Is Brexit the end of Britain’s love affair with the Costa del Sol?
Brexit was greeted by Europe first with shock, then disbelief and, presently, apprehension. The Sterling has weakened to the lowest in thirty years and experts are predicting a complete UK market crash down the exit road. President of the EU Parliament, Martin Schulz, took a harsh stance immediately after the results were announced. He warned that the EU would take strong measures against the UK to ensure that other countries do not follow its lead. According to Schulz, Britain had just cut ties with the single biggest market in the world and consequences would follow. Experts suggest that such consequences will be most felt in areas like healthcare, taxes, residency rights, pensions, and trade, to mention a few. But, a more immediate effect is already being felt in the Spanish property market.
Britons are key property market stakeholders in Spain
There are over 760,000 Britons living in Spain, making Spain the host of the largest number of UK nationals living abroad. A rich culture, good standards of living, lots of sun and exquisite tourist attractions have lured British citizens to Spain over the years. UK nationals are particularly attracted to the coastal regions like the Costa Blanca (in Alicante), the Costa del Sol (in Malaga), and other places like the Balearics and the Canaries. Britons are also the key property market drivers in these regions. Ever since the Spanish markets started to recover in 2013 from the recession, UK investors have increased investments yearly in the Spanish property market. In 2015, UK investors were responsible for 21% of property transactions in Spain by foreign investors; the highest for a single country. This was a 42% year-on-year increase for UK investment, which drove total foreign demand for property in Spain to 14.4%. But, in the run up to the referendum, Britons were already adopting a wait-and-see attitude, the pound had begun to weaken and transactions had started falling.
The fear now is that a weakening Sterling will make house purchase more expensive for British investors, and so discourage them from investment in the foreseeable future. This also affects British sellers who will now have greatly-reduced patronage probabilities as Britons form the bulk of investors in the market, especially in these regions. Mark Stucklin of Spanish Property Insight believes that Brexit is bad news for both the Spanish property market and British nationals living in Spain. He predicted that, for the short term at least, a weak pound may result in recession in the UK, which would reduce demand for Spanish property even further. Stucklin fears that UK nationals may no longer be able to retire in Spain in the numbers that have been recorded in the past, with looming restrictions on healthcare, pensions and other monetary rights. He further predicted that Alicante and Malaga would be hardest hit by a falling UK demand, given that the regions have been the hub of UK property investment till date.
Britain’s Love Affair with the Costa del Sol
Over 12 million Brits visit Spain every year, according to data from the Foreign and Commonwealth office. Last year, the figure was more than 15 million; 3 million of these Brits landed in Costa del Sol’s Malaga. 2015 figures from the ACP Constructors and Developers Association of Malaga revealed that Britons accounted for 20% of all property purchase in the Costa del Sol province. But, with the uncertainties surrounding Brexit, the favoured holiday destination has started to see falling transactions. Pia Arrieta, partner and managing director at Diana Morales Properties said that Q1 2016 saw a decrease in the number of enquiries from British investors, for property in Marbella. Diana Morales Properties is an associate office of UK real estate agent Knight Frank. According to her, investigations at the time revealed Brits were waiting for the outcome of the referendum before making any major investments
The Outlook for the Costa del Sol
Industry insight suggests that many UK citizens will suspend investment in Spanish property as the country adjusts to the effects of Brexit. The weakening pound is a speculation effect as market confidence wobbles. Experts, however, believe that the immediate effects of Brexit will be temporary and that investors may soon resume activity as political and economic plans get clearer. Costa del Sol continues to be a favoured destination for UK nationals all year round. The sun, sand, exotic scenery and fantastic value for money have always been an attraction for them; they are unlikely to completely resist the charms of the Sun Coast even after a full Brexit. This year alone, travel agent, TUI Group, said that it recorded a 9% increase in bookings by UK citizens for summer holidays in the Costa del Sol and other favorite destinations. And, unless Spain suffers drastic political, economic and climate changes, the Costa del Sol is likely to remain a favoured destination for UK citizens in the years to come.
The real prospects for UK citizens in Spain
People are making decisions based on expected implications of Brexit, some of which may not founded on practical considerations. We take a look at the real prospects for UK citizens within the next two years at least, especially for those who are loathe to leave the exotic life in the sun.
A weakening Pound Sterling
This is probably the most immediate and tangible consequence of Brexit. A weakening pound sterling means property purchase in Spain is now more expensive for UK buyers. Spanish house price, however, remains more than 30% cheaper today than in 2007, and UK buyers will still get good value for money.
UK citizens are able to continue investment in Spanish property as before. Until Britain leaves the EU in two years’ time, there is no change to the rules and rights that govern foreign investment. Even after a full UK exit, it will take a long time to fully address trade terms. Foreign investment in property is a very important part of the Spanish economy, with both EU and non-EU investors enjoying Spain’s open arms to foreign investment. So, leaving the EU will not spell doom for UK investment in the Spanish property market.
Tax agreements between the UK and Spain are not governed by the EU, and so Brexit will have no effect on that. Other concerns including pensions and healthcare will not see any changes in the next two years. And after full Brexit, it is unlikely that we will see wholesale changes in these areas.
Just like the Prime Minister pointed out, the UK remains a member of the EU for the next two years. There will be no changes to rules concerning foreign travel and living abroad during this period. During this time, the UK will negotiate exit terms with the EU. The EU, as hinted by the president of its parliament, may take a hard line against the UK. But, the fact remains that the UK is unlikely to settle for sanction-like exit terms. Granted, leaving the EU will mean restrictions in several economic and socio-economic aspects; travel will need more paper work, living abroad will have to pass more scrutiny and healthcare abroad may no longer be free. But, it is important to remember that the referendum is not a government decision yet. The UK government will consult with every key player in the UK economy to decide whether to go ahead with Brexit, and if yes, on what scale the exit will be.
Article Source: The House Shop