I told my dad last spring that I was heading to Barcelona for a week-long family vacation and he replied, “Miguel. You have to meet Miguel when you’re there. I’ve known him for years. Really smart guy. I think he’s a professor now.”
And so it was that I found myself sitting at the pool bar atop the Hotel Arts, right along the Mediterranean shore, sipping cava with my dad’s friend. Turns out he is a professor now – of business – and active in Barcelona’s business community. I had arrived at a particularly interesting moment. Spain was in an uproar as the European debt mess intensified over the summer. The media prattled on about the risk of cash leaving the Spanish economy for safer jurisdictions in Germany and elsewhere; unemployment had hit 24%, with nearly half of the youth jobless. Housing prices had crumbled, much like they’d done here in the U.S. back in 2008-09.
“But housing,” Miguel said, “you will see it will prove to be a very good place to be if you are a smart and patient investor.”
I began investing in 1984, from the start a contrarian to the core. The first stock I ever owned was Tiger International, an underpriced air-freight handler that FedEx ultimately gobbled up at a huge premium.
Today, I scour the world looking for examples of that same trait – assets that are undervalued. I don’t care if it’s stocks, coins, farmland, houses or whatever. So long as it is a real asset, I’m interested in it.
Readers of my Sovereign Investor monthly newsletter will be familiar with the concept Status Quo Bias. For those who don’t know the term, it defines a cognitive bias in which we humans believe that what is normal today will be normal tomorrow. Because we struggle to perceive the impacts of big changes, we irrationally choose to cling to the status quo, when acting in contradiction to the status quo is clearly in our best interests.
That is Spanish real estate today.
I have been interested in Spanish real estate for several months now. To me, it’s the quintessential contrarian play. [adcode]
First, it’s land. And as the way-too-trite phrase assures, they’re not making it any more. Moreover, many properties available in Spain these days – both houses and apartments – are vacation homes on or near the Mediterranean, along the Costa del Sol … and oceanfront property is a trophy asset just about anywhere in the world.
That’s particularly true in Spain because of the Brits, the Germans, the Swedes and others who flee their winters to spend time in the Mediterranean sun. Because of them – because Northern Europeans are better off financially – Spain will always be a market in demand. That reality is, of course, masked at the moment because of the impact the European debt crisis is having on Spain … but that’s exactly why I told you about the Status Quo Bias.
The status quo is never permanent.
Half Price Property by the Seashore
I asked Miguel his thoughts on real estate in his home country. He sees it just as I do.
The reasons Spain was a strong property market prior to the Continent’s debt crisis haven’t changed. Spain, as such, will one day regain that former stature. The savvy investor who realizes that is the one who will use this opportunity to begin searching for property in Spain – either for personal use, to lease for rental income or to capitalize on price gains that will accrue over time.
Prices have come down sharply. Seaside apartments in southern Spain that once cost roughly $400,000 are now going for $200,000 or so. Two-bedroom flats in town now fetch $150,000, also down by about half. And given the inventory of homes in certain markets, you can easily negotiate another 10% to 15% savings.
Prices, no doubt, could drift slightly lower still as European leaders seek a cure to the Continent’s ills and as Spanish leaders muddle through their own crisis. But at this point, you are not catching a falling knife. You won’t be able to flip the property tomorrow, or even next year. But if you are a contrarian like me, and you see the immense value in buying trophy assets – like Mediterranean land – on the cheap, you cannot overlook Spain.
And now, it comes with an even greater incentive … residency.
Buy a House, Get a Country
Spain has an estimated 700,000 unsold homes that shackle the country’s housing market and, in turn, the national economy. Under a novel strategy to reduce the stock of available houses, Spanish leaders are working out the details of a plan that would grant Spanish residency to any foreigner who buys property valued at €160,000 (roughly $208,000 at today’s exchange rate).
It’s like buying a house and getting a new country to call home, if you ever decide to leave America, either temporarily or permanently.
Spain is still finalizing the plan, and it’s not clear yet whether the residency you gain would apply to the rest of the European Union, as it typically would under normal circumstances. Nevertheless, other countries, including Ireland and Portugal, have approved similar deals, though the costs are a minimum €400,000.
By that measure, Spain is a true bargain for any American who seeks easy residency in Europe.
And even if the residency opportunity ultimately fails to materialize for whatever reason – though that seems unlikely – you still own a piece of real estate in a highly desirable corner of the world … and at contrarian-investor prices. You just can’t go wrong with that.
Until next time, stay Sovereign…
Jeff D. Opdyke
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How Will Obama React?
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