As wealth advisory consultants, one of the most often raised questions is whether to invest in some type of ‘second’ home or vacation property. As most of us can testify by just looking out of the window at this time of year, buying a property in a sunny and warm location is tempting.
Spain is one of the most popular choices due to its lengthy coastline, relatively numerous choice of new build property construction and, of course, favourable climate.
This was reflected in the boom years of the turn of the twenty-first century which came to a shuddering halt in 2008 in the midst of the Global Financial Crisis. From 2008 to 2015 prices toppled almost 42% with 31 quarters of consecutive price declines.
Since then, however, property prices have bottomed out and actually started to turn back into growth. What then is the prognosis for this continuing?
There are many factors affecting the prediction of the near term performance for Spanish property but I want to focus on one factor which I think many analysts and pundits are under-estimating: Brexit.
An estimated quarter of a million British citizens reside in Spain. Whilst trying not to make generalisations, many fit the following profile – retirees, home owners, and residents of the ‘Costas’.
What then are the implications for them after Brexit day, whenever it arrives? Of course, we will not know the full ramifications of the impact on British citizens living in the EU until after the ‘deal’ has been agreed. However, a number of critical issues may develop NOT be as favourable to British in Spain as is the situation now.
One is actual freedom of movement – how many of the pensioners in Spain are registered as residents with the Spanish authorities, have transparent residency status (involving paying tax in Spain) and will find it easy to continue to live in Spain by moving to Spanish Permanent Residency after Brexit?
If they are not in compliance, they will have to leave Spain every 90 days, and not stay for more than a certain number of days in the year. This could affect the comfort of them having property in Spain. For many this might be the most important factor to persuade them to head ‘home’.
The second issue is UK pensions. Unlike UK pensioners living in Australia and South Africa, for example, EU resident British pensioners benefit from a reciprocal agreement where the UK government index links the state pension and thus pension income rises in line with pensions administered to UK resident retirees.
This MAY stop after Brexit. If it does, UK pensioners living in Spain may be subject to a double hit – receipt of a UK state pension not linked with inflation that is frozen at 2020 levels, and a devaluation of the Pound Sterling should the exit deal not appear to be favourable in the currency markets. This may have a profound effect on the financial security on the Brits in Spain and many may be FORCED through relative poverty to head home.
The third factor to seriously impact British retirees in Spain is health care provision. Under the current system, the UK is a participant of the European Health Insurance System which provides EHI Cards to all expat citizens of member states residing in another member state. This is likely to be discontinued after Brexit.
There are currently UK citizens in Spain who have chronic and other serious illnesses and are in receipt of UK NHS funds which fund their treatment in the Spanish system. The UK government recently declared that this system will continue for AT LEAST three months after Brexit day, but three months is not a long period of time if you are suffering from chronic illnesses.
This worry must be contributing to the ill health of many of the British in Spain who are in receipt of this benefit. As many of the British expatriates discussed above are of a reasonable age, they may find all these negative factors just too much to deal with and decide that the whole farrago might not be worthwhile after all.
If even a relatively small percentage of these pensioners decide to ‘up sticks’ and put their property on the market, I would imagine that would be enough to tip the Spanish property market – in the Costas at least – back into red territory.