Muenchau’s gloomy forecast for Spanish property

March 22, 2012 – 1:50 pm

Wolfgang Muenchau recently expressed his views on propety prices in Tenerife and Spain

Wolfgang Muenchau’s article in the Financial Times,  argues that Spain’s bubble was much more extreme, and that the price adjustment is less mature compared to the others. . The price to rent ratio can be compared to a price to earnings or a price to dividend ratio in finance. It measures the relative value of the asset: the price of the asset (purchase price of a home) divided by its flow of fundamental value (rental income earned or the value of having a roof over your head). As the price-rent ratio falls, the market home values moves closer to fundamental value. Spanning the years 2005 to Q4 2011 and indexed to 1997 Q1, home values peaked at roughly 1.7 times rent in the US, 1.8 times rent in Spain, and north of 2 time rent in Ireland and the UK. Since the peak, though, US home values have fallen to 1.0 times rent   a considerable reduction in asset prices toward fundamental value.
In contrast, home values in Spain, the UK, and Ireland remain quite elevated to rents, 1.3 times, 1.6 times, and 1.4 times, respectively in Q4 2011. If 1.0 is deemed equilibrium, either home values in Spain, the UK, and Ireland must fall further and/or rents rise to normalize home values. That’s a tall order: rising rental values amid defficient and contracting domestic demand in Spain and possibly Ireland. The UK has more of a fighting chance, given its relatively easy monetary policy, compared to Ireland and Spain, where more accommodative monetary policy is very lagged amid fiscal contraction. Without growth, though, default is probably the only answer left to normalise housing markets in Spain and Ireland.
Source: Business Insider
By Angela | Posted in Economy, General, Health, Holiday, Inspirational, Miscellaneous Articles, Property, Tenerife, Things to Do | Tagged , , , , , , , , , , , | Comments (0)

Spain remains top retirement hotspot

December 21, 2011 – 4:19 pm

Spain and Tenerife remain top of the props

For those of you thinking of retiring abroad or relocating in 2012, Standard Life has released its latest retirement hotspots research which shows that Spain is the number one retirement destinations in the world as far as Brits are concerned. Spain is followed by Australia, USA, France and Ireland.

But while retiring abroad is a dream for many people, it does require careful planning and advice, according to John Lawson, head of pension policy at Standard Life.

He said: “Many people think living abroad is cheaper than living in the UK, but this isn’t always the case. Doing your homework in advance of moving, matching your retirement income and expenditure, and making the appropriate decisions around purchasing an annuity or using income drawdown are key considerations. Your retirement income could also be subject to exchange rates and currency fluctuations, as well as local tax laws.”

By Angela | Posted in Economy, General, Health, Holiday, Inspirational, Property, Tenerife, Things to Do, Weather | Tagged , , , , , , , , , , , , , | Comments (0)

Time running out for second homes tax breaks

March 24, 2011 – 9:44 am

Time is running out for tax breaks on second homes

Time is running out for holiday  owners to upgrade their property while simultaneously cutting their tax bills. A £30m tax break, which cuts the cost of second homes for more than 65,000 families, is to be withdrawn next month because of EU laws. Attractive tax incentives were introduced in the eighties to encourage people to invest in quality holiday properties in Britain, after the lure of cheap Spanish packages left our many seaside resorts struggling, and in decline. They provided budding UK landlords with a meaningful subsidy towards the purchase and running costs of a second home, as well as more tax concessions when it came to selling. About 65,000 families currently own and run a holiday house in Britain under this tax regime, known as the furnished holiday letting rules, and save an estimated £30m a year in tax. But advantageous treatment of UK holiday property fell foul of EU laws, because they were deemed to discriminate against tourist accommodation in Spain, Portugal, France, Italy and elsewhere in Europe. Either the tax breaks had to be extended to all holiday properties throughout the European Economic Area (which includes Iceland, Liechtenstein and Norway as well as other EU countries); or they had to be withdrawn. The Government calculated that it would add up to £25m to the existing £30m cost of running this scheme if these overseas properties were included. By contrast, cutting this relief would bring an extra £20m into Treasury coffers. From April, losses can only be offset against future rental income and not used to reduce your overall tax bill. Source: Telegraph Online

By Angela | Posted in Economy, General, Holiday, Miscellaneous Articles, Property, Tenerife, Things to Do | Tagged , , , , , , , , , , , , , , , , , , | Comments (1)

European Court could slash pension annuity rates for Brits living in Tenerife

February 15, 2011 – 11:40 am

Pension funds can be boosted by purchasing prime property in Tenerife

It is possible that on the 1st March, the European Court could rule that current use of gender to calculate insurance premiums, including pension annuities, are in breach of sex discrimination laws. If unisex rates come into force, men, whose current annuity rates are said to be up to 10 per cent higher than those offered to women due to lower life expectancy, could see their annuity rates slashed.

