This is part 4 of our series of articles about investing in Ibiza. We have taken a look at the economic position of the island and the massive popularity of the island. In this article we will outline some recent developments within the EU and the effect of these developments on the real estate market on Ibiza. One of the most talked about topics within the EU is, of course, the Brexit. Nevertheless, there is more going on in the EU. Find out how technology, financial and geopolitical changes demand an amended investment approach.
By now, we all know, that the whole Brexit affair caused a huge effect on the EUR/GBP exchange rate. This wasn’t advantageous for the British at all. To give you an example. Before Brexit a pound was worth around 1,30 (with spikes up to 1,44). After the British have voted for an exit, the EUR/GBP slowly dropped to around 1,10. This means, that GBP value bank accounts became about 20% less worth in just 2 months. Next to the fear of a dropping Sterling, people also became more hesitating about buying overseas property as they don’t know what the future will bring. When we add up the result of recent elections in the US, we have a quite unpredictable near future on what will happen to the worldwide currency values.
However, if we go after the effect of elections on the EUR/GBP, we’ve seen an increase of the currency to 1,16. When we compare this to the initial effect of a 20% drop, GBP bank accounts have gained 10% of their EUR value back. We will stay very much focused on this topic as the British market represents 35% of the property demand on Ibiza. In a market where prices are being established based on demand and supply, this would result in a drop in property prices on Ibiza.
Technology is changing the way we exist on this planet. Nothing happens the same way we did 50 years ago. Rent payments aren’t being done in cash anymore and property deals can be valuated against a wide range of market data available on the internet. Basically, technology is changing the way real estate is being purchased and/or rented. Spain is one of the countries that adapts quite late to new technology possibilities.
For example, properties in Spain/Ibiza are sold within an average of 6-12 months, compared to 2 weeks in the US and 1 month in the UK. Amongst some reasons that lie within the Spanish habits, the most important reason for this is the lack of transparency. Due to privacy laws, agencies are not allowed to publish the price that a property has been sold for. Moreover, there is hardly any big data analyst who can truly map the real estate market.
Like we said, Spain is a late adapter when it comes to technology. We are sure that big data will become big in Spain and on Ibiza as well. This will result in more accurate property prices, a healthy transparent market and more data-drive property decisions.
Since the economic crisis we’ve seen a huge drop in interest rates. Recently, the interest rates have even jumped below zero into a negative rate. This negative rate will never hit the consumer market and stay ‘inter-bank’ (otherwise, people will be asked to pay interest on their savings and receive interest on their mortgage), but the very low interest rates surely have their effects on real estate on Ibiza.
- People in the EU are less likely to save their funds. As a result they spend or invest their money.
- Cheaper mortgages. Low interest rates makes it interesting to borrow money to consumers and investment companies.
- Rising property prices. Lower interest rates makes property buying more attractive. The higher demand, causes a rise in asset prices.
So, the property market on Ibiza takes advantage of the low interest rates and you could imagine that stock owners also love these low interest rates as people need to invest their funds. However, these low interest rates also have a downside as cheaper credit go hand in hand with tightening credit conditions, weaker income growth and bad times for financial firms like banks and pension funds.
In short, there are many factor that encourage property buying on Ibiza. Despite Brexit and other geopolitical uncertainties one needs to be careful when investing in overseas properties. The world is getting smaller and like we’ve explained in one of our previous articles, demand from non-EU investors is growing as well. The strong dollar definitely has an effect on Americans spending their funds globally. Now, it’s the question how global economic regulators are going to use their monetary instruments to structure financial flows over the world and thus as a part of this, property investments in Europe, Spain and Ibiza.
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