Buying a Property in Spain

2007-04-15T11:16:00.000Z

The best-value places to live abroad
By Naomi Caine
April 13 2007
When the going gets good, we get going.
About 200,000 Britons moved abroad last year – that’s about one every three minutes. The exodus brings the total number of UK émigrés to more than 5.5 million, according to a study by the Institute of Public Policy Research (IPPR), which means that Britain has more people living abroad than almost any other country.
You might think we up sticks because we are fed up with living in Britain, what with high taxes and mounting household bills. But the 21st century British emigrant is likely to move for a number of reasons – most of them positive. Catherine Drew of the IPPR says: “When you ask today’s emigrants why they want to leave, almost 80% move for a better job, a better climate or to join loved ones.”
How much do you know about our favourite emigration destinations? Find out with our quiz
Brits in every corner of the world

It’s all made easier by cheap travel, better communications and free movement around the European Union – which is why you find Brits in almost every corner of the world (click on the adjacent map to view a Live Maps collection of the most popular British emigration destinations).
The most popular destination is still Australia, which is home to 1.3 million Brits, or 2% of the UK population. Spain and America take second and third places. But we also move to Ireland, South Africa, France… the list goes on.
Research also shows that more people move away when the economy is buoyant. Drew says: “When the pound is strong and house prices are soaring, Britons selling up can get better value for money elsewhere.”
Rising house prices in the UK mean that many people can sell up here, buy a bigger property overseas and still have change. Property prices in this country have soared nearly 190% over the past 10 years, outstripping many other foreign destinations.
Move quickly to bag a bargain
But you will have to be quick if you want to snap up a bargain. The number of people buying a property overseas has rocketed, pushing up prices in some hotspots.
Prices in France, for example, have doubled since 1997. It’s a similar story in Spain, where property inflation has surged 120% since 1998. The gains have spread to some of the newer markets, often on the back of strong economic growth. Property inflation is running at 30% or more in some of the up-and-coming markets in eastern Europe, for example.
Cheap living
It’s not just property prices that are cheaper overseas; you can also live a lot cheaper in many of the popular destinations abroad.
Moscow is now the world’s most expensive city, according to the latest Cost of Living Survey from Mercer Human Resource Consulting – pushing Tokyo off the top spot.
Mercer’s survey covers 144 cities across six continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. New York is the base city scoring 100 points; Moscow scores 123.9. London comes in fifth place, with a score of 110.6.
Bargains Down Under?
So how does the survey rank Australia, the favourite destination of emigrating Brits?
Australia is undoubtedly cheaper than the UK - Sydney is in 19th place with a score of 91.3. If you are planning to move out to Melbourne or Brisbane, your money will stretch even further. Melbourne occupies 74th place, with a score of 78.8; Brisbane is 99th with 73.2.
But some items can be more costly in Australia than in Britain. A Place in the Sun, a magazine for overseas property investors, recently bought a basket of basic goods in various countries around the world. And Australia didn’t score well. A litre of milk costs 60p, a loaf of bread 84p, a litre of Coke 52p, a litre of petrol 50p, and a chart CD £11.62, to make a total of £14.22. The equivalent basket in the UK costs £13.01.
Rents are also relatively high in Sydney. Mercer calculates it would cost £1,104 a month to rent a luxury two-bedroom apartment in the city, which isn’t far off the London price of £1,700.
Cheaper España
Next up is Spain - and it’s a good choice if you are looking for value for money.
Madrid does not even make it into Mercer’s 50 most expensive cities in the world.
The Economist Intelligence Unit’s (EIU) worldwide costs of living survey gives Madrid a score of 97, compared with London at 125. Barcelona is slightly more expensive at 98. The bi-annual survey compares prices and products in over 130 cities around the world. Again, the base city is New York with 100 points.
Strong pound brings Stateside dollar delight
America is popular with Britons. It can also work out a lot cheaper than the UK, as anyone who has been on a shopping trip to New York can testify. The basket of everyday goods cost £10.40 in America, one of the lowest in the table.
However, Mercer ranks New York as the 10th most expensive city, up three places on last year. The main reason is the strength of the US dollar, although price increases in fuel and other consumer goods have bumped New York up the rankings.
“The strengthening of the US dollar against the European and other major currencies is a large contributor to the rise of most US cities in the rankings,” says Rebecca Powers, a Senior Consultant with Mercer’s international business.
Los Angeles is cheaper than New York at number 29. You get even more for your money in San Francisco, which comes in 34th place. Miami ranks as 39th with a score of 83.9. Real estate is one of the biggest costs of a move to the United States. The monthly rental on the two-bedroom apartment in New York would be an eye-watering £1,998.
The government has a wealth of information about moving abroad. Start your research here
The expensive Emerald Isle
It’s not cheap to live in Ireland – Dublin is the 18th most expensive city in the world according to the Mercer survey.
Property prices have pushed Ireland up the table, but it remains a popular destination because of its close proximity to and links with the UK.
“Most people want to buy a traditional home with sea or country views,” says Killian Lynch of SWS Property Services in West Cork. “A typical three-bedroom property with sea views would cost upwards of £400,000, while one with country views would cost anything upwards of £200,000.”
The high prices perhaps explain why west Cork is known as the Irish Riviera - and why several film stars, including Jeremy Irons and Daniel Day-Lewis, have homes in the area.
And prices are still rising. Last year the increase was in the region of 8% to 9%.
It’s also relatively expensive to eat out in the city. A cup of coffee would set you back £2.06, including service. It’s only £1.90 in London and £1.49 in Sydney. But you probably go to Ireland for the Guinness rather than the coffee, so maybe it doesn’t matter.
Très cher across the Channel
Mercer ranks Paris as the 15th most expensive city in the world.
Again, it’s property prices that push it up the rankings. It would cost £1,303 a month to rent a two bedroom apartment in the French capital – ahead of nearby Madrid at £892.
The EIU gives Paris a score of 130, reflecting the higher cost of living in the capital. If you move to Lyon, the score drops to 102
Stellar South Africa
But if you are looking for value for money, why not head for South Africa?
The cost of living in Johannesburg and Pretoria fell 10 percentage points leading to a ranking drop of 23 places each, according to the EIU. The slump was mainly down to the weak rand.
The South African Tourism agency reckons a meal out can cost you £10, and a litre of petrol 40p. You can also buy a three bedroom house with a swimming pool in some parts of the country for £140,000. No wonder it is one of the top ten destinations for émigrés, ahead of France.
But South Africa is bouncing back from years of stagnation after the political and economic instability of the 1980s and 1990s. Property prices jumped by 32% last year and some experts believe they are set to rise by as much as 60% by 2010, when South Africa hosts the next World Cup.
So if you are planning a move, better make it sooner rather than later.
How much do you know about our favourite emigration destinations? Find out with our quiz
Related links
View a Live Maps collection of the most popular British emigration destinations
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2007-04-09T20:04:00.000Z