Nick Carlile, Founding Partner of Platinum Portfolio Builder, urges everyone, not just those approaching retirement, to consider alternative investments to provide for their retirement. Nick comments “on top of reports that annuity rates fell 3% in 2010, once again, the dreams of many for a comfortable retirement could take a further battering, as they realise their annuity rates could be cut between a further five and ten percent.

Such a change is likely to create further resentment by investors who are passing their capital to an insurance company, rather than to their heirs.” From 6th April the compulsion to buy an annuity is to be scrapped. Nick Carlile advises those capable of meeting the government’s minimum requirements and demonstrating that their fund, plus their state pension will generate an income of around £20,000 a year, to look towards investment freedom and consider alternative options for their pension pot.

“A combination of steadily rising rentals, a fundamental shortage of housing and the UK pension situation looking increasingly frightening to people approaching retirement, is presenting appealing opportunities for passive buy-to-let investors. With improved loan performance in the buy-to-let market, which grew 7% in 2010, experts have suggested that the buy-to-let market is on the front foot again and entering a period of growth.

“If handled correctly, the benefits are twofold, providing regular rental income along with increasing capital gains. Crucially, the rental income will rise over time in line with wages and prices, so in real terms you’ll be protected against inflation as you get older. Plus, unlike many annuity schemes, the assets remain untouched ready for when you decide to sell or the property will go into your estate on death which could be passed to heirs.”

This decision may change the views of those thinking of retiring in the sun in Tenerife and the Canary islands  and it is clearly worth checking what your future retirement fund may be, particularly if you are looking to buy or rent prime property in Tenerife.

Source: Platinum Portfolio Builder

By Angela | Posted in Economy, General, Health, Holiday, Inspirational, Miscellaneous Articles, Property, Tenerife, Things to Do | Tagged , , , , , , , , , , , , , , | Comments (0)

A good time to buy in Tenerife?

January 17, 2011 – 9:45 am

Bargains abound so this could be a good time to buy prime property in Tenerife

During Spain’s runaway housing boom of the last decade, tens of thousands of new homes were built on the coast with foreign buyers in mind. Unfortunately, foreign buyers didn’t  buy in expected numbers, which partly explain why Spain has such a glut of new homes on the coast.

The number of purchases of holiday-homes by foreigners have reduced considerably. They are down 87pc in the first 9 months of the year compared to the same period in 2006, and -16pc Q3/Q2 . At this rate foreigners buying holiday homes will do nothing to help absorb Spain’s glut of new homes. The figures are difficult to believe, just 490 sales in 3 months over the summer. Hopefully the  figures are not accurate, but if they are who will buy all those empty holiday-homes?  Certainly not the  vast number of unemployed Spaniards.

It is clear that vendors in areas such as Tenerife have realised that  in order to achieve a sale, the price needs to be right and so they have made the necessary ajustments to the sale cost. In fact, with the number of bargains now around in Tenerife and the Canary Islands, this is probably a good time to consider purchasing a second home or a property to rent out for income purposes. If you buy good quality prime property in a  coastal location, you could do  well.

By Angela | Posted in Economy, General, Health, Holiday, Inspirational, Miscellaneous Articles, Property, Tenerife, Things to Do | Tagged , , , , , , , , , , , , , | Comments (0)

Rents on the rise for landlords

September 3, 2010 – 4:11 pm
Rental income on the increase for landlords in Tenerife and the Canary Isles

Rental income on the increase for landlords in Tenerife and the Canary Isles

Rents are rising and prices are falling, so yields are improving for landlords. Average rental prices rose by 1% in July compared to last year, show the latest figures from the National Institute of Statistics (INE). This is surprising given the glut of property for sale and rent on the market.

