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Mark Stücklin, the knowledgeable founder of Spanish Property Insight, has highlighted an impending problem for investors buying property in Spain via the vehicle of an international company.

Until now, this has been a normal state of affairs. Wealthy investors set up an international company structure to buy properties in order to avoid tax, but it seems the Spanish tax authorities have plans to look into this and keep an eye on it. As Stücklin says, “it’s a ticking time bomb.”

Tax specialists Del Canto Chambers explained that the typical set up, which proved very popular from the 1970s to the early 2000s, usually consisted of, “International company structures, with some owned by double or triple vehicles involving a Spanish company belonging to a foreign company and, in many cases, a Trust on top.” The firm, which is based in both Madrid and London, believe that there are somewhere in the region of 5,000 properties in Spain, privately owned and using this investment structure.

Of course, it isn’t cheap to set up such a company structure, so the tax gains have to ‘vale la pena’ (worth the pain) as the Spanish say. They have been used to minimise tax payable to Spain and to make it easier to change the details of ownership and avoid inheritance tax. As you might expect, the properties owned under these company structures tend to be valued in the millions rather than a couple of hundred thousand.

Now Spain, like many of its neighbours, is taking a cool look at tax avoidance schemes, especially since its public finances are under pressure, and pensioners are marching in the streets for a better deal. Del Canto thinks that international company structures owning property have got a target on their back, and the taxation specialists are encouraging caution, because in their words, the Spanish are “high-handed and difficult to deal with.”

The report in Spanish Property Insight also suggests that the Costa del Sol is the first place the tax inspectors will go to “shoot first and ask questions later.” It is recommended that if you have a property under a company structure that you get advice about making sure you are tax compliant. Be prepared before the taxman starts asking questions – it is the best route to survival.

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Overseas buyers who placed deposits on off-plan properties in Spain during the boom years of 1998 to 2008 now have an opportunity to recover some of their losses.

Finally, a ruling by the Spanish Supreme Court in 2015 is being acted upon and it means that financial institutions will have to refund deposits made for off-plan properties.

During the years 1995 – 2008, numerous foreign buyers, some 60,000 of them Irish citizens, put down large deposits on off-plan properties. However, as the property market took a dive in 2008, a majority of the developers were declared bankrupt.

When this happened, property developers, or builders, were required under law to place the deposits in a special bank account and provide a bank guarantee to buyers. The ‘special’ bank was supposedly obliged to ensure all this was in place. However, what actually happened was that the bankrupt developers couldn’t return deposits, and the banks declined to return the money as well.

The 60,000 Irish buyers, for example, lost their deposits and never took possession of the properties they had paid deposits on. But, the good news is that overseas buyers are now starting to force the banks to repay the deposits and follow the Supreme Court ruling.

Claims for refunds are being won

A number of Spanish law firms have already successfully won claims, but as yet the numbers are low, perhaps because few foreign buyers are aware that they can file a legal claim to have their deposit refunded. And, although the Courts ruled that deposits should be refunded, there is still no automatic right to reimbursement.

Therefore, legal counsel is required. Foreign buyers who lost deposits when the market went bust should find a Spanish lawyer who is expert in these types of claims, and at the moment, Spanish banks are facing something of  a tsunami of claims, as mortgage holders ask for ‘floor clause’ and mortgage set-up fee refunds.

In the spirit of “nothing ventured, nothing gained”, this could be the moment off-plan buyers of the boom period have been waiting for: they might get their deposits back and be able to reinvest in a market that is booming once again.

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Portugal is on the overseas property news again. This time it is about the increase in property prices, as well as the rental income that owners can achieve. Overall growth is expected to be in the region of 4.5% in the coming year, and averaging 5.5% over the next five years.

Nationally, property prices rose by 12.8% in 2017, and by 21% in Lisbon. Real estate experts are also suggesting that buyers keep an eye on Porto for strong growth and the Algarve, always a popular destination, is also expected to perform extremely well. These are important points for overseas investors, and of course it suggests that getting into the Portuguese property market sooner rather than later is advisable.

Demand is outstripping supply in Portugal

This is the key reason to invest in Portugal – demand exceeds supply right now. So, property prices and rents are inevitably going up. Also, it seems that more owners are holding on to their properties here, clearly in anticipation that selling at a later date will give them a bigger profit. Therefore, more new build properties are needed to meet demand. An annual report by RICS/Ci Portugal, also revealed “that house price inflation picked up in the latest figures, with the price growth gauge displaying a net balance of +52%, of which is the second strongest reading since 2010, when the survey began.”

Ricardo Guimaraes of Ci said: ‘Top markets see new records every quarter and the most expensive prices previously have become just averages in the present. These quick changes have raised concerns for some respondents about developers and buyers operating in secondary locations, where prices might become unaffordable relative to local rationales.”