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2007-04-09T20:02:00.000Z

SPANISH PROPERTY NEWS
March 2007 news review
I should warn you that this month’s bulletin offers up some pretty depressing reading for anyone trying to sell property in Spain, though it might cheer up buyers. Many of this month’s news stories entertain a downturn in the Spanish property market, with scenarios ranging from a silky landing to a ‘perfect storm’. That the boom is coming to an end is beyond doubt; no boom lasts forever, and this one has had a great innings, with 10 consecutive years of property price increases. The Spanish economy has become a bit of a real estate junkie in the boom years, so a dose of cold turkey to get off the ‘bricks’ and re-balance the economy would be no bad thing. A downturn might catch short-term property speculators with their pants down, but the rest of us will benefit from a healthier economy in the medium to long term. I’m confident that buyers of quality property for long-term personal use have nothing to fear from this market, and if anything, should see it as an opportunity.MARK STUCKLIN
Spanish Property News
What comes after the boom?
2 Articles in the FT in March, one by Wolfgang Munchau, and the other by Martin Wolf, look what might happen to Spain’s economy if and when Spain’s decade-long real estate boom ends.
In an article published on 18 March, Wolfgang Munchau suggests that Spain is suffering from a real estate bubble, which cannot be justified by the bogus economic theory that “large immigration can maintain a construction boom indefinitely.”
Muchau explains that construction and housing account for 18.5% of GDP in Spain, about twice the Eurozone average; in Germany the comparable figure is 8.7%. (EU’s Ameco database). He recites the usual explanations for Spain’s GDP property bulge: immigrants getting onto the property ladder; lifestyle changes in Spain; and weather-migrants from Northern Europe looking for holiday homes 7 retirement homes in the sun. According to Munchau, these arguments are no reason to believe that Spain’s property boom is sustainable.
Munchau worries that Spain will be hit by a double whammy of higher interest rates (already happening), and higher spreads (already happening – see Bloomberg story) reflecting a reappraisal of risk in the light of the subprime mortgage crisis in the US. With so much of Spain’s GDP dependent upon property, Munchau doubts that the rest of the economy will be able to take up the slack in the event of a property market downturn. Amongst other reasons for expecting a real estate downturn in Spain, Munchau says, “German or British homebuyers may eventually find alternative and better priced homes in other parts of the Mediterranean.”
Munchau points out that “post-unification Germany experienced flat house prices for 15 years and a depression in the construction industry.” He suggests that Spain is at risk of a similar fate if the housing-related component of Spain’s GDP starts to converge on the Eurozone average.
In Munchau’s words, “It does not take much imagination to see that a perfect storm is building up.”
On 27 March, Martin Wolf wrote an article in the FT entitled ‘The pain in Spain will follow years of rapid economic gain’.
In this article Wolf discusses Spain’s “vast construction boom”, “huge current account deficit”, and “low productivity growth and deteriorating external competitiveness.”
According to Wolf, Spain’s economy looks out of balance, and the question is not “whether adjustment will happen, since it is sure to do so. It is how it will happen.”
Wolf explains how Spain’s economic imbalances can partly be blamed on the European Central Bank’s expansionary monetary policy from 2001 to 2005. This policy was meant to boost demand in a weak Eurozone economy. But according to Wolf, “the impact of low interest rates was greatest not where demand was weakest, but where conditions for a property boom were best: notably, in Ireland and Spain.”
Wolf goes on to show how the real estate sector has hijacked Spain’s economy. “On the demand side, domestic consumption and investment, particularly construction, have driven the economy. Between 2002 and 2006, construction grew at an average rate of close to 6 per cent a year, in real terms. By 2004, investment in new housing alone accounted for 8 per cent of GDP, a figure surpassed among OECD members only by Ireland.” He also points out that Spain’s current account deficit, at $107bn (just under 9% of GDP), is the second largest in the world after the US.
