One of the oldest and best-known rules of economics is the law of supply and demand: that supply and demand are constantly seeking equilibrium, but when demand exceeds supply, prices rise and when supply outstrips demand, prices fall.
This law also applies, of course, to real estate and partly explains the cyclical nature of our industry. However, in the medium-term, the scales are almost always in favour of purchasers who buy with intelligent criteria, location being one of the key factors: urban land is usually in limited supply and even more so in the “best areas” within municipal boundaries. Cities grow, and those that are popular with higher income purchasers, who identify with a level of quality such as that offered by Marbella, grow even faster.
This is precisely why real estate investment, carefully made with respect to location, price, quality and timing, is and will continue to be among the most reliable and consistent sources of wealth creation. And at the same time, with respect to residential property, such investment can offer a life style that is highly attractive to the purchaser, thereby combining the best of two worlds.
Buyers, nevertheless, should always exercise caution. Newspaper articles may be misleading and should of course not constitute the sole basis for investment decisions.
For example, those who write “market information” articles equating what is happening in the real estate market on a national scale in Spain with that of residential tourism on the Spanish coasts, (particularly the Costa del Sol and Marbella), have ignored one critical, fundamental fact: that what is clearly a bubble and excess in construction nationally (the Spanish national newspaper El Mundo stated last year that up to 60% of the homes built nationally were sold to speculators) is not fully representative of the market on the coasts, which adheres to substantially different market criteria and sources of demand.
Multi-source demand
The critical factor differentiating the Marbella area market from the national market is that the former is comprised not only of national buyers but also, and especially, of international buyers. It is a multi-source market, fed from all European countries and from others even further afield. Thus, when one country’s demand for foreign property starts to drop (which might soon be the case for the British market), it will be replaced by another source of demand (which currently is represented by Eastern European countries and possibly Germany, which is finally beginning what has already been called its “second economic miracle”, after years of economic problems).
Such multi-source demand creates deeper and longer-lasting market stability than would be found in any single-source market, anywhere.
Property speculators
Unlike property speculators on a national basis, most foreign as well as Spanish speculators for coastal investments stopped investing for all practical purposes when the off-plan purchases, inevitably and predictably, ground to a halt in the year 2004, when prices of land and construction reached unacceptable levels, preventing buyers from selling on their speculative purchases to an end-user or another speculator.
The consequent oversupply on the coast of new two and three-bedroom tourist apartments and townhouses under the €600.000 to €700.000 price range, especially in areas which are not consolidated or fully developed, has resulted in a price drop in real terms of maybe 20% to 30% for these types of property in the last three to four years. The same types of property in consolidated areas have seen a smaller drop in price, approximately between 15% and 20%. It is indeed a buyers’ market for this category of property in some parts of Marbella and surrounding areas and, one should note carefully, there are some real bargains now appearing at price levels that may not repeat themselves in future years.
As a result of those off-plan investments cooling down in 2004, many of the original speculators have consequently moved their investments to other countries such as Bulgaria, Croatia, Morocco, Egypt, Brazil, Cabo Verde, Mexico, the Dominican Republic and others that are starting out as second-home destinations. They may well, however, be in for an unpleasant surprise when they find that the construction, in many cases, will far outstrip the supporting infrastructure and necessary services around it, and prices may often be inflated by unscrupulous “get-rich-quick” agents. Those who choose this type of investment should be careful to use agents known for their integrity and long market experience.
Market consolidation
So, what does all the above mean? It means that the end-user is the dominant player in the market today. The pure speculator for lower-priced, off-plan properties has all but disappeared, leading to a market which is presently, in general terms, consolidating and maturing.
The “in-and-out” speculator buyer to a great extent distorts any property market, and the fact that the off-plan purchaser is influencing the market to a far lesser extent today than in the past is a very healthy indicator of a return to more normal conditions than those experienced from 1996 to 2004.
