Has the Costa bubble burst?

Rarely will you find an estate agent urging you not to buy. But Barry McEntee from First Choice Properties has one word for prospective purchasers on the Costa del Sol: don't.

Rarely will you find an estate agent urging you not to buy. But Barry McEntee from First Choice Properties has one word for prospective purchasers on the Costa del Sol: don't.

"The day of reckoning has arrived," he elaborates. "The Costa del Sol has priced itself out of the market. Tourism in Marbella is down 60 per cent on last summer and the bubble has burst in the property market. Come autumn, the panic will set in and people will be desperate to sell."

McEntee admits a certain apprehension in delivering this news, and clients, naturally, have been taken aback by his candour. "A lot of people are going to get burnt out there and our advice for anyone wanting to invest in the Costa del Sol is wait a few months to avoid being stung by overinflated prices," he says.

It hardly seems possible on the coast that has for so many years been a surefire place to at least double your money. Prices for new-build property, which is what most people buy on the Costa del Sol, have risen 94 per cent in Fuengirola and 73 per cent in Marbella since 1990 and off-plan developments have been springing up faster than a chastened Sven Goran Eriksson's trousers.

But given a proliferating concrete jungle, bad roads and soaring costs of living, many Britons who bought there are now getting out. And so are large estate agents - including Interealty, who recently closed some of its Costa del Sol branches.

All the signs are there of a market in trouble, says McEntee. "When property prices increase at least 30 per cent per annum, properties are priced out of the market. The Costa del Sol was always considered good value for money, but now it's as dear as the south of France. You can't find a property for less than £200,000."

Brian Wilson, 45, bought a detached villa with pool and frontline golf position in Estepona six years ago for £60,000. He has been trying to sell for £485,000 for several months and move inland to Antequera in search of something more "Spanish", but there's no interest.

"Buyers want new-builds at present, which isn't altogether wise as they haven't been tested for infrastructure problems and are unlikely to be on prime building land which was developed long ago," says Wilson. "The Costa del Sol market has definitely slowed due to the relatively strong euro versus the pound, which has made investment less attractive since the days of the peseta. This has particularly affected the middle market of €250,000-plus."

The rise in UK interest rates has had a direct knock-on effect on the Spanish property market. And the huge proliferation of off-plan developments has seen investors committing cash to projects that will no longer pay off.

"In the long-term, the Costa del Sol will always have the best climate in Europe and amazing golf courses," says Mark Stucklin from online consultancy Spanish Property Insight. "But the property market needs a correction to take out the worst effects of speculation.

"There's too much stuff in the pipeline. Hundreds of projects are believed to have planning permission difficulties," he adds. "Once a property has been built and sold it is difficult to tear it down as there's an innocent third party involved, but if you have invested in a property off-plan that has yet to be built, you could have problems.

"What's more, lots of investors have believed the over-optimistic claims of estate agents about how easy it is to sell on. If this doesn't materialise, investors may be forced to sell on at any price rather than take possession. This could put downward pressure on prices. I wouldn't advise leaping into buying in a concrete jungle at these prices."

Inez Rix, from Inderix Property Management in Fuengirola, comments that off-plan properties are coming back on to the market before the development has even reached completion. "A lot of people bought for investment and thought they would double their money. Now they're realising that's impossible. If you pay £200,000 now, by the time it's built in two years' time it won't be worth that."

Since the demise of Jesus Gil, the former mayor of Marbella who encouraged frenzied over-development by ignoring the laws which required deferring planning decisions to Madrid, the region is starting to clamp down on smoking in public places, drunk driving and speeding. "Planning laws will get their turn eventually," says Rix, "but permission has already been given to so many developments and can't be rejected once it has been granted, so it'll take about 10 or 20 years to catch up with itself."

With a substantial part-time population, Rix says it won't be long before these hastily constructed homes start to fall apart. "No one really lives here apart from people in the service industry. In areas such as Calahonda only a few owners are there permanently and the rest don't pay their service charges to keep up the maintenance."

In terms of buy-to let, people are still moving to the Costa del Sol and beach properties will always be desirable, says Rix, "but those who bought to rent out will need to reevaluate what to do with their property come September. Rental has been very bad this year and a lot of owners have availability in August for the first time. There are so many near-identical two-bed apartments for people to choose from. People are looking at fincas inland now, away from the lunacy and ugliness on the Costa del Sol."

www.firstchoiceprops.com, 00 34 952 861 428

www.inderix.com, 00 34 952 198 528

www.spanishpropertyinsight.com