Spain Investment Guide

ABSOLUTE gUIDE SERIESto Investment Property

Spain

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ABSOLUTE gUIDE SERIES - SPAIN

Date of Publication: November 2008© Obelisk

5. Welcome to SpainDedicated to providing impartial information.

6. Economic Growth & Stability Spain averaged annual growth of 3.6% between 1994 and 2007.

7. Currency & Banking Spain’s banking system is currently unaffected by the subprime crisis.

8. Foreign Investment Spain is the 9th largest recipient of foreign investment in the world.

9. Political Situation & Stability A politically stable parliamentary democracy.

10. Tourism Spain is the world’s 2nd largest tourist destination.

11. Infrastructure Recent huge investment in infrastructure.

12 - 13. Property Market Prices increased by 190% in a decade, but the current property market has experienced a downturn.

14 - 15. Secondary MarketHuge shortage of long-term rental accommodation.

16. Mortgage Market A well-developed mortgage market with wide choice of products.

17. Market Risks Spain presents some issues for foreign investors.

18. Purchase Process Buyers need to sign a preliminary contract.

19. Investment Costs Buying costs average between 10% and 12% of the property price.

20. Summary Spain has one of the strongest economies of the EU.

21. Verdict Spain will retain its popularity as a foreign investment location.

22. Obelisk Advantage Obelisk approaches its projects purely from an investment perspective.

Contents

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ROMANIA

Madrid

Granada

Valencia

MalagaCadiz

Seville

Merida

Salamanca

Valladolid

La Coruna

San Sebastian

Alicante

Teruel

ZaragozaBarcelona

Murcia

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As the market leader for overseas investment property, we are committed to providing cutting edge information for property investors, one aspect that has earned us the award of International Property Specialist 2008 by Business Britain magazine.

We are therefore pleased to present our latest Property Investment guide to Spain, an essential tool for the investor planning to buy property in this country. This guide forms part of the Obelisk Absolute guide Series, dedicated to providing impartial information about numerous investment destinations worldwide.

At Obelisk, we are only too aware of the importance of extensive research into an investment destination and, as part of our policy to offer investors the definitive service, this guide has been rigorously researched to provide you

with in-depth, clear-cut knowledge on the most important factors influencing your property investment decision in Spain.

In this guide you will find recent economic performance and predicted growth, a profile of the current property market and its future potential, along with tourism trends and infrastructure improvements. The guide also includes information about Spain’s mortgage market, the buying process and buying costs.

Obelisk’s Absolute guide to Spain offers investors objective and authoritative information to facilitate an informed decision about investing in Spain. We trust that you, as an investor, will find this guide indispensable.

Here’s to Successful Investing!

Spain forms part of the Obelisk Absolute Guides Series, dedicated to providing impartial information to numerous property investment destinations worldwide.

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to SpainWelcome

Economic Growth

& StabilitySince the Franco dictatorship ended in 1975, Spain has become one of the strongest economies in the European Union (EU), averaging an annual gDP growth rate of 3.6% between 1994 and 2007. When Spain joined the EU in 1986, the income per capita was a mere 68% of the EU average. In 2007, this percentage rose to 90% and living standards in Spain are now higher than Italy’s.

However, like many other EU countries, the Spanish economy has seen a sharp slowdown since 2007 when gDP growth was 3.7%. According to The Economist,

growth in 2008 is expected to be 0.9% and forecasts for 2009 are -0.6% with an improvement predicted for 2010 (1.6%).

The main symptom of Spain’s economic downturn is rising unemployment. A country traditionally suffering from high unemployment (24% in 1994), Spain has recently been one of the highest creators of jobs in the EU and jobless levels reached the record low of 8% in 2007. However, unemployment has risen sharply during 2008 and in September 2008, the rate was 11.33% with further increases expected during 2009.

GDP Growth (Q2 2008): 0.1%

GDP Per Capita (2008): US$33,700

Inflation (Sept 2008): 4.5%

Unemployment (Q3 2008): 11.33%

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ABSOLUTE gUIDE SERIES - SPAINABSOLUTE gUIDE SERIES - SPAIN

Since the Franco dictatorship ended in 1975, Spain has become one of the strongest economies in the European Union (EU), averaging an annual gDP growth rate of 3.6% between 1994 and 2007. When Spain joined the EU in 1986, the income per capita was a mere 68% of the EU average. In 2007, this percentage rose to 90% and living standards in Spain are now higher than Italy’s.

However, like many other EU countries, the Spanish economy has seen a sharp slowdown since 2007 when gDP growth was 3.7%. According to The Economist, growth in 2008 is expected to be 0.9% and forecasts for 2009 are - 0.6% with an improvement predicted for 2010 (1.6%).

