Hello,

I am not sure in which forum to ask this question so please forgive me if I am not posting correctly.

I am planning on buying an apartment in Madrid in the second half of this year. I know the prices have been going up a lot in the recent years and I am wondering how much they are rising at the present moment. Also, if anyone has some tips or opinions about recent apartment buying situation. I have been looking in segundamano.es and I found some offers that I could seriously consider - would that be a good indication or are there some serious hidden traps?

Also, does one get a tax break in Spain when they get a loan for home like in US? I am debating whether I should try to get a bank loan or just dump all my cash (and be poor for the rest of my life...)

If there is an appropriate existing thread on this, please point me to it, I've tried searching but have not found anything recent.

ANY info/tips/opinions will be very much appreciated!!! Thank you in advance.

I have been reading some articles lately on this, and most recommend not buying right now. The outlooks varies from either prices staying flat for a few years, to actual burst of R.E. bubble.

What is certain is that sale speed (how fast an apartment sells) has grown, so it is getting tougher to sell a place.

As far as tax breaks, there is a maximum of 9,000 euros per year, that you can use to lower your taxable income. These 9,000 are purely for Principal payment, and not interest, so you need to look at your posible mortgage, and calculate how much of this would be covered per payment.

Fabs --

You say that people say that now isn't the best time to buy due to the variable outlook. However, if the real estate bubble actually DOES burst, wouldn't it be the best time to buy? If the bubble bursts that means the prices will drop, right?

Right now as I understand it, it is getting harder and harder for homeowners to sell their properties. When before, the listings used to sell like hotcakes, they are now on the market for several months before the properties are actually sold.

Chica, i�m sure Fabrizio meant that right now is not a good time to buy since the bubble has not burst yet.

if one buys now and then the bubble bursts in 6 months, the apt. they bought will be devalued.

Fabrizio meant that Ola should wait for the bubble to bust to buy instead of buying now.

saludos,
jer...

Seriously!!! The bubble is not going to burst ever!!!

One thing is that the prices sky rocket a 17%-20 every trimester, which is what has been happening in Spain for the past 8-10 years, and a very different thing is that prices start to settle down.

They have been talking about bursting the bubble for many of years now and even with the change in the goverment, has there been any drastic or dramatic drops....anyone.... of course not.

Just last month, the price on new first hand housing increase almost 17%, and the ratio on new housing has increased in this quarter more than it did in the same quarter last year.

So if your waiting for the housing bubble to burst, you might as well rent a house, but wait....renting an apartment is just as expensive as a monthly morgage fee.... so if you can afford it...buy yourself a house, and sell it a couple of years later with a 20-30% profit just like everyone else does.

I'm not sure what zones you are talking about, but in my neighborhood--La Latina--renting an apartment is about 1/3 the cost that the monthly mortgage payment for the same apartment would be if I were to buy it now.

yes Albert, mariposita is right.

in my area (the plaza mayor) renting is about 1/2 of what a mortgage would be.

saludos,
jer...

Whoa there, the mortgage thing is very relative, it all depends on how much money you borrow and how long you take to give it back, so you can end up spending about the same amount on mortgage as you would on rent, with the difference that it's an investment and at some point in the distant future you wont have to pay anymore.
Lena

Some interesting points made by everyone but I wanted to respond particularly to Albert who makes a very confident assertion that the bubble will never burst. Well, I have to disagree with you Al. My reasons are based on simple supply and demand theory which underpins any market.

Property prices are determined by supply an demand for two commodities - housing stock and money.

Unlike the UK where there is a universally recognised shortage of housing (which generally keeps the market on a long term upward trend. (A shortage means there are more buyers than sellers, thereby keeping prices buoyant.)

Spain actually has over-supply ie more sellers than buyers. Eventually the market always adjusts so that it finds balance. It does this by driving prices lower to the point that buyers are atttracted back into the marketplace.

The fact is that there are more apartments than there are people who want to/can afford to buy them. This is borne out by all the stats and what we see with our own eyes. Many of the nice apartments that I was looking to rent 5 months ago are still available and standing empty. Apartments for sale are taking much longer to sell. Every year even more apartments are being built in Spain, thereby worsening the situation. I read that over 500,000 will be built this year - same as last year. I know of people who have invested in new-build schemes where the developers are clearly in financial difficulties and my friends stand to lose their money. This WILL lead to a loss of confidence in property for investment.

One explanation for why we have not yet seen a dramatic fall in prices and rents (although there are certainly good deals to be done on rental levels if you push some landlords)may be that unless people HAVE to sell then they are reluctant/unwilling to drop their prices. In my own (Spanish) family I have seen evidence of that happening.

So what happens when the economic conditions change - interest rates rise, unemployment rises and confidence diminishes? people MAY look for safer places to invcest their money. The market turns and investors start selling off their property investment portfolios. Private individuals sell off their second/third homes. Guess what happens to prices.

Eurpoean interest rates have been low for a long time. But there is every indication that rates WILL be rising over the next couple of years. This represents a tightening of supply of money. It will result in people borrowing less, therefore having less money to spend on properties, and pushing prices down.

