Tenerife Property: The Time is Now
Articles about property are somewhat depressing at the moment. The media have become like the haggard witches and soothsayers of old, pointing grizzled fingers into a dark and gloomy future and assuring us all of certain doom. But as we all know, the media tend to follow what is happening, reporting after the event and if past recessions are anything to go by they will still be doling out dire warnings months after the bottom has been reached.
So how do we know when we have hit bottom? It’s a burning question that a lot of people would like to know the answer to. Because money hasn’t actually disappeared, it has just gone into hiding. Those who have it are poised, waiting for the tipping point when prices start heading upwards again and that’s when the buying will begin in earnest. It is not rocket science. ‘Buy low, sell high’ is a maxim that has built more than a few fortunes. As the Financial Times notes, the Spanish banks are so robust because by the end of the last recession, in the early 90’s, they owned so much property that they had acquired at a fraction of its value. And history, as always, will be repeating itself.
Naturally, opinion varies as to when we will start the bounce back upwards. Steve Forbes of Forbes magazine predicts that we have already turned the corner and that this is the perfect time for longer term investors. “Emotions are your enemy”, he says and picks now as the time when investors should be buying. Kyero.com, the leading Spanish property portal report on the ‘Vulture Funds’ already snapping up cheap and distressed property at the end of 2008. These types of investment funds are always at the vanguard, closely followed by the shrewdest private investors. By the time the press, and therefore the rest of us ‘normal’ investors jump on the bandwagon, many of these early birds will have moved on to new pastures.
Pulling out the magnifying glass and taking a close look at Tenerife, we can see the corner is in the process of being turned. Enquiries precede sales and are a good guide to sales levels two months hence, and Tenerife Property Shop charted a rise in enquiries from December. This is probably due to Tenerife’s unique asset: the weather. We all know that huge numbers of Brits want to leave the country for sunnier climes, and recession provides the impetus to do so. Rising unemployment in the UK leads to more redundancies, which of course means more people wishing to settle on the island. Depression and low morale are big factors in prompting the move, and the nation’s mood can hardly plummet to lower levels. Demand by potential expatriates is likely to reach record highs within the first few months of this year. By lucky coincidence, these new expatriates will have timed their move perfectly to the property market on the island. Purchasing now, at the point when the market is just pulling out of a trough will help to feather more than a few expatriate nests in the years to come.
Tenerife has been relatively unscathed by the property slump, and historically prices on the islands have been below the mainland, giving some room for manoeuvre. However the key difference between the markets is an even more fundamental one: the basic economic law of demand and supply. Unlike mainland Spain, Tenerife did not experience the huge over building that has decimated the Costas. The housing stock of new unsold constructions on the island is paltry by comparison and the lowest in Spain. A detailed study last year showed that more new developments were being sold than built in Tenerife, a phenomenon unique in the country. With such a balanced demand and supply equilibrium, tipping from negative to positive should only take a gentle nudge. That nudge may already have happened.
With governments doing everything they can to stimulate the banking sector and interest rates having plummeted, mortgages are at some of their cheapest levels for years. Stimulus packages to encourage rental investors provide another sweetener in the mix for investors, who can benefit from some excellent tax breaks. Investing in Tenerife property is starting to look like a no brainer. A neutral observer would have to say that the corner-turning moment has either just happened or is actually in the process of happening.
Even so, most of us can be forgiven for not being so clinical and emotionless. We are still infected by the misery malaise that shouts from our newspapers and televisions every day. We’ll wait to follow the herd. But a few of us may enter 2009 taking a tip from one of the most successful investors of modern times, Warren Buffett who holds the rather unique title of ‘Richest Man in the World’. This financial legend sums up his approach in a few short words of advice, “Be fearful when others are greedy, and be greedy when others are fearful.” It’s a winning strategy, and the time to apply it to the property investment in Tenerife is now.