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Time to return to the property market in Tenerife as prices start to rise?

We may think that we are savvy property investors, but are we really any good at investing abroad?  Many British investors crashed and burned in Spain over the last decade. German investors, on the other hand, largely avoided the trouble and are now purchasing from distressed British vendors. Germans always used to be big buyers in Spain and the Canary Islands, but from around 2003 onwards  many sold to British buyers after several years of surging property prices. Now it looks like they are back.They bought low and sold high, and now they are back to buy low again.  The Germans have been lucky with their timing. One reason they left Spain after 2003 was an economic recession at home that dented their confidence, and made surging Spanish property prices look crazy in comparison to their own declining house prices. But they also deserve some of the credit for their cautious attitude to buying property abroad.  Germans don’t like borrowing money, unlike the British who will happily borrow more than 100%  They are always looking for a good investment but only something they can afford with cash. Rising prices just encouraged the British to borrow more.

The Germans are also shrewd buyers who instinctively go for good beach locations in places like The Balearics and The Canaries, where there is always strong demand from holiday makers. Many British investors, on the other hand, were easily persuaded that new developments in obscure parts of inland Spain, miles from the sea, would make a good investment.  Germans are fussy about quality and like to see what they are getting, so they found the off-plan boom a turn-off. Nonchalant British investors, on the other hand, piled into off-plan investment. By 2007, German buyers were just 10% of British demand, according to figures from the Property Register.

So what is starting to lure the Germans back? Prime property at reasonable prices. Prime property prices  are down by as much as 25% in the last few years. You can now buy apartments in good locations with sea views for around 350,000 to 400,000 Euros, down from 550,000, and villas are down to 1.5 million from above 2 million Euros. The crisis has created a window of opportunity that the Germans are exploiting. They are after the best properties, in the best locations, with the best views, for the best price. If the price isn’t right, they won’t buy.

Though there is little evidence that Germans are buying outside of their usual haunts, you could argue that this is the best time in years to buy property in other popular destinations around Spain and Tenerife. For a start there is a glut of brand new, key in hand properties languishing on the market, so investors are spoilt for choice.

In Tenerife, prime property with sea views is selling quickly if the price is right, showing that the market is far from dead. There are lot of enquiries for villas between 1 and 1.5 million euros, and anything really good in that range – private, with sea views – gets snapped up.

Of course prices may continue falling, but it would be foolish to expect prime properties to be given away.British people making offers 50% below asking prices are going home empty handed. Sellers are still open to offers, and it’s far easier to negotiate with them just before prices start rising than just after.

The big problem for British buyers right now is the weak Pound. There are ways to mitigate this, such as forex option contracts or taking out a mortgage (if you can), but there is no escaping the fact that British buyers with Pounds do not benefit from lower prices as much as German and other buyers with Euros.

The British may have dominated the mass market during the boom, but today there are plenty of other Europeans interested in prime property now that prices are coming down. So Spain may be in the middle of a massive real estate crash, but it could be a mistake to think that prices for the desirable properties in good locations will go down much further. Warren Buffett famously said that he tries to be greedy when others are fearful and fearful when others are greedy. Right now British property investors are fearful, but German buyers are showing signs of an appetite. If we have anything to learn from the Germans it is that the time to buy property is during the bust, not the boom. Maybe it is time to take the plunge and return to the buying pool?