Over 6 months annualised rental prices have gone up by between 0.9% and 1.2% per month, whilst house prices have gone down between 4% and 5%, meaning that rental yields are improving. Some good news at least for beleaguered property investors.

But consumer price inflation has risen by 1.9% in the same period, so although yields are rising, rental income in real terms is actually falling.

Rents went up the most in the Balearics  and Canary Isles (+1.5%), and down the most in Navarre (- 0.5%).

By Angela | Posted in Economy, General, Health, Holiday, Inspirational, Miscellaneous Articles, Property, Tenerife, Things to Do | Tagged , , , , , , , , , , , | Comments (0)

Tax rule changes to apply to overseas holiday homes

August 24, 2010 – 10:55 am
tax rules changes on second homes will have implications on rentals in Tenerife,the Canary Isles and Spain.

Proposed tax rules changes on second homes will have implications on rentals in Tenerife,the Canary Isles and Spain.

Proposals announced by the Government last week, on changes to the tax rules on furnished holiday lets (FHL) will also apply to the owners of properties in the European Economic Area if they are UK tax payers, warns accountants James Cowper

The changes proposed for April 2011 bring the taxation of FHL into line with EU law, whilst at the same time limiting the effect on the holiday industry, and include: An increase in the number of days a property needs to be let before it can qualify as a FHL. This will restrict the extent that owners will be able to use their second home and still retain the tax breaks.

Removing the ability to offset expenses against other income. For many this will increase the cost of running their second home. Stephen Barratt, private client director at James Cowper comments: “Currently a property only has to be let for 70 days and be available for 140 days to qualify for tax breaks under the FHL rules.  These had been due to be scrapped from April 2010 but were saved in the Emergency budget on 22 June.  If the current proposals are implemented, the tax breaks will be restricted or removed altogether as the letting requirements rise to 105 and 210 days respectively.

“Many in the industry think this is a way of penalising second home owners and it could force many to choose to sell their properties ahead of the April 2011 rule change.  If many people come to the same conclusion this could see a glut of properties on the market in holiday home hotspots both in the UK and overseas.”

Stephen continues: “Whilst the thrust of this consultation will cause concern for many, property investors who operate on a more commercial basis are unlikely to be affected by the proposals as they are clearly aimed at those who let their property for close to the minimum of 70 days per annum and also use it for their own holiday benefit at other times.”

“We must wait and see what is in the detailed rules, but even at this stage we can expect them to have an impact on both the industry and property prices. It will certainly impact the affordability for those who are thinking about purchasing a second home.”

The headline rate of capital gains tax is 28% for higher rate taxpayers and 18% for basic rate payers, but the profit on a sale of a FHL generally attracts a rate of just 10%. There might also be an element of main residence relief in the case of a second home where the necessary tax election has been made. Depending upon the scale of the business and the timing of the sale, it might be that a sale after 5 April 2011 will still qualify for the 10% tax rate. The rules are complex and so those looking to hold on to the property beyond that date but still benefit from this favourable rate should seek proper professional advice.

Stephen Barratt concludes: “As always the detail in the legislation is crucial and at this stage we only have proposals for consultation. That said, change is in the air and it seems clear that the coalition government is looking to raise the bar before the owners of these types of properties get the tax benefits of ownership. I would urge anyone with a holiday property, or looking to buy one, to keep a close eye on developments over the coming months and on the impact any changes will have on their individual circumstances and plans. The consultation period ends on 22 October 2010 so more detail should be available shortly after.”

Clearly this will have an impact on those who own or are looking to buy with rental income in mind in Tenerife, the Canary Isles and Spain in the not too distant future.

By Angela | Posted in Economy, General, Health, Holiday, Inspirational, Miscellaneous Articles, Property, Tenerife, Things to Do, Uncategorized, Weather | Tagged , , , , , , , , , , , , , , , , , , , | Comments (0)

Trim the costs of owning a property overseas

May 14, 2010 – 4:25 pm

Over a million Brits currently own a home overseas, with France and Spain being the most popular destinations. However the global economic slowdown has hit homeowners not only at home, but also abroad as the cost of maintaining a property has increased -over a fifth of owners (21%) are struggling to meet the increased costs, according to latest research from a currency firm.

