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Purchasing as an Investment

Purchasing as an InvestmentOwning a property in Gran Canaria has proven to be for many a sound investment, the value of property and land has proven to be the best investment over medium and long term.

Although forming part of the Sovereignty of Spain, Gran Canaria has its own stable, autonomous government and expanding economy. Spain is a member of the E.E.C. This makes it very attractive to foreign investors. Although the recent global financial turmoil’s have hit Spain and property in Spain very badly; property in Gran Canaria doesn’t seem to have been affected in the same proportions.

Couple this with Gran Canaria’s all year round sunshine providing a twelve-month holiday season and the stability of the economy, you have the perfect combination for investment in an overseas property. Gran Canaria continues to be more attractive to property purchasers than ever before, now that property values have levelled out after touching their heights in 2005 and 2006.

Tourism to Gran Canaria has continued to increase at a rapid rate each year, resulting in an increased demand for ‘holiday homes’ and holiday rental accommodation. This provides the investor with the maximum potential capital growth and potentially 52 weeks of income from the holiday rental sector, particularly in the warmer shores of the south of the island where the majority of all tourists choose to stay.

A recent study for the Alliance & Leicester Building Society carried out by the Centre for Future Studies reveals that over one million over 50s have retired abroad from the UK and forecast by 2020 one in five – an extra four million – will be living abroad. The author of the research states that ‘one of the key factors behind the motive to move abroad is the weather and the lower taxes and prices, together with quality of life’.

In addition the study found that U.K. residents are increasing spending more and more time abroad. In 1960 six million people travelled abroad, rising to 60 million in 2001 and estimates to be around 117 million in 2010. Cheaper and more accessible air travel also accounts for the trend.

This ever-increasing demand of purchasers and tourists will ensure the rates of return will continue for those clients who invest wisely.

Many people enjoy their home in the sun and perhaps periodically allow their family and friends the same benefit. However, in addition to the capital growth of the value of their holiday home, some people obtain useful income by letting their property to tourists. Rental returns from holiday homes in Gran Canaria can be very substantial. If you are seeking an income from your property (this may be an important consideration, particularly if you have taken a mortgage and require extra income to assist the financing of the mortgage repayments) then it is important to ensure that the property you are proposing to purchase is within a community that permits ‘letting to tourists’.

There are companies who will manage the ‘holiday lettings’ for you, in fact many resort type communities offer these facilities on site. Another option and probably the most profitable at times is renting out through a tour operating company working with the complex; ensuring high and guaranteed rentals. To enable you to receive the best possible advice obtain guidance from a professional and reputable estate agent like REAL ESTATE MY HOME and a Spanish Solicitor.

In addition to capital growth and yield from rental income, substantial gains can be made from purchasing a new built property ‘off plan’.

Fundamentally, the purchaser is speculating on future house prices inflation. A typical example could be as follows:- The building company sell the property at the early stages of the project. These properties can be apartments or houses, which generally at prices significantly lower than normal price. The purchaser pays a deposit, which is usually 10% or 20% of the selling price, which is fixed for the duration of the contract. Payment of these deposits provides the building company with capital, thereby, reducing the amount of bank lending needed by the developer to finance the project.

In order to fully understand the benefits, these need to be explained arithmetically. Assuming a typical, theoretical scenario; say at the beginning of a two year project a property is offered ‘off plan’ by the builder with a price of 150.000€uros and a 10% initial payment is required , followed by a second payment 10% payment in say 12 months. Therefore, for 12 months you have invested 15.000€uros and the next 12 months another 15.000€uros. However, the capital growth will be reflected in the future value of the property. Assuming the property value increases by a conservative 10% per annum, by the time the property is completed it will have risen in value by 30.000€uros. A gain of 70% per annum, which means you have not invested anything at all, although you have of course set aside 30.000€uros over a 2-year period.

This is speculative property investment and you could lose money in the event that property markets fall, however, historic performance of property values in Gran Canaria show continued increases in property values (ask anyone who has purchased a property in Gran Canaria in say the last 10 years, how much it has risen in value). In addition to the financial gain with the house price inflation, it is normal practice for the developer to increase their selling prices by 5% to 10% once a percentage of the properties have been sold.

Speculative property investment in Spain has proven to be a very lucrative for many investors in recent years, however, in order to safe-guard and minimise any risk we recommend you to follow these basic guidelines:-

  1. Use a reputable estate agent, who can provide you with an unbiased and objective opinion of the projects available.
  2. Follow the ‘golden rule’ buy in ‘sought after’ locations from a reputable builder.
  3. Always, consult your Spanish Solicitor prior to entering into a contract of purchase, or reservation agreement.
  4. Endeavour to secure a property at the beginning of the project when you can reserve the most desirable plots at the keenest prices.