The horror stories often recounted in the past relating to the pitfalls of buying a property in Spain have generally become a thing of the past. Buyers have become more aware of the need to exercise caution when involving themselves in what is a major financial undertaking. Most people when contemplating their property purchase are now involving registered real estate agents and are using lawyers to protect their interests.

 Speaking from the Bank's side of the fence I would hope that it has become easier to arrange finance for property purchase through the offshore banks. This in itself lends further protection to the client- the Bank's lawyer will be ensuring that all is water-tight as far as the security in the property is concerned (admittedly in the first instance to protect the bank but this ultimately protects the interest of the client as well).

 Over the last two to three years there has been a continued boom in the Spanish property sector and a huge amount of construction has been started on the Spanish coast. Locally we can readily see this by driving along the Costa del Sol where there has been intense activity particularly in and around the Marbella area. It would appear that on every spare plot of land, building work is taking place and although we have seen boom periods on the Costa del Sol in the past, this time the situation appears to be somewhat different.

 Firstly there is a great deal of Spanish investment in the properties that are being constructed which are being financed principally by the Spanish banks. In certain areas multiple units are being purchased off-plan by Spanish investors which will be onsold to private purchasers in due course. In addition there are many European nationals looking for principal residences or second homes and they are eager to buy in this area. Generally people are having more leisure time and are looking to spend more money on leisure - this, coupled with the fact that technology in communications has taken great strides forward, has resulted in more people being in a position to undertake their business from "an office in the sun". At Jyske Bank we have seen a continued trend in business people looking to base themselves on the Costa del Sol where they are well served by an easily accessible airport which has excellent connections to the major European and international cities.

 Although prices have risen considerably over the last three years - in some areas property prices have doubled - of late there appears to have been a slowing down in price increases. There can be no doubt that there is much demand - particularly at present from the Spanish and German market - but supply will be the key issue. As mentioned above there is no doubt that many apartments are being purchased off-plan by investors but the true test of the market could be in whether these apartments can be sold at prices that justify the original investment. Over the next two years or so there will be considerable funds available in the economies of the "Euroland " countries (those countries that will fully covert to Euro as their currency in June 2002) since there is a great deal of their domestic currency available to the population which cannot easily be converted to Euro at that date. Demand has also been supported by purchasers from the UK where the strength of sterling against Euro has ensured that property prices have remained attractive to UK purchasers.

 It still makes a great deal of sense to buy property rather than to rent. Interest rates are generally low, and in many cases the actual costs of borrowing more or less equates to what current rentals can command. There has been much made of the case for taking out a loan in Japanese Yen to take advantage of the minimal lending rates - currently less than 1%p.a. Although this does have the current advantage of keeping interest costs low, there is a currency risk if, as will be the majority of the cases, the borrower has no Yen income and is having to convert from other currencies to meet the loan repayments. Generally we try to match the currency of the loan to the currency of income although a case can be made for borrowing in Euro as the asset (the property) is effectively in that currency.

 One area where we see continued growth is in the concept of equity release. This is where a client has already purchased a property for cash, probably some years ago, and wishes to borrow against the increased value of the property in order to use the equity so released for other purposes. It may be that the funds released could be put towards some other type of investment which is more liquid and can be used to generate some additional income.

 The important point to remember when considering property purchase on the Costa del Sol (or anywhere for that matter) is to seek professional advice from people who deal in this market and not to be lead into taking decisions in situations that you would not dream of doing at home.

Ian Styles

Manager-Credit Department

Jyske Bank (Gibraltar) Limited

(source 123Propertynews)