Look at some simple facts. Lets assume housing inflation was at a modest 10% per annum! And wage inflation was at 5% per annum. After 10 years property prices would have gone up by about 260%. Salaries would have increased by approx 160% over the same period. The only way to make up the difference is by borrowing more. That assumes that lenders are willing to lend on ever-greater multiples of peoples salary (there HAS to be a limit to this!) and that people are ready and able to pay the much higher levels of interest that lenders WILL be charging them.

Obviously I believe a crash is inevitable. It may not happen this year..or even next year but it IS inevitable. Prices cannot continue to rise at the same rate in relation to peoples' ability to pay. Sorry Albert. I really believe your optimism is misplaced.

I have learned from bitter experience on the much more soundly-based UK property market that prices of any investment can and DO fall as well as rise.

Hi Mark

I understand your points, and I totally agree with you, but your explanation is based on a very dramatic change in the spanish economy, which may or may not occur.

Fairly speaking your talking from a theoretical point of view. The actually situation is quite different than a "what if" and if you're going to spend the rest of your life wondering "what if" then you might as well dig a hole and stay there.

Yes, the interest rate have increased in the last year. And little by little it should increase, mainly because the spanish economic has grown over the past ten years so much, it needs to balance out with the rest of the EU. Spain was at the back of

There is also another aspect that you haven't mentioned, which is the regional culture of the country of which we are speaking about. Spanish culture, does not keep in mind the idea of renting a house, nor does it seem fitting for a man/woman or couple to rent a house. People here will go out of their way to purchase a house and most parents will be willing to risk their financial stability to help their kids buy a house. Something that usually doesn't happen else where.

If your into economics as you seems you are, you should check out the top five banks in Spain and their financial overturn, what was it, a 20-30% increase in their profits??? Due to what? Investing in stock or retirement plans??? No, it was mainly due to their diversification in mortgage plans. Banks knows where the money is, and they're not going to invest in a sector which is walking into a pitfall.

If you think there isn't a demand for housing, in the past three years there has been a significant increase in south americans migrating to spain, if I'm not mistaken more than 4 million people from around the world moved over here due to job opportunities. Where do you think all of these people live, surely not under a bridge.

I'll even give you a better example, my girlfriend and I recently purchased a house in the suburbs and we haven't been living there for more than five months. There are already neighbors that are selling their house for more than 25,000 40,000€ than what it cost them initially. What's worse....some of them sold already!!!

Initially, we were a bit worried when they created the new housing ministry a couple of months ago, specially when they stated that they were going to stop the bubble and make sure everyone who was entitled to own a house would be able to purchase one.

But the only solution that they have given up to now is to make everybody live in 30m square cubicles. Obviously the general outrage of the public made me see, that for now we made the right decision in buying our house instead of renting it.

I used to share a flat with some friends and we had to pay roughly 1,520€ per month, being four of us, comes out to 380€ + commodities, if I was to divide my share of the mortgage rate right now, I'm paying roughly 450€ + commodities. So for just a little more, we have our own home and nobody to answer to.

I'm not saying that pricing isn't slowing down nor that the purchasing ratio isn't smaller, for the moment things are leveling out and getting into a more normal situation, where there isn't some drastic increases in the housing sector every trimester. Which is fine, I just think that housing is not going to drop, and much less people are going to lose their investment from one day to another.

But maybe we should have a cup of espresso sometime and discuss this more naturally, hehe

Is it be possible to purchase an apartment for cash and later get a mortgage? Or does one have to get a mortgage at the time of purchase?

Another question would be maybe for Mark - what is a safer way to invest your money other than a real estate? The catalonian bank my friend had kept his money in, went bankrupt last year and for the longest time it was uncertain if he will get his money back. My understanding is that Spain has a 20,000€ investment insurance from the government (or however you call that) So I would be very uneasy about keeping too much money sitting in a bank... what would you suggest?

Thank you for all the great info and discussion!

A mortgage is a loan that a financial institution gives you. You amortize the loan over a period of time, and since nothing is for free, the loaner in this case usually a bank, charges you an interest rate and at the same time has certain rights over your property, they could foreclose on the mortgage and repossess your house, in the case you are negligent in paying back their loan.

If you have the money saved up, you don't need to request a mortgage. But if you only have part of the money, like lets say 15-20% of the total property value, then over the principal you'll need to apply for a mortgage.

As whether you can later request a mortgage after buying your house in cash. Yes you can, and people do it all the time in order to make purchases of expensive items like refurnishing their homes or buying a new car. Although tax deduction over these types of purchases are not recommended.

You can definitely get mortgage (hipoteca in spanish) after the purchase. Check offers at www.ebankinter.com or www.barklays.es.
Are you permanently moving to Europe? Or only coming for a limited time? If you are not planning to come here indefinitely, I would reconsider investing in European property, you are converting Dollars on Euros at a very devalued rate right now. If you go back to US in 2-3 years, you might be losing 30% alone on exchange rates.

You are right about the FDIC type insurance, it is much lower here than in US banks.

barclays is with a c --> http://www.barclays.es

saludos,
jer...

Crap!! What a moron, I logon to their page every day...