The speculator, however, hasn’t totally left the scene. Instead, he is more cautious and more demanding. The product he seeks has to fulfill key criteria which include: a well located development, good facilities and security, closeness to amenities, quality in design and specifications, etc. And the timing is important: he seeks to invest right at the start of construction, when he can get the best choice at the best price and, today, he might take a more medium-term view of the market rather than a short-term one.
In addition, the last three to four years have seen a general leveling of prices, an integral part of the consolidation process, and there is less volume of sales than in years past. A great part of this lesser volume is a result of less speculation, as indicated above. Another reason, particularly in Marbella, is that there is now much less zoned building land available for new construction due to the delay in the approval of the new General Plan, which has provided a strong cushion of support for the resale market. And, as the market returns to normal after the “boom” years, properties are taking a longer time to sell today than two or three years ago.
The real estate agencies that have made fortunes in years gone by through exhibitions abroad and “inspection flights”, selling new or off-plan properties especially in the lower price ranges, are having a much tougher time today, and some of the smaller and even larger agencies have closed, especially those without great experience in the resale sector of the market. This is a perfectly normal part of a market adjustment witnessed many times over the past four decades.
Higher priced properties still very much in demand
It is worth noting that properties between the €800,000/€1,000,000 to the multiple million range, which are located in the more consolidated areas closer to services, etc. have been maintaining their value extremely well. They are still in good demand by the classic, end-user client and continue increasing, albeit at normal levels, but sometimes even reaching record prices.
The reason for the continued strength in the higher priced properties is that there are very wealthy buyers out there looking for quality homes in quality areas. According to the 2007 Merrill Lynch and Capgemini World Wealth Report, there are 9.5 million high net-worth individuals in the world, up from 7.2 million in early 2003, many of whom are only a short direct flight away from the Costa del Sol and who either already own or wish to acquire a second or third home here. Not only are the wealthy becoming more numerous, but the already-wealthy are also becoming increasingly more so, and there are only a limited number of outstanding, appropriately priced properties in the best areas.
With these clients, as well as the tens of thousands of others who are free of economic worries but do not consider themselves jet-set material (nor do many of them want to), Marbella is very much the place to be, with direct and easy flights from most major cities in Europe, a vastly improved infrastructure compared with years past which far surpasses that of other newer resort areas in the world, a 12-month season with activity of all types in the winter months, and the best climate in Europe, even though it is not as cheap as it was in times gone by.
Moreover, there are sales every single day of properties priced between €2,000,000 and €5,000,000 or more, a market which was virtually non-existent before 1996, as most of these luxurious properties have been built since then. Properties on the beach side of the Golden Mile and in the most consolidated and best areas are very difficult to find, and when they come on the market, at intelligent asking prices, they sell very quickly. Once again, all this goes to show that the age-old rule of “Location, Location, Location” being the three most important words when purchasing property, still holds true.
Recent bad press, already a factor of the past
During the past three years, up until mid 2007, the national and international press have had an orgy of exaggeration and prediction of doom and gloom, deriding Marbella, its surrounding areas and its people due to the unfortunate events and disorder of the recent past, caused by urban planning issues and corruption. The corruption which has been brought to light in Marbella, thanks to “Operación Malaya”, is unique in its magnitude, stemming directly from the enormous demand for properties in this very special part of Spain and the consequent amount of new property development from which this corruption was born and fed.
Corruption linked with politics and city development is not unique to Marbella, but rampant in many Town Halls throughout Spain, as observed in countless articles in the national press: in Valencia province, for example, 31.3% of citizens recently ranked corruption as their most serious problem. Part of this problem is the system for financing Town Halls, which derive between 40 and 60% of their income from different levels of urban development activities, a system devised by the political parties themselves, of course, and a system which must be modified on a national level as an essential first step to reducing and eliminating corruption throughout the country.
