Investing in housing, "a good idea?

Investing in housing, "a good idea?  Experts estimate that investment in housing has ceased to be the most cost-effective alternative that can access the Spanish savers

Investing in housing is no longer as simple as it was apparently a few years ago. Increases above 15% who experienced the prices of the apartments have gone down in history and, indeed, in some Spanish provinces, prices have declined. Now, finding properties with which to get stronger and faster revaluation is much more difficult. To sell an apartment it takes an average of eight months. If this time is accompanied by substantial notary fees, registration and taxes, it follows that investing now in housing, with few exceptions, has ceased to be an easy task and very profitable.

Declining price

Housing prices in Spain new build an appreciation of 130% since 1996. However, many institutions are already beginning to warn of an over concern. The Organisation for Economic Cooperation and Development (OECD) estimate that prices do not reflect the true value of property, but are clearly 'swollen'. In fact, in the last year has already begun to be felt the slowdown. Overall in 2006, new housing prices in Spain rose by 9.1%, which contrasts with increases of 12.7% in 2005 from 17.2% in 2004 and from 18.5% in 2003 , according to the Ministry of Housing. In particular, the price of private housing in Spain rose 9.1% in 2006, representing a slowdown of 3.7 points over the previous year and the lowest growth rate since 2000. Regarding the third quarter of 2006, rising house prices fell by seven tenths, confirming the trend of market slowdown. Thus, the average price of private housing in Spain was at the end of the year at 1990.5 euros per square meter.

Gonzalo Bernardos, professor of economics at the University of Barcelona, believes that the oversupply in many cases justifies the slowdown already is evident in the housing market in Spain. "Now it's very common to find buildings completed and empty," he adds.

With this situation, recourse to the housing market as a form of investment is a much more difficult. Today, experts say there are fewer areas where they expect strong revaluations. Still, still exist. José Luis Estevas Guilmain, Evaluation Society president, believes that will continue appreciating the "central story of the great capitals of province." "The flats located in the center of big cities never lower the price," he says. In terms of regions, values that still have attractive areas with cultural attractions and provinces that will benefit from major infrastructure developments.

Potential provinces

To find potential story we must turn to cities that will improve substantially their communications in the coming years. In this sense, many experts who are committed to Valladolid, Toledo, Zaragoza and Valencia, among others.

The unprecedented growth that is suffering from Valladolid, with the development of new infrastructure, leisure, residential and cultural spaces, making this province one of the regions with more potential. Esteve-Guilmain estimated that prices will rise above the average in this area in the coming years.

In addition, Zaragoza, with the upcoming Expo 2008 and Valencia in the Copa America, are other areas continue to experience price jerks. Fernando Encinar says from, one of the leading web portals in Spain, which more than cultural issues, is the development of infrastructure and services which increases the price of housing in these areas.

Galicia also like many experts, in this case, because it is one of the regions where prices have risen less in recent years. Lugo and Orense, for example, are the provinces with more moderate prices in Spain. There the price per square meter stands at 1,130 and 1,360 euros respectively.

Where prices are cool?

In 2006 prices began to cool, especially in Madrid and Navarra. In these areas the private housing prices rose by 6.1 and 6.4%, while growth in 2005 was around 10%.

Josep Lluis Ferrer, Forcadel sales manager, is betting that the restraint continues to affect large provincial capitals, especially the most expensive. In this regard we must talk about San Sebastian, Madrid and Barcelona are the most expensive capital cities in Spain. In them, the prices per square meter stand at 4,170, 3,728 and 3,680 euros, in each case. It also highlights the increase in Getxo, Vizcaya, where the square meter to 3,863 euros is paid, on average.

Where do prices fall?

Given the excessive price increases that has experienced the housing market in recent years, there are some provinces where the price has begun to fall. In particular, La Rioja and Cantabria are two regions where there have already been price falls in the last year. In addition, households located in coastal areas are the ones that have started to notice the housing slowdown.

In 2007, Joseph Barta, an analyst of urban management and real estate investments, expected prices to fall mainly on the coast of Catalonia, Valencia, Murcia, Malaga, Cadiz and Granada. "The Costa del Sol is one of the more saturated it is. They can say that housing prices have peaked," says Barta.
Forecast for 2007
Experts say that for this year and next, the housing prices will continue to decelerate. "This does not mean that prices will fall, in general, but will rise less," says Javier Sarro, director of Market Research Aguirre Newman. This predicts that housing prices are more expensive this year between 7 and 8%, and reach with similar increases for the CPI in the period of two or three years.

For its part, an Institute of Business Practice shows that the average price of housing in Spain will grow by 7.33% this year, driven mainly by an increase in cost of land 8.55%,

"The average price of housing in Spain will grow by 7.33% this year, driven primarily by increased cost of land of 8.55%"

which represent around two thirds of the final price of the property, and to a lesser extent by an increase in construction costs, will rise 7.24%.

The report also predicts more stability in the prices of second homes. Since the PSI is expected to 'stalemate' in the prices of second homes located in coastal areas, compared to higher growth in the case of the communities that suffer the "metropolitan effect" of the great capitals, as is the case of Castilla -La Mancha for its proximity to Madrid.

Against this background, Luis Regalado, director of private bank Banco Madrid, estimates that investment in housing has ceased to be the most cost-effective alternative that can access the Spanish savers. "The slowdown is imposed, so that all interested parties wishing to invest in housing should know that the upside potential is now much lower. In addition, liquidity (ie the possibility of selling the ground when you want) for this option is quite limited, "he said.

Costs of purchase

Indeed, the liquidity of the investment is related to all the procedures to be carried out to come to fruition with the purchase. To give effect to an investment in housing, it is necessary to conduct a series of procedures and pay some costs, and prolong the operation time, the more expensive around 10%. Therefore, these costs could eat the hypothetical returns that could be achieved by selling off the floor one or two years later.

Importantly, the purchase costs are independent of the cost of the mortgage loan usually is required for the acquisition of the property, although the termination of all of them together there is some confusion about the amounts and percentages involved. Are two different operations, which can be carried out independently.

In particular, among the costs associated with homeownership, are the following:

Notary fees . Related to the delivery of the deed of sale and copies of it. The Civil Code provides that the notary fees are distributed to the contractors so that the seller bears the cost of the array of writing (original) and the buyer is obliged to pay the cost of the first and subsequent copies. In practice all notary fees are assumed by the buyer. The notary fees associated with the sale to be calculated on the value of the house deed, on which a tariff.

Registration costs . Relating to the Registration of Property of the deed of sale, which is also calculated using a tariff on the value of the house deed.

Transfer Tax. This is a state tax, the management, performance and regulation of the type of charge is transferred to the regions and imposed, among other acts, the second and subsequent transfers of housing. On average, this tax is equivalent to 7% of the writing of the house.

For example, who raised the purchase of a floor of about 150,000 euros (average amount of the mortgage requested in Spain), shall pay, in addition, about 12,000 euros to the payment of the notary (around 800 euros) Property Registry (about 300 euros), the agency (250 euros) and the Heritage Property Tax (10,500 euros). All these costs represent 8% of the purchase price of the floor.

Article published by Consumer magazine.

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