and Business Development in the Middle East at Lucas Fox Spain, speaks to Egypt Today about the dynamics of the Spanish market and the opportunities it presents.
Are you seeing a rise in Egyptians investing in Spain as an alternative to other Middle Eastern countries?
Since the Arab spring and the revolutions all over the Arab countries, Egyptians became more interested in investing in Spain. People loved the Dubai property market, but over the last two or three years, appreciation was not stable in Dubai, leaving investors frustrated, wary and looking for alternative markets. For example, Saudi Arabians are moving from Dubai to Spain. Egyptians though have always loved Spain.
Until about two years ago, Egyptians, compared with other Middle Eastern countries, were the leading buyers in the Spanish property market, however, we have seen other nationalities, especially Lebanese and Libyans, catching up. Currently, Egyptian buyers are leading, along with the Lebanese, followed by investors from Jordan, Saudi Arabia and other Middle Eastern countries
Have you seen a decline of interest from Egyptian investors post-floatation?
Perhaps Egyptians slowed down a bit when the floatation of the Egyptian pound happened, but they are coming [back] now. Egyptians are here and investing, and I expect that more will continue to invest in Spain; it is a blooming market. And when they buy, many rent and get foreign currency cash flow.
I do get some people sometimes who tell me that in the face of the currency devaluation, investing in Spain has become too expensive. However, some of these people also have property in the North Coast that maybe worth LE 15 or LE 20 million, meanwhile the North Coast is only open for one season, while Madrid, Barcelona and Valencia are active all year round.
What do you think are the main mistakes Middle Eastern buyers make when looking for a property?
Honestly, Middle Eastern buyers are some of the smartest foreign buyers all over the world. They love investing in property. They take a walk through a town and they can spot the prime locations right away. They are open for discussion too, you tell them the good locations—the prime locations—and they listen and can spot the patterns.
Generally speaking, perhaps the problem that some Middle Eastern investors fall into is not knowing the fiscal situation, like the specifics of taxes, running costs and so on: the post-buying costs, basically. Some have [previously] invested abroad and are surprised that the taxes are actually lower than in other countries in Europe, but some have only invested in their home countries and so they do not know. This is why I have to sit down and talk to them, once they know the law and the rules within Spain, there is no problem.
Touching on the post-buying expenses, can you tell us more about the taxes investors will need to pay when buying property in Spain?
There are three kinds of taxes that buyers need to be aware of when purchasing property in Spain. First, there is a transfer tax. When you buy a property you have to pay transfer tax, which is the tax of transferring from the old owner to the new one. You pay 10 percent [which is the same] as other European countries or slightly more in some places.
However, one should also be aware of the low running costs in Spain, compared with other European countries. Running costs in Spain are truly symbolic. However, if you buy in France or the UK, you can pay up to 1-2 percent of the price of the property in running costs annually.
Second, when you sell, you have to pay capital gain tax on what you gain. You pay 21-24 percent, however, if you do not gain, you do not pay. This is lower than Scandinavian countries, where one pays 40 percent, and France, where the tax bracket system means that one can pay up to 70 percent.
Third, there are yearly property taxes, but they are much lower than the rest of Europe. It is symbolic, minimal. Generally speaking, we do not have big taxes in real estate or stock market right now in Spain.
How has the Golden Visa Law affected the property market is Spain?
The Golden Visa Law—in Greece, Portugal and Spain—has had a very interesting effect on the market.
Since its establishment is Spain in October 2013, there have been some changes in the law, but it is now more flexible. In 2016, they [the government] modified the law, ensuring that if one buys property, the individual or partners, along with their immediate families, receive residencies that enable them to travel to all the Schengen countries without needing to get a visa, in addition to the fact that they can stay or live in Spain.
At the beginning, when the law was first passed, the economic situation in Spain was very bad. Any country in crisis—which Spain was in at the time—has high unemployment levels. Many Spanish people were suffering from high unemployment rates, so the law at the beginning did not allow people who hold the visa to work within the country. In 2015, when the economy started getting better and the unemployment went down, they began to offer golden visa holders working visas.
Generally speaking, the law has increased interest from foreign nationals, however, the market itself poses a great opportunity, and this is supported by the fact that some nationals who do not need this visa to come to Spain whenever they want still invest in the country. For example, UAE investors are still looking to invest in Spain and are increasingly doing so.
Who do you think will be the next wave of buyers in Spain?