Unfortunately, corruption has not been the only issue affecting the image of Marbella. In 1997, then Mayor Jesús Gil made an incredibly unwise decision in raising his political aspirations from a municipal to a regional level. The immediate result was a decision by all of the political parties and their accompanying press of all categories, to destroy him and his party, and Marbella itself fell victim to these politics. Although consensus had already been reached in principle between Gil and the Regional Government with respect to the General Plan of 1998 before Gil’s political expansion, one of the first main steps taken by the Regional Government as part of its anti-Gil strategy was to reject this plan. Had this not happened, the 1998 plan would be in effect today, and most of the building permit problems of the last few years, would have already been resolved.
Very unjust, politically motivated discrimination and maneuvering against Marbella, with the collaboration of the media, has therefore been one of the principle factors negatively affecting the city in the past decade, a fact which many of the resident and non-resident owners have not yet fully perceived in its real light. Fortunately, there is every indication that this attitude has changed with the election of Ángeles Muñoz as new Mayoress of the City, and a new spirit of collaboration has commenced between the City Hall and the Regional Government.
Only 752 units cannot be legalized in accordance with the proposed General Plan for Marbella
Much of the press has clearly enjoyed publishing articles stating that there were over 30,000 illegal homes constructed in Marbella and that many of these would probably be demolished, spawning totally unnecessary public fear and insecurity. The real number is around 19,000. Almost all of the owners of these living units bought their properties with a valid building license issued by the maximum authority, the City Council, almost all are inscribed in the land registry which is the last word with respect to ownership, and many also have valid first occupancy permits.
The press conveniently ignored that third-party end-users who bought properties such as these in good faith, would always be protected by Spanish law, except in the most extreme cases where a solution could not be reached to legalize the property.
Coming as no surprise for many who understand the planning procedures, and the amazingly ill conceived politics promoting public fear and insecurity, it was announced (El Pais, 15/07/07) that the initially approved New General Plan for Marbella, only anticipates that 752 living units will not have the potential of becoming legalized. And of these, one can rest assured that for those which have already been occupied by end-users (377 in all) there is very little question that there will be some fair solution reached protecting those who have purchased in good faith, as already announced recently by our new Mayoress.
What happened to the 30,000 living units which were going to be bulldozed into oblivion? Well, solutions have been found to accommodate them and legalize their situation within the context of the New Municipal General Plan, so urgently required by Marbella, as everyone in the know had anticipated.
New political leadership resulting in the “Rebirth of Marbella”
The new Mayoress has campaigned with great energy for many years to lead Marbella out of its recent political and financial quagmire into a new era. She has met with virtually everyone in the city. She has carefully and meticulously organized and prepared herself and her team, as no other candidate ever before her. She has surrounded herself by top-notch Town Council members of her party and advisors. She has proven herself to be qualified to do the job and easily convinced the people, resulting in sweeping the elections in May 2007, winning 16 of the 27 seats on the City Council.
Muñoz has pledged a policy of total transparency and of cordial relations with her political opponents, which for the moment has produced a very favourable reaction from all parties, and a return to a normal political situation. She has already started cleaning up the city and re-organizing the financial situation she inherited. She will make transparent efforts to safeguard our municipal patrimony and to recover that which was illegally taken away. She is taking many steps to counter-measure the negative public press Marbella has received in recent years. She has welcomed the opinions of both residents and non-residents alike, to help her to do a better and more effective job, and created the organisms to do so with the appointing of one of Marbella’s original founders, Count Rudi von Schönburg as the head of the Tourist Consortium of Marbella.
Marbella is quickly returning to normal, with exceptionally qualified and transparent leadership, which was the necessary prerequisite to do so. What can we predict for the near future?
The new General Plan, at the top of the priority list, should be definitively approved by the end of 2008 or the beginning of 2009. This Plan will protect Marbella from future overbuilding, provide new green zones and service zones, and even the mere anticipation of the new Plan is already bringing the situation back to normal, with a sigh of relief from everyone that we are well on the way to resolving the urbanistic insecurity of the past few years.
