Why buy a property in Galicia?
In simple terms of how much land and what size, type and character of house you get, Galicia provides some of the very best value in western Europe.
Inland Galicia offers by far the lowest prices for land and houses, but if you want to add proximity to the coast and also to cities and airports into the equation then coastal Galicia is still a real bargain in comparitive European terms.
There are, of course, other factors to consider. Whilst most people don’t buy a property primarily as an investment the value of your property is also the freedom you have to sell it and move elsewhere, withdraw equity, pass on inheritance etc., and so property value is always important. If, therefore, an area seems unusually cheap it is necessary to ask why and then decide if property in that area genuinely represents a bargain or if it is cheap for very good reasons and therefore perhaps is not a good investment.
The galiciaproperty view, which can reasonably be accused of bias, is that for someone from northern Europe looking for a holiday home or with enough income to live on and looking for a change of lifestyle, Galicia is an excellent place to buy and now is an excellent time to buy for the aggregate of the following reasons.
The state of the Galician property market
Like the rest of Spain, Galicia participated in the general denial of all fiscal reality in relation to the housing market until the 2008 crash. Banks were lending up to 100% of inflated valuations of properties, construction companies were churning out houses as fast as they could, and old Galicians with ruined rural properties that had been more or less worthless a decade before were reaching for the sky with their asking prices.
Of course we all know what happened next, and in Spain the recession bit doubly hard because of massive loss of jobs in Spain’s huge construction industry. Banks stopped lending and property prices fell…
…well, yes and no. For property that had to be sold ASAP prices did indeed fall, but in fact property owners in Galicia were very reluctant to cut their asking prices significantly, and as many mortgages were at interest rates of only 0.5-1.0% above Euribor and with widespread vocal opposition to repossessions many owners of properties they really could not afford were able to hang on and hold out for better times.
In addition to this construction companies simply closed up their building sites very early on in the recession to reduce costs and leave their half built houses to be finished later, and as a result the property market was not as flooded by supply as it could have been.
2008 is seven years ago now and if, in early 2015, there are some indications that the Spanish economy is recovering, they are not really being widely felt in Galicia yet and a lot of people who have been holding out have, over the last 3 years or so, reduced their asking prices significantly.
From tracking portfolios of properties on Galician real estate sites and from general experience of Galician property matters, I can see a few trends:
- 1-2 years ago went you went into a bank you were beseiged by portfolios of property for sale. Now there is not much of this.
- 1-2 years ago banks were offering mortgages at around Euribor +2-2.5% but, crucially, with a 3 year start period of 5% or similar. In other words extremely expensive mortgages indicating no great desire to lend money. Now it is easy to find offers around Euribor +1.5% or less with no penalised start period and no mortgage account opening fees, which indicates that banks are now more positively disposed towards lending.
- In 2013 and early 2014 hardly any properties were selling (for example take a look at our property search service real life case study) at all. Since summer 2014 the good properties have been steadily disappearing from the market.
- Talking to local estate agents I hear a consistent message that good properties are going quickly and that for the first time in years they are getting general calls from people asking to be notified if specific types of properties come on the market.
- New estate agencies are starting to appear, mostly non-registered DIYers using property meta-sites and a mobile phone who generate business by promising the owners of houses with for sale signs outside lower commission rates than the agent they’re already with.
All of this points towards perhaps the first shoots of a recovery in the Galician housing market, although at this stage only affecting the more desirable properties that are correctly priced.
The Spanish domestic market remains, however, extremely cautious, and this means that people from the UK, which has been in economic and housing market recovery for a couple of years now, are in an excellent position to be able to obtain premium Galician properties that as well as providing a great lifestyle are also likely to show significant gains in value in the coming years.
Similarly, rural restoration projects that the Spanish market currently has almost no demand for but that are highly appealing to foreign immigrants are there for the taking at prices not seen in the last 15 years.
Currency and political and economic stability
Comparing Galicia with the rest of western Europe is valid partly because of low travel times and prices to the UK and other north/west European countries, but also because a property investment cannot be moved and is therefore valued in the currency and also the context of the political and economic stability of the country it is in.
Galician property is, of course, valued in euros and therefore unlikely to dive in value in the way that property valued in a smaller, weaker currency (pesetas, drachma, lira, etc. of old) might as a result of inflation or government debt writedown.
Whilst the euro has its problems it represents a pretty good bet in global currency terms. Even if Greece were to leave the euro it seems highly unlikely that Spain would follow suit, partly because the economy is stronger and the finances in better condition, partly because there is very little appetite in either the public or the media to change currency, and partly because whilst Greece is a quite small economy that is geographically on the periphery of Europe Spain is one of Europe’s major countries. As such its leaving the euro might well sound a death knell for the currency (as the markets would assume and bet accordingly that Italy and then France could follow, perhaps causing this) and for this reason I think that a lot of political and economic might would be expended to keep Spain in the euro if crisis point were to be arrived at.
Within Galicia there is nationalist sentiment but not of the type seen in Catalunya or the Basque country. Both of those regions are richer than the average in Spain and have bitter histories of repression by (particularly Francoist) Spain, plus they are also more in the European heartland with French borders. As such either or both would probably prosper as small, independent nations within Europe.