Americans. A lot of Americans, Canadians and Israelis have started to buy now, and it seems that we will keep getting more and more because it is much cheaper than their countries and there is much room for appreciation, compared to their countries. Their countries have appreciated by 100-150 percent, and here there is still room for appreciation and everything is cheap. They are buying aggressively and they find the market very secure. They want to diversify their investment portfolio.
Middle Easter buyers too, the instability in the region has become a catalyst for investors to come here. Russians are coming back gradually. They had disappeared because of the sanctions on Russia, but they are now returning.
Locals are also buying more because the economic situation is better in Spain, their purchasing power is higher and the banks are offering locals loans.
With a sudden increase in demand due to a blooming market, are we looking at a housing bubble in Spain?
You have to know what caused the property crash in Spain first. In 2006 and 2007, investors started to speculate and buy a lot; they bought aggressively. They started to take financing up to 100 percent from the bank.
Banks now do not do this; they go up to 60 percent, and they are not as irrational as before and they lend people less. The economy is also more mature, and the market is more mature and healthier now. The prices are far away from the pre-crisis levels and so, I do not see a bubble in the mid or long-term. The supply now is very little too and the demand is much higher, so economically, this is better.
Where are the hotspots in Spain?
Valencia, Madrid and Barcelona are the top three hot locations now, in that order. Valencia is not focused on, however, it has the best-expected appreciation and plenty of opportunities between the three. They [Valencia, Madrid and Barcelona] are active all year long. They have school, universities, companies and so on; they are major cities. They do not work for part of the year only.
Barcelona was the leading market, but now, because of the political situation in Catalonia, Valencia and Madrid are better markets to invest in. Barcelona will keep appreciating, but its momentum is slower.
In Barcelona, the golden square in downtown is a great opportunity. It is basically eight or nine streets, in a great location, that is always busy, investors can buy and sell there very quickly; the location is very hot. There is a nice modern area on the beach called Diagonal Mar; it is the only modern area on the beach. It is a very hot spot right now; it was a very expensive area last year and now it is less so, and so now it’s a good time to invest before it gets expensive again. There is a lot of interest from the Middle East in this beach right now.
In the second-home market, Ibiza is really hot right now. After the crisis, the second home market was the first to take a hit; this is usually the case with second home markets, they always are the first to fall and last to recover.
Which cities are not on people’s radar but you believe have good potential?
Valencia, definitely. Although people do not buy as much in Valencia, I expect it will bloom by next year. The prices are half those in Barcelona but people, firms are starting to notice that it is very attractive. Not many in the Middle East buy in Valencia.
The biggest signs of appreciation right now that I see are in Valencia. It does not mean that Valencia will be the same price as Barcelona and Madrid. I see a great opportunity of no less than 50 percent in the next two or three years; this is a great appreciation rate. Madrid is expected to appreciate about 30-35 percent, while Barcelona is forecast at 25-30 percent.
If not Spain, then where?
I recommend Germany for conservative people or those with lower risk appetite. In Germany, Berlin is the best opportunity right now; it is blooming. For people with higher risk appetite: Greece or Portugal; this is risky though because their economy is not stable. Greece is still in trouble, more so than Portugal, but it has improved compared to four or five years ago. I expect that Greece will improve [further].
Many Egyptians are buying in Greece because of its proximity and they get the golden visa, but its hard to sell, one cannot be so confident that they will be able to sell quickly and for higher in Greece.
For those looking to retire, what are the major advantages of living in Spain in your opinion?
Quality of life and the standard of living are very high. People get more for their money than they get in the rest of Europe.
Why is now a good time to invest in Spain?
Currently, banks are offering lower-cost financing. Now is a good time to take mortgages in Spain; in the past, banks were not willing to offer mortgages or much finance to foreigners, however, this has changed now.
The property market is getting better now because the overall economy is getting better. In general, Spain is a lagging market. It started to recover in 2011-2012, meanwhile the more developed countries started to recover prior to that and so they are recovered now completely and their prices are higher, in some of them at least, than prior to the 2008-crisis, meaning that opportunities in their property market are now less and limited, unlike those in Spain.
The people now are more confident in Spain, the real estate markets prices are still far off from the pre-crisis level. There is decent upside room before worrying about a bubble. Spain offers a lot: There are many nice cities, good weather and the Golden Visa Law.
There is a lot of uncertainty, however, and volatility in the market; but the trend is going up. In two or three years, I see Spain, at least, reaching the pre-crisis level. It is just a matter of time and Spain will catch up with the rest of the European countries, especially in big cities.
Compared with the rest of Europe, Spain has a much better forecast appreciation rate.