Trim the cost of maintaining your property in Tenerife by following a few simple steps

Trim the cost of maintaining your property in Tenerife by following a few simple steps

85% of overseas property owners say the cost of maintaining their property has gone up in the last 12 months, so you should attempt to reduce the cost of being an overseas property owner.

Whilst mortgage rates may have gone down for many owners, the overall cost of owning a property overseas (including local taxes, utility bills, maintenance costs etc) has continued to grow and the rising costs of ownership have been magnified by sterling’s depreciation and the continued market nervousness over the hung parliament following the General Election  Many homeowners are also seeing their rental income from a holiday home hit, as the number of potential tenants decreases with more people opting for ‘stay-cations’ in their home country.

Two years ago the average overseas home owner transferred £10,000 a year to meet maintenance costs (including overseas mortgage payments) and provide spending money when they visit their second home. However as the pound has taken a beating against all the world’s major currencies, they now have to convert significantly more in order to meet the costs associated with their international property such as maintenance costs, mortgage payments, utility bills and local taxes.

For example, in October 2008, £10,000 would have bought you €12,900.  To receive the same amount of Euros today, a Brit has to transfer £11,896, almost £2,000 more.  People making regular currency transfers should set up a Regular Payment Abroad plan with a currency broker  such as Moneycorp that allows you to lock into an exchange rate for up to 12 months ahead so you know know exactly how much is being transferred every month.”

According to the research, almost 70% of holiday home owners are missing out on vital income by not renting out their overseas property. Almost half of those that do rent it out only do so to friends and family who traditionally pay less than other tenants.

Overseas home owners have to pay ongoing taxes on ownership, such as local taxes or even tax on rental income.  This is usually payable in the country where the property is located, but if you are a UK resident, such income also needs to be recalculated into Sterling and is taxable in the UK, regardless of where it is paid, with any appropriate relief given in the UK for taxes paid abroad. Each country will tax the income according to its own rules, so sometimes more allowances are available abroad than in the UK or the tax rates abroad may be lower, but the higher tax liability will be due.  However, there may be ways of reducing your tax bill, but whatever you do, you only pay tax when you make money. Spending money unnecessarily to save tax can often be a false economy It is important to make sure that you claim whatever allowances you are entitled to.

People who take advice before buying their property abroad often manage to make their purchase more cost-effective than those who buy without taking advice so you should at the very least check the advice of a reliable estate agent.

By Angela | Posted in Economy, General, Holiday, Inspirational, Miscellaneous Articles, Property, Tenerife, Things to Do, Uncategorized | Tagged , , , , , , , , , , , , , , , | Comments (0)

Tax breaks available in Spain and Tenerife

March 20, 2010 – 8:20 pm
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Tax breaks available in Spain and Tenerife.

Special Spanish tax breaks mean that it’s not just the football stars such as Ronaldo and Kaká who pay far less taxes. All foreigners who work for Spanish companies can also apply.

David Beckham has the looks, the talent and – perhaps most importantly – the bank balance to make many green with envy. But it seems David Beckham’s good fortune where money is concerned improved when he signed for Real Madrid. His transfer to the Spanish giants Real Madrid was not just a great move as far as his footballing career was concerned. In fact he left Manchester United just as the Spanish tax system was changed to benefit foreigners in an effort to draw more highly-paid professionals to these shores.

Designed to be part of the government’s budget for the 2004 financial year it came into operation on 1 January 2004 and basically allowed foreign employees to be treated as “non-resident” for tax purposes even though they were living and working in Spain. In simple terms a foreigner since then is entitled to cut his rate of income tax from a punishing top rate of 45 percent of his earnings to just 24 percent overall.

Former prime minister Jose Maria Aznar’s conservative government altered the tax laws to make it more attractive for foreigners to live here and to help companies that employ many workers from abroad – who are often paid high wages. This law has helped the highly-influential and affluent bosses of most of Spain’s biggest football clubs as it leaves them with substantially lower wage bills and hence even bigger spending power to bring more stars to their domestic game.

