Purchasing as an Investment in Tenerife

Owning a property in Tenerife has proven to be for many a sound investment, the price of property and land has proven to be the best investment over the medium and long term.

Although forming part of the Sovereignty of Spain, Tenerife has it's own stable government and an expanding economy. Spain is a member of the E.E.C. This makes it very attractive to foreign investors.

Couple this with Tenerife's all year round sunshine providing a twelve-month holiday season and the stability of the economy you have the perfect combination for investment in an overseas property. Tenerife continues to be more attractive to property purchasers than ever before.

Tourism to Tenerife has continued to increase at a rapid rate each year, resulting in an increased demand for 'holiday homes' and holiday rental accommodation.  This provides the investor with the maximum potential capital growth and potentially 52 weeks of income from the holiday rental sector, particularly in the warmer shores of the south of the island where the majority of all tourists choose to stay. 
A study for the Alliance & Leicester Building Society carried out by the Centre for Future Studies reveals that over one million over-50s have retired abroad from the United Kingdom and forecast by 2020 one in five - an extra four million - will be living abroad. The author of the research states that 'one of the key factors behind the motive to move abroad is the weather and lower taxes and prices together with 'quality of life'.

In addition the study found that U.K residents are increasingly spending more and more time abroad.

This ever-increasing demand of purchasers and tourists will ensure the rates of return will continue for those clients who invest wisely.

Many people enjoy their home in the sun and perhaps periodically allow their family and friends the same benefits. However, in addition to the capital growth of the value of their holiday home, some people obtain useful income by letting their property to tourists. Rental returns from holiday homes in Tenerife can be very substantial. If you are seeking an income from your property (this may be an important consideration, particularly if you have taken a mortgage and require extra income to assist the financing of the mortgage repayments) then it is important to ensure that the property you are proposing to purchase is within a community that permits 'letting to tourists'.

There are companies who will manage the 'holiday lettings' for you in fact many resort type communities offer these facilities on site. To enable you to receive the best possible advice obtain guidance from a professional and reputable estate agent like TENERIFE ROYALE ESTATE AGENTS S.L.

WHAT MAKES A GOOD INVESTMENT? There is no 'one size fits all'. Our priority is to find out about your overall investment objectives (which of course will be influenced by your lifestyle requirements, investment attitudes, timescales, budgets and attitude to risk). We will then source properties that will best suit your specific needs. We will take you through a comprehensive 'fact find' to establish which properties offer the best opportunities and suggest investment options and strategies that will deliver your primary objectives. This is a bespoke service that will maximise the chance of you buying the right property in the right place at the right time and for the right reasons.

WHAT MAKES A BAD INVESTMENT? We are all familiar with the horror stories of overseas developments not being built, demolition of properties because there was no planning permission, and good, honest people losing their life savings to unscrupulous sales people and developers. These are extreme cases, which could have been avoided by the people concerned by dealing with a regulated licensed agent, obtaining proper legal advice and not doing things you would not dream of doing at home! The less spectacular stories are the ones of people buying property that just does not meet their needs. Choosing unwisely and then having to suffer the consequences of that decision. It's very easy to be seduced by an overseas property purchase. The idea of owning somewhere abroad is a dream for most of us and in the 'misty eyed' moments of our imagination we often loose sight of practical issues. How close is the property to the lifestyle you seek? Do you really need a 1,000 sq metre terrace? If you do not drive, how good is the public transport system? There are many items to take into consideration and our objective will be to help you decide what is important for YOU, and guide you to properties that suit your requirements and cover the practical issues,  (including the good and not so good features 'warts and all' ) so that ultimately these properties will NOT be a disappointment.

'OFF PLAN' PROPERTIES

In addition to capital growth and yield from rental income, substantial gains can be made from purchasing a new build property 'off plan'.

Fundamentally, the purchaser is speculating on future house price inflation. A typical example could be as follows: - The building company sell the property at the early stages of the project. These properties can be apartments or houses, which are generally at prices significantly, lower than the normal market value price.
The purchaser pays a deposit, which is usually 10% or 20% of the selling price, which is fixed for the duration of the contract. Payment of these deposits provides the building company with capital, thereby, reducing the amount of bank borrowing needed by the developer to finance the project.

In order to fully understand the benefits, these need to be explained arithmetically. Let us therefore, assume a typical, theoretical scenario; say at the beginning of a two year project a property is offered 'off plan' by the builder with a price of 200,000 euros and a 10% initial payment is required, followed by a second 10% payment in say 12 months. Therefore, for 12 months you have invested 20,000 euros and the next twelve months another 20,000 euros. The capital growth, however, will be reflected in the future value of the property. Assuming the property value increases by 10% per annum, by the time the property is completed it will have risen in value by 40,000 euros. A gain of 50% per annum on your original investment which means in real terms you have not invested anything at all, although you have of course set aside the 40,000 euros over a 2-year period.

This is a speculative property investment and you could lose money in the event that property values fall, however, historic performance of property values in Tenerife have shown continued increases in property values. (Ask anyone who has purchased a property in Tenerife in say the last 10 years, how much has it risen in value). This is attributable in no small way to the market in Tenerife being more 'want or aspirational' rather than 'need' driven as is the general trend in the U.K. Once the 'need' market (usually first time buyers leaving home who 'need' a home of their own) find they cannot afford the rising price of property the market tends to 'flatten out' even with an offer of a mortgage of 5 times income and a 35 year term). In addition the property market in Tenerife is not directly linked to one single economy.  Property owners (particularly in the South of the island) consist of many differing nationalities.  It should be noted that in addition to the financial gain with house price inflation, it is normal practice for the developer to increase their selling prices by 5% to 10% once a percentage of the properties have been reserved.

Speculative property investment in Tenerife has proven to be very lucrative for many investors in recent years, however, in order to 'safe-guard' and minimise any risk we recommend you follow these basic guidelines:

  • Use a reputable estate agent, who is not 'tied' to a particular developer and who can provide you with an unbiased and objective opinion of the projects available.
  • Follow the 'golden rule' buy in 'sought after' locations from a reputable builder.
  • ALWAYS, consult with your Spanish Solicitor prior to entering into a contract of purchase, or reservation agreement.
  • Endeavour to secure a property at the beginning of the project when you can reserve the most desirable plots at the keenest prices.