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Shay O'Malley has made property investments in the city and its surroundings.
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“My job pays my bills, but properties have made me my money,” smiled real estate aficionada, Shay O’Malley. Having recently sold a few of her London apartments in order to invest in Barcelona, the Australian real-estate junkie confirmed what’s been buzzing around the city of late. Barcelona’s property hangover is slowly coming to an end.
It’s been a long and challenging time for Spanish real estate. With the onset of the economic crisis in 2008, the country’s property market took a tumultuous hit affecting millions in its wake.
“Spain’s real estate froze and crashed. There were almost no buyers,” recounted Yoram Meshulam, founder of Homesearch, one of Barcelona’s first English speaking real estate agencies. “The drop in prices was very fast. People were afraid—they didn’t know where the economy was headed. There was huge uncertainty, and that’s the worst case scenario in the real estate sector.”
Now, almost seven years later, the tide is turning and people’s faith in the market is slowly being renewed.
Over the past few years, O’Malley and her partner have invested in several properties, including a one-bedroom, 40m2 apartment in the Born (€130,000) which they rent out, and a 100m2 house in Viladrau, approximately an hour outside the city (€295,000). They’re currently in the process of closing a third deal on a 140m2 apartment in the Raval, which they plan on calling home (€380,000).
“I came here from London and noticed that the city centre properties were quite cheap in comparison. It was a really good opportunity to come in and buy,” said O’Malley. Decidedly more and more people are feeling the same way.
“The market at the moment is recovering,” said Alex Vaughan, founding partner of Lucas Fox (lucasfox.com), a real estate agency with a focus on high-end property. “There’s more confidence; transaction numbers are going up, and prices are levelling out. Now is definitely the time to buy.”
So, where to invest?
“Location, location, location,” stated Vaughan. “The key to a successful investment is knowing where to buy.”
Luckily, Barcelona is a city full of options in terms of viable locations. For those looking at a lower risk endeavour, it’s best to buy as centrally as possible. Since prices in Barcelona’s prime areas have already hit bottom and are slowly on the rise, there’s increasing demand for places between €100,000 and €200,000. Real estate in neighbourhoods such as the Eixample and Ciutat Vella are currently solid ventures.
People who want to invest for the longer term, however, should consider Sant Antoni and Poblenou, as well as parts of the Raval and Poble Sec. These are considered by some experts as 'secondary locations'—areas that are expected to increase in value in the future.
In addition to where a property is situated, there are plenty of other factors to consider when investing in real estate, particularly buyer’s intent. Is this a place to live in or to rent out? Is this a long-term deal, or do you want a quicker return on your investment?
“It’s so different buying a property for investment versus buying one you want to use for yourself,” explained O’Malley. “If you’re investing to let, you have to think about who’s going to be renting the flat and who your target audience is. If you’re looking for a return on investment, keep in mind that property normally doubles every 10 years. And if you’re planning on living in it for the next 15 years, you might get more emotional about it.” Yet, on the whole, O’Malley maintained that when it comes to property, it’s best to leave your emotions at the door.
In order to be smart, you have to do the numbers, figure out costs and, above all, do your research, especially in a city like Barcelona where pricing ‘transparency’ can often be fairly non-transparent.
Knowing when the price is right
Unlike many other cities, where you can easily find a general reference list for property prices, it’s not as easy to pin down in Barcelona. Sellers and agencies usually set the bar, which often leads to a property being valued differently depending on the platform. It’s not uncommon to find the same apartment on Fotocasa.es and Idealista.com (popular property websites) set at varying price points. If you don’t do your research, you could end up spending a lot more than necessary.
“There is no specific price per square metre,” said Meshulam. “Prices can change a lot from one area to another, especially within Ciutat Vella. In order to know that you’re getting good value for money, you have to know the city or use an independent real estate agency.” This is an agency that works on behalf of the buyer, not the owner, which is exactly what Homesearch specialises in. Meshulam emphasises that when someone’s working for you, everything runs a lot smoother as they have your interests at heart.
However, if you’re willing to go it alone, it sometimes helps to contact the seller directly.
Mónica Miró has been living in Barcelona her entire life and says that when possible, she tries to go directly through the owner. “I want to know who I’m buying from and if they’re hiding anything,” said Miró. Having grown up in the Eixample in a rented flat, she didn’t like the idea of paying rent her entire life, only to “end up with nothing”.
Sixteen years ago, right before prices skyrocketed, she bought a 75m2, four-bedroom apartment with a private terrace on the outskirts of town in Carmel for €75,000. At the height of the property bubble in 2006, her place was valued at €300,000. Today, Miró has had a hard time selling it for €140,000.
“As part of the hangover of the property crisis, there’s a lot of cheap property in secondary locations, and that stuff will recover more slowly,” said Vaughan.
Yet, Miró says she doesn’t regret her decision to buy out of the city centre, because at the time it was what she could afford. Her apartment is currently being rented out, which pays the mortgage on her new four-bedroom house in Horta-Guinardó, which she purchased in 2013. A particular steal, as she stuck to her guns and managed to bargain it down from €375,000 to €340,000.