There are already new protection laws for our environment, with the POT (Plan de Ordenación Territorial) which coordinates the services and growth along the whole stretch of coast between Mijas and Manilva, in addition to those measures taken in the proposed new General Plan.
Financial order and discipline, already strictly imposed by our new Mayoress, will be the order of the day and, well before the end of her four-year term, solid foundations of financial good health will return to our beloved city. A part of the municipal assets sold in the past in a manner to enrich a few, against the interests of the local community, will be recovered. We will see the city cleaned up, services and infrastructure improved and our city cared for like never before.
The new airport terminal and runway, well under construction, will almost double the airport’s capacity to 20,000,000 passengers a year.
In a few short years, the new planned coastal railroad, with an estimated budget of three billion euros, linking Nerja, to the east of Málaga, and Estepona in the west, will become a reality.
The completion of the tunnel (finally now begun) under the bottleneck of San Pedro, will ease the congestion on the Coastal Road west of Puerto Banús.
The new AVE fast train from Madrid to Málaga will reduce travel time between the two cities to only 2 hours 30 minutes, opening a very viable and very comfortable alternative route of travel to the province.
The oversupply of lower budget apartments in Marbella and the Greater Marbella area will be absorbed little by little between 2008 and mid-2009, and in the meantime, important opportunities will exist in this price range.
The more expensive properties €800,000, €1,000,000 and substantially more in the most consolidated residential areas, will continue to be in demand by those buyers wanting “the best” areas, and for those sellers who price their properties realistically.
Quality will be the key word for the developers of the future of real estate in this area: quality in location, concept, construction and finishing materials, architecture, and special features, with added value given to low-density developments, security, and high-tech living units. The “caring developer” who puts his experience and heart into his project will be the winner. The model of the developer of the past, whose creed was “build them quickly, cheaply, sell them and move swiftly on to the next project” is dead and buried.
There are of course alternative residential resort locations in the world, some of them mentioned at the beginning of this article. However, the important questions one should reflect upon before purchasing property, especially to use part or full time, are as follows:
· Is there a 12-month season with a great winter and summer climate, with sporting and cultural activities of all types, nightlife, superb restaurants, or is it a resort, as most, which is highly seasonal in nature and “rolls up the side walks” from October to May?
· Do quality public and private services exist?
· How about the infrastructure – roads, airports, sewage, rubbish collection, water supply, etc?
· And how about the educational system? Are there international English, German and French schools close by? And are there prestigious universities in the country?
· Are there quality hospitals and health care services available?
· What about cleanliness?
· Are you surrounded by poverty?
· How about one’s physical security? Can one walk around during the day and at night feeling safe?
· Is there a “police state” where sometimes policemen are looking for “tips” or might make problems for you, or do the police respond to civil government norms which protect citizens and tourists alike?
· Is there legal security, or can “rights” given today be taken away tomorrow by the next government in office?
· Is there respect for human and civil rights? Is there discrimination against women, children and workers?
· Is it easy and safe to drive to different destinations nearby as it is here with Gib, Sevilla, Puerto de Santa María, Ronda, Granada, Cordoba and the Andalusian white villages?
· How many direct flights are there from the capitals and other major cities of Europe, and how long does it take to get there?
· Is there any social life, public and private events, concerts, parties, glamour and excitement available, if you want it?
· Are there over 30 easily accessed golf courses in the area?
· Does it offer the protection of the European Union?
Think about it. Marbella offers all the correct answers to the above questions, and much more. Think about the special and relaxed life style here! How many places in the world can match the Marbella of today with respect to the above criteria?
With the closing of the Gil era, and the arrival of Ángeles Muñoz, we are in the process of witnessing the “Rebirth of Marbella”, and exciting times lie ahead for the city and its people. A sharp and clear improvement of its image, finances, infrastructure and public services is well underway. Marbella is now reaching out to realize its true potential, and to consolidate its place as the world class, quality resort destination of the 21st century.
By Christopher Clover
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