Property investor

Many Irish investors have been badly burnt by the crash in Spain, writes JACK FAGAN.

THE END of Spain’s property boom has left many in trouble. With agents desperate to shift apartments after hefty reductions, Irish buyers have finally backed out of the costas because of fears that any investments at this stage will fade faster than their tan.

Unfortunately, the warning is too late for many Irish who bought properties with a “guaranteed” rental return no longer being honoured. Others who bought off-plan are losing property and money as developers go bust while more are under pressure to complete the purchase of new apartments with serious negative equity.

Dublin solicitor Tom McGrath, a Spanish property market specialist, says thousands of Irish with holiday homes and investments in Spain have run into difficulties since the collapse of the market. The Irish have been big players in the Spanish scene over the past decade, buying some 15 to 25 per cent of all holiday homes or investment properties completed on the Costa del Sol or the Costa Blanca, says McGrath.

The market has been struck by the credit crunch and an oversupply of new homes. Prices have fallen continuously since this time last year as credit has dried up and distressed sellers fail to keep up mortgage repayments. Prices have fallen faster and more steeply than in the last Spanish housing crash of 1990-1994. The substantial discounts being offered comes as sellers face the reality of mounting debts and the inevitability of repossession.

McGrath says he has heard of holiday homes on the two costas, originally sold at €350,000, now available at €100,000 and €120,000. While this is a disaster for some, it is an opportunity for cash-rich investors.

Some estimates suggest that up to half a million homes are likely to be repossessed in Spain this year, a good proportion of them holiday homes and investment properties.

McGrath has been helping many Irish clients with legal and financial problems as a result of the crash. Some who paid large deposits cannot get possession of their property either because the builder has gone bust or the bank has moved in and taken control of the site. Their only option is to join the queue of creditors.

McGrath also advised a group of 400 Irish investors who bought an apartment block on the Costa del Sol after securing rental guarantees from the builder for a number of years. When the builder defaulted, the bank turned its attention to the investors who secured mortgages on the strength of the rental guarantee. McGrath informed them that irrespective of the rental guarantee, they were individually responsible for the bank mortgages and they had no option but to pay up.

McGrath says that in other years a bank was often happy to take possession of properties as they were able to sell them on at a higher price. “They don’t want to take them back any more but, if they have to go for repossession, they will attempt to sell them on. If there is a shortfall in the selling price then the bank will go after the borrower for the balance.”

McGrath says he is amazed that people buying in Spain do something they would never dream of doing in Ireland. “In one instance, a client paid over a huge amount of money to a builder without even getting a receipt, on a whim that they were going to make a lot of money on the deal.”

In another instance, the owner of a holiday home was surprised not to have heard from his Spanish bank after failing to pay the mortgage for six months. Unknown to him, the bank had already served notice on the Spanish property and taken possession of it.

McGrath says that quite a few Irish buyers have fallen behind with their mortgage repayments after failing to rent their properties. “If the properties are on a golf course or near a beach or an airport they can be easily let but if they are up a mountain it can be much more difficult.”

McGrath says the Spanish market will bounce back but not for another two to five years. Meantime one agent, Geimsa, is offering a free divorce lawyer to couples who buy one of their three-bed houses for €68,000. Geimsa hopes to capitalise on the number of couples delaying divorce proceedings because they cannot afford to set up new homes in the current climate. Now there’s a bright idea for Ken MacDonald.