Look before you leap into a cheap Spanish property deal

The country's banks have many bargains but there could be a reason for the price

Spain is relying on a €100bn (£81bn) bailout to keep the economy afloat but the banks are still desperate to offload the glut of new and repossessed homes from their books. Spanish banks are now the country's biggest but most reluctant estate agents and although investing in the the property market today may seem foolhardy, with a backlog to shift, prices have crashed.

The Spanish know we're suckers for a bargain and with grey skies all around the UK, you'd be forgiven for jumping in head first. Discounts are impressive on the banks' dedicated real estate websites, which have been translated into English to entice foreign buyers. On Santander's Altamira website, for example, prices are as low as €15,000 for a three-bed flat in Calahorra, La Rioja, and €10,000 for a three-bed in La Trinidad, Valencia, although both are in dire need of attention. La Caixa bank is also selling properties on Servihabitat, Banco Sabadell is selling via Solvia, Banco Popular has Gesa Aliseda and you can find Bankia's repossessed property at BankiaHabitat.

With bargain basement prices on offer, heads will turn, but is it really a good time to buy in España?

According to Madrid-based property consultants Acuña & Asociados, there are around two million re-sale, ready-built and partially complete properties on the market, of which an estimated 11 to 17 per cent is owned by the banks. With such an oversupply of property, prices could still have some way to go, so you may want to bide your time for even bigger discounts but either way, don't expect to uncover high-end homes going for a song.

"Prices have come down a lot and they are probably going to come down even more for some types of property but this could be a false economy as they are quite often cheap for a very good reason," says Mark Stucklin from Spanish Property Insight. "Great property is always in short supply but if you want something simple, in a nice enough part of Spain which is reasonably inexpensive to buy and maintain, there are plenty of reasonable, functional properties that fit the bill. Just don't be too fussy."

Many of the homes that the banks want off their books at any price are the cheap-but-not-so-cheerful properties built up during the real-estate boom. Poor-quality developments, built in bulk and often in breach of planning rules and building licences have been a huge concern for ex-pats, so proceed with caution. It is likely that repossessions are a much better bet for first-time buyers in the Spanish market in urban areas, rather than Brits looking for a home by the sea.

It also pays to keep in mind that, as in the UK, there is some degree of separation when looking at the Spanish property market as a whole.

"If I was in a buyer's position, I would look at the market very carefully. It is location, location and location," says Marc Pritchard, a sales manager of housebuilder Taylor Wimpey España. "The vast majority of the bank-repossessed properties are inland up to 40km away from the coast, don't have sea views, no infrastructure around them at all and in some cases a golf course which cannot be maintained as they are not getting golf players – that is why they have not sold in the first place."

If you buy in an unfinished, empty development there may be no maintenance at all, no after-sales service because the main or sub-contractors no longer exist and no guarantees in place (excluding the structural guarantee which is covered by Spanish law). An unfinished or shoddy site is a big problem but if you buy into a ghost development at any price, it is likely to be money down the drain.

The Balearics could be a different kettle of fish; Mallorca has benefited from stricter local government regulations to keep development in check. An oversupply in low-grade destinations around large Spanish cities and inland from the costas presents a far riskier investment.

Louise Reynolds, of independent European property agent Property Venture, says while price declines have been more accentuated on the coast, inland prices have held up and are likely to be less volatile.

"If you are buying in a decent area, on a decent development, which is not flooded with other 'me-too' properties nearby, then the price is likely to be more resilient," she says. "Places to look for property that will hold its value are near new infrastructure improvements."

No matter where you buy, due diligence is paramount, so steer clear of off-plan and make sure you see any potential purchase. Ideally, rent first in the area you're interested in to get a feel for whether you would be happy living there. This will also give you time to secure a reputable lawyer independent of estate agents who can investigate if the property has any debts and to obtain a valuation to highlight potential problems such as damp or subsidence. you also need to see a copy of the property's "cdula de habitabilidad" (certificate of occupancy). Spanish purchase fees are fairly high at around 10 per cent, so do factor these in too.

Despite setting up their own real estate arms the banks are not necessarily equipped to deal with foreign buyers effectively so you may still have to go through agents. Finance is generally very difficult to obtain in Spain but should be much easier on bank-owned property. Mortgages for repossessions are typically available at up to 80 per cent of the purchase price, compared with the 40 to 50 per cent deposits required for standard resales and some are even offering 100 per cent finance deals. But beware, property taxes could soar. One-off charges are being levied in Greece and France, with foreign buyers affected.

the wider question of Spain leaving the euro is looming. If you buy now at a low price you could end up with an asset in a devalued currency. Spain could increase or introduce new property taxes, particularly for foreigners. And if capital controls are introduced to restrict movement of money within the eurozone, you could find that even if you can sell up, you won't be able to get your money out of the country.

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