Galicia, on the other hand, is somewhat poorer than the Spanish average and is right on the western tip of Europe, bordering only Spain and even poorer Portugal.
Galicia also already has considerable autonomous community powers, and as such what nationalism there is goes mainly along the lines of promoting the local language (Gallego) and demanding more money from Madrid.
Spain’s political and economic stability will be an interesting watch in 2015. Elections are due in December and the ruling right wing Partido Popular, which reeks of corruption (google “Barcenas” and “Gurtel” and be amazed that this party has managed to cling on to power by just brazenly denying everything!), is likely to be comprehensively removed from office and replaced by either the Socialist party or, more probably, a coalition of the Socialists and the new left wing party Podemos.
How this will affect Spain’s economy is uncertain, but my feeling is that vested interests have more power than politicians these days and so, as these interests won’t change, the economic effects won’t be dramatic.
One area that could change will be how Spain treats non-resident property owners. On the one hand rich foreigners who have holiday homes in Spain could well be a taxation target for a socialist government, but on the other hand if Spain wants healthy construction and tourism sectors, and it surely does, it can’t do anything that deters foreign investors.
And a final note on this topic – whatever the risk factors of the above in Spain, the risks in eg. France or Italy are unlikely to be any less.
So, whilst there are a lot of unknowns in these times which are politically more uncertain than the average, my view is that Spain and Galicia is a good investment in terms of currency, economy and political stability.
There is one additional potential risk, however, and that is for UK citizens buying in Spain. Depending on how the UK general election pans out in May 2015 there may be a referendum in 2017 to decide whether the UK stays in the EU. If the UK were to leave then the position of UK residents owning property in Spain could become considerably more complicated.
Taxation shielding in Galicia
Taxation shielding is a term I’m using here to describe how living in Galicia means the taxman can’t target you unduly through your property or income (and should not be confused with tax evasion schemes for rich people; this is just an analysis of the realities of taxation). It works based on two facts:
- In rural Galicia, and this means everywhere except the most newly developed and expensive areas outside the towns and cities, much of the population is old and has very low income. Offsetting this is that most of this population also owns their (large) houses outright and grows a lot of their own food.
- Galicia is somewhat poorer than the Spanish average, so Galicians have on average lower incomes and lower total assets or wealth
Let’s take as an assumption that any given government would like to tax you up to the point where you’re about ready to take up arms against it. What mechanisms do they have to go about this, and why are you shielded in Galicia?
- Income taxes: Income tax is set at the same rate across Spain. Galicia has a lower average income and therefore less income tax gets paid in Galicia. The good thing about this is that as a result it costs a lot less to live in Galicia and so if you’re earning the amount needed to live at a certain level of comfort in Galicia you’ll be paying proportionately a lot less tax than you would in Madrid or Barcelona.
- Wealth taxes: Spain does currently have a “temporary” wealth tax, and with a Socialist government on the horizon it could well be extended.
The good thing is, though, that this is again set at a national level in Spain and the point at which the streets of Madrid would be in flames is much higher than the point where any significant pain would be felt in Galicia (in 2014 the tax was on a sliding scale above assets of 700,000€ per person plus up to 300,000€ additional deduction for a primary residence – really not a problem for most people in Galicia).
- Property taxes: Property taxes, as in the UK, are paid to the local council, but unlike the UK really aren’t expensive (on a large restored house in the countryside you would typically pay around 250€ per year).
The reason for this is that with so many property owners having very little cash income any attempts to raise property taxes would result in people having to sell their homes to pay the tax, which obviously isn’t politically feasible.
In countries such as the UK it simply isn’t financially viable these days to leave your stressful job in the city and go buy an old place in the countryside which you can do up whilst raising a family and some vegetables and getting by much more happily on a much smaller income.
For start there are practically no quaint old country restoration projects left at reachable prices. Then if you somehow do manage to get one the cost to restore it will be expensive and then, should you manage to restore it, you’ll get smacked over the head with a council tax bill for multiple thousands which will be feasible taxation because most of the properties in your quaint country setting will be owned by rich commuters from towns and cities or as weekend retreats for even richer people working in London.
In Galicia, on the other hand, you can choose to drop out of the rat race with some savings and perhaps some income earned over the internet, buy a big, nice property at a cheap price, do it up with your own and/or low cost labour, and then be paying little or no income tax and low property taxes even on a large property thanks to taxation shielding.
One final caveat to add on this topic is that, of course, taxes have to be raised from somewhere and in Spain two relevant areas of that somewhere that are higher than the UK are property purchase taxes and inheritance taxes. You can find out more about these taxes in our section on Spanish taxation.
Healthcare, education, transport links and amenities
Whilst there are people who want a property that removes them near-completely from modern society, for most people the amenities of a developed country are important. Fortunately Galicia does pretty well on this score.