The main symptom of Spain’s economic downturn is rising unemployment. A country traditionally suffering from high unemployment (24% in 1994), Spain has recently been one of the highest creators of jobs in the EU and jobless levels reached the record low of 8% in 2007. However, unemployment has risen sharply during 2008 and in September 2008, the rate was 11.33% with further increases expected during 2009.

Currency

& Banking

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Foreign Investment

Foreign Companies Investing in PortugalBoeing International, Cisco Systems, Ernst & Young, General Electric,

Kraft Foods, Orange, PricewaterhouseCoopers

In terms of foreign direct investment (FDI), Spain is the 6th largest recipient in Europe and the 9th largest in the world (it is also the world’s 7th largest foreign investor). FDI inflows in 2007 reached a record level of US$53.4 billion, a massive increase from the previous year’s US$23 billion.

Foreign investment in Spain has recently been dominated by the construction sector – accounting for 40% of total FDI inflows over the last decade – although industries such as information technology and renewable energy are now emerging as main recipients of FDI. Main investors include France, germany, the UK and US who between them total 60% of investor stock in Spain.

According to the latest AT Kearney FDI Confidence Index 2007, Spain has fallen from its 17th position in 2005

out of the top 25 countries for foreign investment. In the Forbes Best Countries for Business 2008, Spain ranks in 35th place and achieves high scores for personal and trade freedom, but low for its corporate tax rate and red tape. However, in the Index of Economic Freedom, Spain ranks above the European average.

Keen to attract FDI, Spain offers numerous investment incentives particularly for sectors such as research, development and innovation, tourism and renewable energy. As Spain is an EU member, investors are able to access European aid programmes, which provide additional incentives for investment. The official investment agency, INTERES Invest in Spain, acts as a central body to promote FDI.

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After nearly 40 years of dictatorship, Spain became a parliamentary monarchy in 1976 and has since enjoyed its longest period of democracy. A stable country politically, Spain is currently ruled by the Socialist party (PSOE) led by President José Luís Rodríguez Zapatero who was re-elected in the last general elections (March 2008). King Juan Carlos is Head of State.

Spain has 2 main political parties, the PSOE and the Partido Popular (PP), right wing. Regional political parties such as the Catalan CiU and the Basque PNV are also prominent in national politics. Spain is divided into 17 autonomous communities led by regional governments.

Political Situation

& Stability

EU Member: Since 1986

NATO Member: Since 1982

WTO Member: Since 1995

Political System: Parliamentary monarchy

Ruling Party: Partido Socialista Obrero Español (PSOE), socialist

Next General Elections: 2012

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TourismTourism is one of Spain’s most important industries and according to the World Travel & Tourism Council (WTTC), represents 17.2% of the country’s gDP (US$276.7 billion). growth in the tourist sector is expected to average nearly 3% between 2008 and 2018, and the travel and tourism industry provides employment for almost 18% of Spain’s workforce.

Spain is the world’s 2nd largest tourist destination and a perennially favourite holiday spot. Spain received 47 million tourists in the period January to September 2008, a slightly lower figure than the previous year. Between them, visitors from the UK (27.5%) and germany (17.3%) account for nearly half of Spain’s tourism.

The recently launched government plan, Turismo 2020, plans to develop a comprehensive strategy to improve the tourist sector and ensure Spanish tourism remains attractive in an increasingly competitive market. The ‘Winter in Spain’ plan aims to attract tourists to Spain out of season and has a budget of €500 million for refurbishment of hotels and resorts. Spain also plans to set up tourism offices in the emerging markets of China, India and Russia.

Visitor Figures (Jan-Sept 2008): 47 million

Tourism Contribution to GDP: 17.2%

Tourism Contribution to Employment: 17.7%

World Ranking: 7/176 (in terms

of absolute size)

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Infrastructure€249 billion investment in infrastructure from 2005 to 2020

High-speed railway network to cover most of the country

€18,000 million in airport investment between 2007 and 2010

Spain has recently made huge investment in infrastructure, particularly transportation with the main emphasis on roads, airports and high-speed railways. In 2005, the government announced a €249 billion strategic plan to be implemented from 2005 to 2020 on a range of large projects. The European Investment Bank is providing €10 billion to fund some projects from 2007 to 2013.

Since 2006, Spain is the world’s top spending country on high-speed railways with a network planned to cover most of the main population areas in the country.

According to government estimates, by 2010 Spain will have more kilometres than any other European country and by 2020 every Spaniard will live within 50km of a high-speed train station.

Airports are another major investment target with a total investment of €18,000 million between 2007 and 2010. Madrid and Barcelona airports are the main recipients with Malaga airport, the gateway to the Costa del Sol, also set to receive substantial investment.

