23 February 2015 – El País
62% of the homes purchased in Spain last year were second-hand.
The second-hand segment is winning by a landslide in the race to sell more homes in the Spanish real estate sector. Overall, sales increased in 2014 for the first time in four years – breaking the trend observed since 2010 – and they did so thanks to the used home segment.
62.7% (200,065) of the 318,928 homes sold in 2014 were second-hand and just 37.2% (118,863) were new builds, according to the statistics of the Association of Registrars. According to INE, sales of second-hand homes increased by 18.4%. By contrast, sales of new builds plummeted, falling by 16.9%.
All indicators suggest that second-hand homes will continue to dominate transactions throughout 2015. Thus, the gap between new and used housing will become increasingly larger. Why? The main factor tipping the balance is price; second-home homes are more affordable for the long-suffering buyer. Used homes are between 5% and 15% cheaper, according to Manueal Gandarias, Director of the Research Unit at pisos.com. In euros, “the difference between an average used home and an average new build in Spain amounts to approximately €400 per square metre”, according to calculations by the appraisal firm Tinsa.
Second-hand properties ended the year with an average price of €1,347 per square metre, whereas new builds stood at €1,624/m2, according to data published by the General Council of Notaries. Moreover, second hand properties are available for as little as “just over €1,021. This undoubtedly encourages future buyers”, says Chus de Miguel, Commercial Director at Casaktua.com.
Furthermore, the prices of used homes offer more room for negotiation when they are in private hands, especially for overvalued homes acquired during the bonanza years.
Another point in favour of second-hand properties is that they are taxed at a lower rate. Brand new properties are subject to a 10% VAT charge, whereas Property Transfer Tax (Impuesto de Transmisiones Patrimoniales or ITP) is levied on those that are already inhabited and it varies from 6% to 10%. Moreover, aside from a few exceptions, used homes are located in better areas, since new homes are often scarce in city centres, unless they are refurbished homes. “A high percentage of used homes are located in more established, central areas that have more services”, says Chus de Miguel.
Although new builds have a very important advantage: “the greater ease of financing offered by the developers and banks that own these homes”, says Jesús Duque, Vice President of Alfa Inmobiliaria. Loans are normally granted to the developer in the case of new builds, which may be subrogated to the potential buyer. And financial institutions offer more credit facilities to place their own products, be they new or used. The individual vendor is disadvantaged in this sense.
In terms of the state of the property, new homes are ready to move into and live in, whereas used homes may require the buyer to invest in a face-lift or comprehensive renovation. “Our clients prefer to buy a house in a good building, update it or renovate it to their taste and pay 20% less than they would pay for a new build”, says Fernando Sánchez, agent at Re/Max Urbe. And he continues “problems should not arise if the property has a favourable Technical Building Inspection (report), is energy efficient and has good insulation”.
Regardless of tastes, is it worth paying more for a brand new home? “If we are talking about the same area and similar characteristics in terms of a property, I do not think it is worth paying 10% or 20% more for a new home”, says Duque.
Before signing any agreements, experts advise that (potential buyers) perform a simulation of the annual costs that will result from the purchase. As well as of the monthly costs. One should appreciate that “new builds typically charge higher community fees (to cover the cost of swimming pools, gardens, sports facilities…) and that it is possible to find second-hand homes where the central heating and water costs are included”, say sources at Fotocasa.es.
The fact that the second-hand segment is driving the reactivation of the real estate market is also explained by the fact that there is more supply. And “because the new builds sold by banks are also classified as second-hand”, say experts at Idealista.com. Much of the stock held by banks is classified as ‘used’ even though it is actually brand new, because they are homes that they have absorbed from developers in exchange for the payment of debt.
And whilst the second-hand market is growing, the new build segment is contracting; it is plummeting because hardly any new homes have been constructed in Spain in recent years. It is true that the construction of new homes is now increasing, albeit at a very slow rate. By 2016, the panorama will have changed. Bankinter estimates that, after years of significant decreases, driven by low demand and developer paralysis, sales of new builds will return to a level close to 100,000 units by 2016 (with total sales amounting to 450,000).
Original story: El País (by Sandra López Letón)
Translation: Carmel Drake