WE may fancy ourselves as a nation of hot-shot property investors who know a financial gold mine when we see one, whether at home or abroad. But are we?
As the economy has unravelled, so has our track record in making property purchases across the globe — especially in Spain, where there has been much more pain than gain.
German investors, on the other hand, have largely avoided our mistakes, and are now buying back property in their favourite haunts, such as Mallorca, from distressed British sellers.
Could it be that the Germans are just better than we are, not only at football, but at buying overseas property?
Is now the time for smart investors to follow German buyers back into the Spanish market?
The Germans used to be big buyers in Spain, but, from about 2003, financial worries at home and a prudent mind-set meant they began to retreat, just as the British advanced.
Many sold to British buyers after years of surging property prices.
Now it looks as if they are back, at least in preferred strongholds such as Mallorca and Gran Canaria.
“Ja! More Germans come back now,” says Margret Düllmann, head of Düllmann & Hundertmark, an estate agency in Gran Canaria.
Martie Quick, a director of Engel & Völkers estate agency in Mallorca, is witnessing the same resurgence.
“They bought low, sold high, and now they are back to buy low again,” he says.
To a certain extent, the Germans have just been lucky with their timing — they were priced out of the market during the boom, which turned out to be a blessing in disguise.
By 2007, demand from German buyers was just 10% of that from the British, according to figures from the National Property Register.
“They are always looking for a good investment, but only something they can afford with cash. They want to be able to sleep at night.”
On the other hand, they deserve credit for their cautious attitude to investing abroad.
For a start, Germans don’t like borrowing money, unlike the British, many of whom will happily take out a loan of more than 100%, or buy sight unseen with a credit card.
“They are always looking for a good investment, but only something they can afford with cash,” explains Brigitte Wendel, an agent with Engel & Völkers. “They want to be able to sleep at night.”
They are also a nation of canny buyers who instinctively go for good beach locations in areas such as the Balearics and the Canaries, where there is always strong demand from holidaymakers.
Many British purchasers, on the other hand, were easily persuaded that new developments in obscure parts of inland Spain, miles from the sea, would make a good investment.
Finally, Germans tend to be fussy about quality, and like to see what they are getting, so they found the off-plan boom a turn-off. Not so the British.
So, what is luring the Germans back? “Prime property at reasonable prices, at least in Mallorca,” says Quick, who claims that prices for the best homes on the island have fallen by as much as 25% in the past few years.
You can now buy flats in good locations with sea views for between €350,000 and €400,000 (£305,000-£350,000), rather than €550,000, and villas are down from €2m to €1.5m.
“The crisis has created a window of opportunity that Germans are exploiting,” Quick explains. “They are after the best properties, in the best locations, with the best views, for the best price. If the price isn’t right, they won’t buy.”
Of course, some British buyers are also seizing the moment.
Last October, Pauline Lewis, 62, an antiques dealer, and her semi-retired husband, Robert, 65, from Halesworth, in Suffolk, spent €1.1m on a four-bedroom flat with sea views in Costa de la Calma, a five-minute drive from Puerto Andratx, in western Mallorca.
“The asking price started above €1.45m, but when it dropped another €150,000 last autumn, we decided it was time to make our move,” Pauline says. The couple took out a foreign-exchange option contract to ensure they get money back if the pound rebounds.
The Lewises agree that this is a great time for popular destinations in Spain.
There is a glut of brand-new properties languishing on the market, so investors are spoilt for choice.
Many of the urban planning scandals and illegal building problems that were hidden dangers are now out in the open and being dealt with, and prices are believed to have dropped by 20%-40%, or even more, regardless of what the official price index says.
In Marbella, Spain’s flagship resort, it is savvy Spaniards who are doing most of the buying.
“It depends on the property, but, in general terms, asking prices are down 20% and closing prices down 30% since they peaked in 2006,” says Diana Morales, who runs an estate agency of the same name in Marbella.
“That means prices are back where they were in 2004 or before. You can now buy lovely villas for between €1m and €2m — that’s less than the replacement value.
“On a lower budget, a townhouse that was sold for €375,000 in 2005 recently went for €250,000. I can’t see it getting better than this.”
Of course, prices may continue falling, but don’t expect prime properties to be given away.
“British people making offers 50% below the asking price are going home empty-handed,” notes Morales in Marbella, while in Mallorca, Wendel says: “Germans know they won’t get bargains, but they think now is a good time to invest, and better and safer than having their money in the bank.”
Warren Buffett famously said that he tries to be greedy when others are fearful and fearful when others are greedy.
Right now, British property investors are fearful, but German buyers are showing signs of an appetite.
If we have anything to learn from the Germans it is that the time to buy property is during the bust, not the boom. And watch when they sell.