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ABSOLUTE gUIDE SERIES - PORTUgAL ABSOLUTE gUIDE SERIES - SPAIN

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According to The Economist’s Global House Price Index, Spanish property prices have increased by 190% in the last 10 years.

Capital Growth (Q2 2007 to Q2 2008): -0.3%

Average Annual Rental Yield: 3.65% to 4.7%

Property MarketSpain has an established reputation as one of the world’s most popular places to buy property and according to the Foreign and Commonwealth Office estimates, around 1 million Britons own a property in Spain. The country is also a favourite with other Northern European buyers, particularly from germany and Scandinavian countries.

Favourite destinations within Spain include the Costa Blanca, Costa del Sol and the Balearic and Canary islands, although in recent years, many other coastal areas such as the Costa Brava and Costa Cálida have become popular with foreign buyers.

The increased availability of low-cost flights and the warm climate on Spain’s islands and Mediterreanan coast has led many investors to buy in Spain primarily as a lifestyle

option. However, in recent years, the massive increase in properties prices has meant that Spain has also been an investment location offering huge capital gains. According to The Economist’s global House Price Index, Spanish property prices have increased by 190% in the last 10 years, a similar rise to the 213% experienced in the UK.

However, since 2007 in common with other European markets such as Ireland and the UK, Spain’s property market has experienced a downturn. The Spanish National Statistics Institute reports that house prices fell by 0.4% and 0.3% in the first 2 quarters of 2008 with experts expecting higher decreases in the near future. Although the Knight Frank global House Price Index Q2 2008 reported a 2.4% rise in Spanish property prices, the report warns that “wider price falls could be imminent.”

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Secondary

MarketMany of the millions of tourists who visit Spain every year stay in rented accommodation. According to the Spanish Institute of Tourist Studies (IET), 8.2% of Spain’s 58.2 million visitors chose rental holiday accommodation in 2006. This figure, around 4.8 million people, is indicative of Spain’s buy-to-let potential.

Spain has a huge shortage of long-term rental accommodation and just 8% of properties are rented (the European average is 30%). According to one of Spain’s main property consultants, Aguirre Newman, the rental market is expected to grow 15% during 2008. government tax incentives for rentals include exemption

from income tax on all rental earnings if the tenant is under 35 and 50% exemption if the tenant is older.

Spain’s buoyant property market from 1999 to 2006 led to high capital gains, no longer the case in the current market. However, falling prices, the country’s depressed economy and the huge supply of housing means that Spanish property currently represents a good long-term investment. Aguirre Newman believes the resale market will decrease by 45% in 2009 and that price adjustment needs to be 23%. This means that the Spanish property market should offer good investment opportunities in 2009 and 2010.

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8.2% of Spain’s 58.2 million visitors chose rental holiday accommodation in 2006. This figure, around 4.8 million people,is indicative of Spain’s buy-to-let potential.

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Mortgage Market

Spain has a well-developed mortgage market and a range of banks offer a wide choice of mortgage products. Mortgages are available to residents and non-residents who are citizens of the EU or North America. Spain has recently introduced mortgages for clients from Eastern Europe.

As a eurozone country, Spain’s mortgage lend-ing rates are linked to the European Central Bank’s benchmark rate, known as the Euribor. In October 2008, the 6-month Euribor was around 4.5% with mortgage interest rates slightly higher.

Banks need to be satisfied that you can meet your mortgage repayments and the amount you can borrow is based on your affordability or 70% of the property valuation, whichever is lowest. Mortgage terms are up to 40 years (or the age of 80).

In the current global economic downturn, Spanish banks are less ready to grant mortgages and in September 2008, Reuters reported a year-on-year drop in mortgage borrowing of over 40%. However, Spanish banks have not been affected by the subprime crisis and are, according to Forbes, “looking stronger than ever amidst an unprecedented financial crisis.”

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Market RisksProperty investment into emerging markets may carry some degree of risk. However, the degree that market risk in a particular country affects a property investment depends largely on thorough due diligence conducted prior and during the purchase process.

A major problem currently facing Spain (and many other countries) is the downturn in its economy, which has led to a sharp fall in economic growth and a huge rise in unemployment. This situation is expected to continue during 2009 with improvement in 2010. According to the International Monetary Fund, Spain’s economy is strong and will return to its potential growth path in the medium term.

Oversupply in the housing market is another risk in Spain where the resale market is currently saturated and

property analysts expect resales to fall by 45% during 2009. However, this situation should provide some good long-term opportunities for the investor since predicted price adjustments should lead to the availability of many low-price properties.