- Healthcare: Galicia’s public health care system is extremely good, well equipped, extremely hygenic and staffed by (for the most part) motivated, well qualified and diligent people. As a result private healthcare (mostly near the major cities) has to be quite low cost and of very good quality to compete. There is more information about this in our Galician healthcare section.
- Education: Galicia’s education system starts at 3 years old. In comparison with the UK it’s rather old fashioned feeling, rigid and has less emphasis on having fun and expressing yourself …which some may regard as no bad thing. It does seem to have a rather provincial outlook, but then if you’re an expat from a different country sending your child to a Spanish school this is a hole you’re likely to be able to plug yourself. Universities are low-cost at around 1000€ per year in academic fees (plus living costs) and provide what seems to be a good standard of education, if, again, a rather rigid and provincial one.
- Transport links: Galicia has 3 airports (including 3 daily direct flights to London airports) and an extremely good road network. It also connects to the UK with a 5-6 hour drive to Santander (or Bilbao at 1 hour more) for the ferry service to Portsmouth or Plymouth. There is more information on this topic available in our Galician transport links section.
- Shops: The traditional model for shops in Galicia is small and family owned, and as a result there is a big gap in the market for the huge Euro-shops to invade, which they duly are. In any small town you are likely to find a couple of small supermarket chain outlets (Gadis, Eroski, Dia, Mercadona, etc.) along with independent local shops. In the big cities the major European chains occupy much of the town centres and all of the increasing number of out of town shopping malls. In the same out of town sites you will also find enormous hypermarkets and DIY stores.
Whilst everything is, understandably, broadly geared to providing Spanish things for Spanish people, Euro-shopping is becoming increasingly homogenised and it is now possible to get most things in Galicia, although imported goods are generally more expensive.
- Other amenities: Restaurants and bars are everywhere in Galicia, as is a wealth of nature and top quality beaches (few of which cost anything to park at). Galicia also offers most other things you could wish for, including but not limited to natural thermal spas (in Ourense), ski-ing in Manzaneda, wine festivals, high quality gyms and health clubs, golf courses, etc..
In general Galicia is a poorer European region that’s quite quickly becoming developed in and around the major cities and coastal areas, and depending on where you choose a property you can find the amenities you want from the lost simplicity of 50 years ago to good quality and well-priced euro-modern.
Galicia and climate change
It’s pretty much universally accepted that mankind’s burning of the earth’s carbon stores in the form of fossil fuels is already affecting the climate and is going to affect it more in the future. What we really don’t know is, sea level rises and greater general volatility aside, exactly how the effects of climate change will pan out in any given area.
Western Europe in particular could see things go in two very different directions. Assuming the general model of increased temperatures and sea level rises applies then the broad effects will be:
- Flooding in coastal towns and cities, and flat coastal land such as East Anglia and much of Holland.
- Dangerously high summer temperatures and droughts inland in southern European countries (France, Spain, southern Germany).
- North European countries’ weather may actually get sunnier and warmer giving more potential to grow a wider variety of food crops further north.
- And, less certainly, the general thinking is that global warming will bring more unpredictable and stormy weather with increased intense rainfall especially along the Atlantic coast.
There is, however, another scenario.
Northern Europe is on average 5C warmer than would be expected for its latitude as a result of the Gulf Stream. Already it has been observed that Artic ice melt and especially the melting of Greenland’s glaciers is reducing the strength of the Gulf Stream. If the Gulf Stream effect were to be substantially weakened it could see northern Europe’s climate changing to one more like eastern Canada, which would have drastic implications for Europe’s ability to feed itself and also for the ability of its generally not especially thermally efficient housing and public building stock to be adapted to cope with lower winter temperatures.
No-one knows with any certainty what will happen, but there is a case to be made for owning property in a place that is largely immune to most of the anticipated effects of global warming, and this case can be made very well for Galicia:
- If Galicia’s mild climate were to increase or decrease by a few degrees Celsius it wouldn’t make a lot of difference to it’s being comfortably habitable.
- Galicia is extremely hilly and drains very well, so sea level rises, winter storms, increased intense rainfall and flooding would only affect a very small proportion of Galicia’s housing stock.
- Galicia is extremely water sure (and piping the water to central and southern Spain is technically very difficult) and so gardens and in an extreme case people are unlikely to be affected by drought.
- Galicia offers fertile soil and a superb growing climate for almost all fruits and vegetables and so if food prices were to rise considerably a lot can be grown at home.
Finally, however climate change manifests itself one inevitable outcome will be the forced migration of populations from the worst hit areas, and therefore areas which don’t suffer from or which even benefit from climate change will see increased immigration and resulting pressure on housing stock and social amenities.
In Galicia’s case the large number of empty houses, unworked land and only patchily healthy economy means that it is unlikely to be a prime destination for immigration but is also likely to actually improve as a result of any moderate influx of people that does occur.
If you accept the arguments above the conclusion is that with the one proviso that it’s currently hard to earn a living as a foreigner in Galicia (as detailed in our section on working in Galicia), Galicia offers a really good lifestyle and is likely to continue to do so for the forseeable future.
With the addition of its stable status, the reasonable assumption is that Galicia therefore represents a good place to invest in the right property at this point in time.