With Portugal’s economy also seeing positive growth compared with the past, it’s fast becoming one of Europe’s top property investment locations. Simon Rubinsohn, chief economist at RICS, said: “Indeed, employment and household incomes are rising, consumer confidence remains elevated, and credit conditions have eased further over recent months. Given this, the outlook for housing market activity appears solid as we move through 2018.”

Check out properties for sale in Portugal at Umuzee.com

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A recent survey reveals that when it comes to investment assets, Emiratis from the UAE still put property at the top of the list. The survey, conducted by YouGov and IP Global, revealed that 40 percent of Emiratis will invest in property in the UAE in 2018 and 18 percent plan to make heir investment in overseas property in 2019.

Data from the research shows that UAE residents ranked property above stocks, shares or bonds, indicating that here, just as in other parts of the world, real estate is still the asset that brings the most stable and reliable returns.

As Arabian Business magazine points out, not even global political events have dimmed Emiratis’ appetite for property and there was a seven percent increase in property investment in he last six months of 2017.

The survey also asked UAE residents about where they would consider buying overseas, with some interesting results. Canada and the USA were equal first on the shopping list, followed by the UK, Germany and Australia.

Richard Bradstock, director and head of the Middle East at IP Global, said: “The results of our second YouGov study are extremely positive and indicate that more and more UAE residents are looking to purchase property in the next 12 months.

The countries selected as the Top 5 represent the places where investors believe they will get the most impressive returns. As Richard Bradstock points out, Chicago has experienced a 36% rise in property prices over the last five years and the rental yields have increased 10% in 2016-17. And it is these kinds of figures that luring the UAE investors to spend here.

In the UK, buyers from Dubai and Abu Dhabi are also displaying some changes in their buying behaviour. London has traditionally been their area of interest, and still remains the city of choice. However, it has been noted that in recent months, UAE investors have been expanding their reach to cities with more affordable real estate, such as Birmingham, Manchester and Liverpool.

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The latest figures for the Euribor, the base rate used to calculate Spanish mortgages was at -0.188 in May 2018, putting it at 48% lower than in May 2017. Although the May rate is slightly higher than that in April, it still represents a saving for those who reset their Spanish mortgages annually and mortgage holders will reduce their monthly payments by approximately €3 on a €120,000 loan with a 20-year term.

According to Mark Stücklin of Spanish Property Insight, who has been tracking Spanish mortgages for many years, it looks like the Euribor’s downward trend is more or less over, which means this is a good time to get a mortgage for a Spanish property.

Two elements are likely to affect the interest rates in the coming months: one is the political upheaval in Italy, with its untried and untested coalition government that is dominated by populist policies and Eurosceptic politicians. This has raised concerns about Italy’s place in the Eurozone, with some fearing that this new government will try to do a ‘Brexit’.

And, in Spain, the PSOE party introduced a successful vote of ‘No Confidence’ against the Spanish prime minister, Mariano Rajoy who was forced out of government by a cross-party vote. With Pedro Sanchez of PSOE now installed as prime minister there are concerns about Spain’s economic stability given that PSOE has no majority in parliament and is dependent on other parties for support.

AHowever, both these countries have large public deficits, which means that the European Central Bank (ECB) is unlikely to raise interest rates any time soon. Furthermore, they still have a long way to rise before they get out of negative territory.

ll this means that Spanish mortgages are still good value and this is an excellent time to take out a long-term, fixed-interest rate mortgage and avail yourself of today’s cheap cost of borrowing. As Stücklin says: “If interest rates, inflation, and Spanish property prices rise (as they are), buying a Spanish home today with a fixed-rate mortgage could turn out to be a good investment.”

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The Euribor rate continues to fall this year, albeit not quite as dramatically as in previous years, and it means that property owners will reduce their monthly mortgage interest repayments.

Most Spanish mortgages are based on the base rate of the 12-month Euribor. In April 2018 this stood at -0.191, which is a 59.7% fall on the same month in 2017. The April figure is important because this is the month when mortgages are reset annually.

The Euribor has been on a downward spiral since the global financial crisis in 2008. It got a short-lived, shot in the arm in 2011, but since then it has been remarkably low. In recent months it has been more static with no notable further decline.

What does this mean for Spanish mortgage payers?

If you have a Spanish mortgage that is reset annually, you can expect to see the monthly payment fall by round €3.6 on a €120,000 mortgage repayable over 20 years, according to Spanish Property Insight. It also suggests that articles in the Spanish press are quoting financial analysts as saying that they do not expect the Euribor will not fall any further and that “some monetary sanity has return to the Eurozone soon.” It looks like that days is approaching.

When you look at a 10-year chart for the Eurozone, you can see that money has never been so cheap here. Mark Stücklin, who is an expert on Spanish property prices, claims that now is the time to look for a long-term, fixed interest rate mortgage, because it will never be this good again, at least not in the next 20 – 30 years.

It is also the case that Spanish property prices are rising again, which is another reason to look for that dream property now and to get the mortgage arranged while the Euribor remains at this low level.

Search Umuzee.com for your Spanish property and mortgage advice.

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