Does negotiating work?
When it comes to the culture of bargaining in Barcelona the consensus is unanimous—Always negotiate; just make sure you know what you’re doing.
“The mentality here isn’t a Turkish bazaar,” laughed Meshulam. “If your plan is to come and buy 20 percent below the asking price, you’ll need a lot of patience and will have to see plenty of properties.” As Barcelona’s real estate landscape is on the mend with places selling more quickly, Meshulam recommends going for it as soon as you identify the opportunity. If you find a property you like, even if you’re paying five to ten percent more, jump on it, as there are a lot more buyers on the market now than there used to be.
In addition to coinciding with the official end of the crisis, this increase in demand is also due to banks lending much more actively than before. With low interest rates, the banks have become more competitive bringing hesitant potential buyers back into the game.
What about the mortgage?
It’s important to note that although banks are lending more enthusiastically than in previous years, they still err on the side of caution, and most will not lend more than 80 percent of the property value. Furthermore, this is based on the property value according to the bank’s own valuation, not of the actual agreed price, and erring on the side of caution, properties are currently being valued very conservatively.
“They’re quite selective about who they lend to,” said Vaughan. “Before, anyone could get a mortgage. Now they look at your balance to see if you can actually repay it.”
For those who are eligible, however, there are a few things to keep in mind when deciding on a mortgage.
- Read the fine print. Banks can offer amazing rates, but they come with conditions.
- Know what you’re entitled to, what you’re obliged to do and what’s optional.
- Shop around.
- Read everything properly and if there’s something you don’t understand then inquire.
- Ask a lot of questions and do it by email so there’s a written record.
- Get the conditions sent to you and read them before signing.
- Take advantage of the online trials with various banks to see if you’re eligible for a mortgage and how much you can realistically get.
Something else to consider when speaking to the bank is the possibility of buying a bank repossession. Due to the recession, a lot of properties were repossessed and are now being sold more cheaply and with special offers attached (lower mortgages, free mortgage for the first year, etc.). As well, an incredible plus of buying a bank property is that most of the time you don’t have to pay the Arras (10 percent initial deposit).
“Our Raval flat was a bank repossession,” explained O’Malley. “We only had to put €3,000 euros on it as opposed to around €40,000. This gave us time to sell our London property and not worry that we’d lose too much if we had to pull out.”
ADDED COSTS TO BE AWARE OF
- Purchase tax: 10 percent of the asking price
- Notary fee: €600-1200
- Registry office: €200-300
- Community fees: Will vary
- Bank fees for arranging the mortgage: Can vary up to €15,000
- IBI: Yearly property tax (depends on the property size and location. Look out for things such as a larger lawn, which translates into higher taxes)
- Unexpected costs: Electricity updates (especially if it doesn’t comply
- with current regulations)
What can be expected in the short to long term
As Barcelona’s real estate embarks on the road to recovery, pundits, connoisseurs and potential buyers alike are remaining cautiously optimistic. “What we’d like to see is a gradual, sustainable recovery rather than some crazy boom and bust happening again,” said Vaughan.
Even though local, as well as international, interest in the market is increasing, things are still slow going with a strong, yet very specific demand. Lower end properties are on the rise, so if someone purchased an apartment several years ago for approximately €70,000, that same apartment today could be sold for around €130,000.
“But if you try to sell something purchased at €300,000, you might not notice an increase in value,” explained Meshulam. Those properties are best to hang on to for a little while longer.
From a buyer’s perspective, as prices are gradually swelling, they’re still quite reasonable with plenty of variety, in both primary and secondary locations. It’s all about having the patience to look and knowing what’s right for you.
As O’Malley looks forward to finalising the deal on her Raval flat, she said as much as she tries to keep her emotions in check when making important property decisions, the most important thing is to trust your gut. “You know within the first 30 seconds of walking into a place if you like it,” she said.
Above all, when investing in real estate, it just has to feel right.
Steps To Buying Property in Barcelona:
Many people turn to real estate agents as a first step. If you do, keep the following in mind:
- Find one who’s acting in your interest as the buyer, not the seller
- Find out about the legal situation on the property at the Registro de la Propiedad
- Ask for the Nota Simple report or do it directly online using an ID number which needs to be given by the seller
- Make sure the owners selling are the real owners and are registered
- Check that there are no inheritance issues with the property
- Ensure that the property has the cedula de habitabilidad, which is an official certificate stating that that property is suitable for living (and not meant to be used as an office or for commercial use)
- Pay the deposit (arras): Once you’ve decided to buy the property, in order to secure the purchase you need to pay a 10 percent deposit to the seller, called the arras
- If getting a mortgage, make sure it’s approved. It’s important to check first with the bank to make sure you’re eligible for a mortgage before paying the arras or have a backup plan in case you can’t get the mortgage
- Pay in full and sign with a notary