Spain Repossessions – Are They Really Cheap Properties In Spain?

‘Repossession in Spain’, ‘Spanish Repo’, ‘Distressed Properties in Spain’ … These terms are now commonplace on websites and with estate agents dealing with the Spanish property market. For most buyers, these terms all mean one thing – cheap property in Spain…

Thousands of bargains are currently available in the Spanish market – up to 50% discount in some cases – just waiting for the lifestyle buyer and investor prepared to purchase a carefully-researched and well-chosen property.

However, the buyer should also be aware that buying a so-called ‘repo’ in Spain can entail months of paperwork and costs. This could mean that the purchase may well turn out not to be a bargain after all.

Repossessions in Spain generally first enter the property market after the owner has defaulted for several months (usually at least three) on mortgage repayments and the bank providing the mortgage has started legal proceedings to repossess the property. The Spanish legal system means that a repossessed property cannot change ownership (i.e. full title cannot be bought by another person) until these court case proceedings have concluded. This typically takes around 18 months or in some cases, as long as 24 months.

While the proceedings are taking place, the buyer of a property under repossession can only buy the debt on the property, not the title. Buying debt can also be a potential minefield of bank-enforced penalty and timescale clauses.

With some repossessed properties in Spain, court proceedings have concluded and the title is free. However, it is worth bearing in mind that these properties have already been on the market for up to 18 or 24 months, during which time no prospective buyers have come forward. Reasons for this include other debts on the property, poor location, inferior construction quality and lack of investment potential.

Many repossessed properties are offered by Spanish banks, but purchasing directly from a bank has its disadvantages. Firstly, Spanish banks are cautious lenders and the approval of a purchase may take several weeks or even months as well as include complicated and time-consuming paperwork. In addition, prices for properties offered by Spanish banks are inflated since the bank adds its commission to the price. A possible advantage to buying from a bank is that you are more likely to get mortgage approval, but the mortgage will be on the bank’s terms, which may not be the best available on the market.

An alternative source of cheap property in Spain is to buy directly from the developer. Here the investor also needs to exercise caution as not all developers are offering completed properties or properties with the correct paperwork in place. For example, only properties with a First Occupation Licence can be purchased with a mortgage, can be connected to mains utilities and are ready to move into. Some distressed properties are on huge sites where there is no guarantee that properties will be occupied or that the community of property owners (vital for the maintenance and upkeep of the gardens and common elements) will be established.

On the other hand, developers are currently offering excellent price deals, often just slightly above the mortgage valuation price.

“The best scenario currently for the investor looking for cheap properties in Spain is to look in small finished developments being sold directly by the developer,” advises James Gonzalez, Market Analyst at Obelisk Investment Property. “In this case, the developer already has the First Occupation Licence for the property and is usually looking to dispose of the last remaining units to ensure that the development is occupied and that the community of property owners can be established.”

James believes if a cheap property or repossession in Spain does not fit these criteria, the investor would be wise to look elsewhere. “While southern Spain offers excellent opportunities for investment at the moment,” says James, “not all bargains are really bargains and there are plenty of potential traps for the investor not prepared to invest with due diligence. If there is a choice of property, I think repossessions in Spain should be avoided.”

News submitted by Alison Kane, Obelisk Investment Property

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