Without a doubt, the law change was engineered to help football clubs to reduce their wage bills as it was reckoned if the players were paying much less tax, the cost to the clubs would be lower. Though it might seem like these pampered prima donnas on the football pitch are having it all their way, it is not just a perk for the rich and famous. Sources from the Spanish Treasury Department emphasised that even though the new tax rules were principally brought in to help footballers, the tax change applies to anyone who is working here as a professional.

This tax provision is therefore available to all foreign professionals, from the executives with multinationals to researchers or any other salaried expat who works for a national company.

There are a few qualifications to which foreigners have to submit however:

  1. They cannot have worked in Spain for 10 years before – a measure to stop tax cheats
  2. They must work on the payroll of a Spanish company, though this can be a subsidiary of another multinational
  3. The application is be taxed as non-resident must be filed with the Spanish tax authority within 6 months of taking up the position

Finally, don’t think that it always beneficial to claim for this special tax treatment. Though the overall rate of 24 percent is very attractive and significantly lower than the highest rate currently applicable, it’s only of interest to high-income employees. The downside of this non-resident regime is that the tax payer cannot claim the normal tax allowances and deductions applicable to resident tax payers so, as a general rule, it will only be of interest when the individual expects to earn in excess of EUR 70,000 -75,000 in a full tax year.

By Angela | Posted in Economy, General, Inspirational, Miscellaneous Articles, Tenerife, Uncategorized | Tagged , , , , , , , , , | Comments (0)

Property prices starting to rise in certain areas of Spain

January 10, 2010 – 12:23 pm

Property prices on the rise in parts of Tenerife,Spain and the Canary Isles.

Property prices on the rise in parts of Tenerife,Spain and the Canary Isles.

Property prices are starting to rise in some parts of Spain, according to a new report from one of the country’s largest savings banks. These include the Canary Islands,Cantabria, the Basque region, Asturias and La Rioja, says the report.

The much awaited real estate recovery is underway in locations where there is no glut of property such as  the

‘House and land prices have touched bottom in some cases. The adjustment is almost over, if not already,’ said Eduard Mendiluce, head of Caixa Catalunya’s property division Procam.

Indeed the report points out that there are between 660,000 and 1,040,000 homes on the market. This represents between 2.6% and 4.1% of the country’s housing stock. They expect the glut to fall slightly to between 640,000 and 1,070,000 in 2010, down to between 2.5% to 4.2% of housing stock.

The Caixa Catalunya report estimates that there will be an annual demand of 220,000 homes between now and 2015, almost half the level of 300,000 to 450,000 estimated by developers. At this rate it could take five years for the market to digest the glut.

But there is more good news for the luxury end of the Spanish market with one  buyers agent  reporting that transactions in prime areas around Marbella were increasing as early as the first quarter of 2009. ‘Secondary areas lagged behind with the first green shoots only appearing about nine months later and the worst locations are still in total paralysis in 2010,’ she said.

Currently the typical person looking for property is a cash buyer, buying for their own use, with a medium to long-term perspective, not dependant on rental income and only interested in buying in prime locations, she explained.

‘And those that require a mortgage need a maximum of 50% relative to value. In other words, the right purchasing parameters are in place again. Spain’s property market managed very well without a mass market before the boom of the Noughties and will do so again, returning I hope to the stability and long-term growth that held for four decades but this time going for quality rather than quantity,’ she added.

She also points out the uselessness of official statistics. ‘The official Ministry of Housing figures, based on registered transaction prices and supposedly objective, are distorted by under declarations of the sale price in the past and only once we have had several years of full price declaration will this distortion be washed out of the system, while the oft-quoted TINSA stats are based on subjective market appraisals. Either way, they are unreliable and, therefore, are meaningless,’ she explained.
‘There is only way to get good information about what prices are doing in 2010 and that is to talk to someone who is actively involved in putting deals together right now. When I’m asked about price falls, if they have hit bottom or if they have further to go my reply is that it all depends and there is no one answer but it seems to me that there are two main factors influencing outcomes: location and how badly the seller wants to sell. I would say there is a shortage of top quality properties in the best locations at the right price level for 2010,’ added Wood.

By Angela | Posted in Economy, General, Holiday, Inspirational, Miscellaneous Articles, Property, Tenerife, Things to Do, Uncategorized, Weather | Tagged , , , , , , , , , , , , , | Comments (0)