Back

Better than a Pension!

A recent article in the Sunday Express in Tenerife underlined what property professionals in Tenerife have been saying for years, that instead of a conventional pension, buying property is a solid investment, not subject to the vagaries of the stock market. Headlined “Better than a Pension” it pointed out that while annuity rates have almost halved in value over the last ten years, property values have shot through the roof, and as Estate Agents and Developers in Tenerife will tell you, where better to invest than here?

Recent rises in the value of the pound, taking the official rate close to the psychological 1.50 barrier, has meant that the value for money of property in Tenerife is even greater than before, and without the boom / bust potential of the UK economy, you can be sure that you are never buying at the top of the market.

As many people have discovered, the “buy to let” market here in Tenerife is extremely buoyant, with thousands of young and not so young couples and families coming here to enjoy the superior quality of life. As an investment, you would expect to receive a rent (for long term lease) of around 5% to 6% of the price you would pay for a property here, so an apartment costing, say, 150,000€ (£100,000) should rent for around 800€ to 850€ ( £530 to £560) per month minimum. This is around double what most people are earning with conventional investments, but the beauty is that the capital value of the property would also rise, traditionally by over 10% per year but often considerably in excess of that.

Alternatively, you could let to holidaymakers, where the rental income would be more than double the values stated above. This is a marginally more complicated than letting long term, but can enhance your returns if you do not mind a little extra work.

However if you don’t want to rent, but just to enjoy life, then Tenerife offers one of the best climates in the world. In April last year, you could have thrown snowballs in the mountains, then one hour later enjoyed sunbathing on the beach! There are other island paradises around the world, but rarely part of a country which is financially strong like Spain, where you know that your investment will not be endangered by a volatile economy.

So what happens in future if you want to sell? The same Sunday Express article illustrated research by Birmingham Midshires which found that in the UK, 12% of people surveyed, plan to sell up or rent their UK properties to fund a new lifestyle in the sun. There are no end of people, usually middle aged, who aspire to living in this beautiful climate, with year round sunshine, and without the excruciating summer heat of mainland Spain, Portugal, Cyprus or Greece. Tenerife is a cosmopolitan, multi-national island, particularly in the South, where English is spoken extensively, yet less than 5 hours away from the UK and recent improvements in flight availability has had the combined effect of lowering prices and providing flights from virtually every airport in the UK. Despite recent stock market related problems in the UK, many people are retiring earlier, and finding themselves with equity in their UK properties which can easily be released, or with lump sums from their pension, and with new found confidence in living in a “foreign” country, the ongoing sellability of property is guaranteed. An article published recently in the Sunday Mirror’s “Homes and Holidays” magazine stated that 12.6 million British people visit Spain and its islands per year, and that 70,000 Brits bought a home here in a recent 12 month period. It estimated that as many as 100,000 British people will soon invest each year so there is no shortage of buyers for quality property.

Any downside? None really, the key to the popularity of Tenerife is the weather and that’s unlikely to change but to maximise your investment, follow the undernoted buying tips, profit from your investment, and enjoy your life!

Be aware that you have to pay tax of 5% (for new properties) and 6.5% (for resale properties) so make sure you account for that when looking at properties. Also there are some smaller fees and tax’s to pay so budgeting another 2% or 3% would be prudent.
Set yourself a budget, and stick to it.
If you want a mortgage, banks here offer a very competitive rates, usually lower that in the UK, but will normally only lend 80% of the property value to residents and 70% to non residents. This will add typically 2% to your purchase cost.
With some notable exceptions, the build quality of newer properties is better that ones built 15 or 20 years ago, so find out when the property you are viewing was built, the more recent the better.
If you want to maximise your investment, consider buying pre-construction. This generally involves buying at the beginning of a project, which usually takes around 2 years to complete. You will normally pay around 20% initially, then another 20% one year later, with the balance of 60% on completion (less for residents). However in return for this, you would expect to pay around 20% less than the market price of the property, and remember even during the course of construction, your property will increase in value.
When you are viewing properties, especially if you are thinking of letting, have a look around the area. Things like schools, access to motorways, cinemas etc may not be important to you but they could be attractive to other people.
Come to view properties during the less busy times, avoid busy bank holiday weeks, Christmas, and Easter. And take your time.
Insist on seeing a copy in English of any contract you are being asked to sign, if you don’t understand it, don’t sign it.

        Back