Recently, there have been numerous scandals regarding Spanish property, particularly ownership issues, illegal construction and municipal corruption. These include the so-called ‘land grab’ issues in the Valencia region, illegal properties built on rural land in Almería and corruption by councillors in resorts such as Marbella and Estepona. Property investors are advised to carry out comprehensive due diligence on a purchase and employ the services of an independent lawyer to revise all legal aspects of the investment.

The current resale market should provide some good long-term opportunities for the investor.

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Purchase Process

Below is the standard purchase process in Spain and issues that may affect a property purchase:

In order to purchase property in Spain, a Numero de Identificación de Extranjero (NIE) is required. The NIE is a unique identification number required to open a bank account or purchase property. The NIE must be obtained in person at a Spanish police station.

An initial reservation deposit of between €3,000 and €6,000 is normally required, although this may vary depending on the purchase price.

Once the offer of purchase is accepted, both parties sign a sales contract or ‘option to purchase’ contract and the buyer pays a deposit of 10% of the purchase price. This is non-refundable if the buyer decides not to complete. If the vendor decides not to sell, they must usually return double the deposit to the buyer.

The title deeds are signed by both parties in the presence of a Notary Public and the buyer makes final payments. Purchase taxes and fees must be paid and the title deeds are registered in the buyer’s name at the Land Registry.

Spanish laws and legal processes may be very different to what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase.

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Investment Costs

The costs of a standard property purchase in Spain may include the following:

The costs of a standard property purchase in Spain are high and average between 10% to 12% of the property price. They include the following (all percentages are of the purchase price):

Property Transfer Tax is payable on the purchase of resale property between 6% to 7% depending on the region.

VAT (IVA) is payable on the purchase of off-plan property at 7% depending on the region.

Notary and Land Registry fees are fixed by law and based on a sliding scale. They range from 0.5% to 2% of the purchase price.

Stamp duty is payable on the purchase of off-plan property at 0.5% or 1% depending on the region.

Legal fees are payable and range from 1% to 1.5%.

Capital gains tax is payable on profits (adjusted according to inflation) at the rate of 18% for EU nationals and 35% for non-EU nationals. Profits from principal residences are exempt provided the profit is reinvested in another principal home within 2 years.

Spanish taxation is complex and subject to change. You are therefore recommended to take expert and up-to-date advice on taxation issues affecting the purchase and ownership of property in Spain.

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SummarySpain has become one of the EU’s strongest economies and averaged an annual gDP growth of 3.6% between 1994 and 2007.

The Spanish banking system is currently one of the few in Western countries unaffected by the subprime crisis.

Spain is Europe’s 6th largest recipient of foreign investment and the 9th largest in the world.

Since 1976, Spain has enjoyed its longest period of democrary and is politically stable.

Tourism represents 17.2% of Spain’s gDP and Spain is the world’s 2nd largest tourist destination.

Spain has a €249 billion strategic plan for investment projects from 2005 to 2020.

Around 1 million Britons own a property in Spain.

Spanish property prices have increased by 190% in the last 10 years.

Around 4.8 million tourists stay in rental accommodation every year.

There are generous tax incentives for income from long-term rental accommodation.

Spain’s mortgage market is well-developed with a wide choice of mortgage products.

The downturn in the property market is expected to lead to lower prices and good investment opportunities.

A 10% non-refundable deposit is paid when the sales contract is signed by both parties.

Purchase costs are high and average between 10% and 12% of the purchase price.


The following summary provides key highlights to consider when investing in Spain’s property market:

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The Spanish property market has suffered greatly during the last 12 months. This has been mainly due to an oversupply of cheap tourist accommodation on the coastal resorts.

Spain is still one of the most favoured destinations for foreign investments, mainly due to the climate and this perception is not likely to change.

Several infrastructure projects are underway including the new Malaga airport and the AVE train link. The airport is expanding to handle passenger traffic of 20 million each year. The AVE train link at present services Madrid to Malaga and will soon connect Malaga to Barcelona in less than 5 hours. A new rail link between Malaga and the commercial centre of Marbella is proposed.

In general, Spain’s future looks very bright.

Verdict


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The Absolute guide Series Rating

Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.

Obelisk AdvantageVoted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism.

Obelisk has identified a simple and transparant purchase process for its clients as a simple, four step process:

The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.

An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.

On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.

The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.

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For more information about Obelisk’s investment opportunities in Spain, contact us now on [email protected], visit

our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).

Awards Obelisk ‘International Property Specialist 2008’

DisclaimerThe material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future.

The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.

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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514

For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790

Alternatively you can email: [email protected] or visit: www.obeliskinternational.com

Documents

Spain Investment Guide