Wolf argues that in a currency union like the Eurozone, currency risk transforms into credit risk for countries like Spain. In Spain’s case this could mean that “lenders into a construction boom are likely to find that a downturn in the local property market affects the solvency of many debtors. They may then decide to withdraw credit or stop providing new credit quite suddenly. If so, that will lead to a regional recession, as construction activity contracts.”
As Wolf says at the beginning of the article, adjustment must happen. In flexible economies, wages and prices adjust, and lost domestic demand is replaced with foreign demand, taking up the economic slack. But as Wolf says, “it is hard to be confident that this would be true of Spain when the property and construction booms end, for six reasons, all of which emerge from the OECD report: first, Spain has suffered a sizeable loss in competitiveness; second, the technological capacity of Spain’s tradeable goods industries is weak, on many dimensions; third, much of Spain’s recent investment effort has gone into the production of non-tradeables, particularly buildings; fourth, Spain’s industries are relatively vulnerable to competition from cheaper wage producers in central and eastern Europe and Asia; fifth, underlying productivity growth has been low, which will make it harder to restore competitiveness; and, finally, wage bargaining is quite rigid and, above all, unresponsive to conditions in the Eurozone.”
Wolf wraps up with the observation that interest rates are rising in the Eurozone, increasing the cost of borrowing for a heavily indebted Spanish economy. “As the Eurozone recovers, monetary policy is being tightened. While Spain will benefit from the greater demand among its principal partners, its borrowers will face a substantially greater debt-service burden. That must bring closer the point at which the remarkable property-related borrowing and construction booms will end. Then adjustment will have to begin and Spain’s politicians will have to manage all the consequences,” says Wolf.
Paradoxically, better times ahead for the Eurozone could mean trouble for Spain.
Spanish ‘Vacation homes bust’ in the tea leaves
According to a March article at Bloomberg.com, “vacation home prices in Spain, a leading indicator of Europe's property market, may face a slump that's worse than the real estate decline in the U.S., based on the loan terms banks are imposing on developers.”
The article reveals that risk premiums charged on loans to Spanish developers are high and rising, indicating that the Spanish property sector is getting riskier. Leading Spanish developers are paying five times more to borrow than US developers, and “even United Airlines, which was bankrupt last year, pays a lower risk premium on its loans.”
“Banks are imposing terms on real-estate firms similar to those for defaulted loans,'' David Malpica of CarVal Investor in London is quoted as saying.
+ Read full article at Bloomber.com
Spanish property market shrinks by 7.4% in 2006
“High property prices and rising interest rates sink property market” was one recent headline in the Spanish press, in response to news, from Spain’s property registry, that the number of properties sold in Spain fell by 7.4% in 2006.
The total number of property transactions recorded in Spain’s property register – the Spanish equivalent of the UK’s land register – fell from 989.341 in 2005 to 916.103 in 2006, an annual drop of 7.4% in unit terms.
Autonomous regions with more than 100,000 property transactions were (decrease in unit sales per region in brackets):
Andalusia 178,189 (-7.3%)Catalonia 152,802 (- 8.8%)Valencia 136,720 (-8%)Madrid 101,635
The biggest falls affected regions with smaller property markets:
Cantabria (-16.9%)Aragón (-15.7%)Basque Country (-15.1%)Galicia (-11.8%)Extremadura (-8.8%)
Resale property transactions fell by 4.97% to 526,509 units (57% of the total), whilst completed transactions on newly-built properties fell by 10.11% to 389,594 units (43% of the total). Judging by this data it appears that the demand for newly-built properties is falling whilst the number of new properties being built in Spain is hitting new records.
Spanish real estate downturn risk to wider economy
Spain’s dependence upon its real estate sector for economic growth, and the wider implications for Spanish economic growth of a property downturn, were in the headlines in March.
At the beginning of March an article in the Spanish daily ‘El Mundo’ pointed out that construction drives 10.9% of Spain’s 976 Billion Euro GDP, compared to a Euro-15 country average of 5.6%. 106.4 billion Euros worth of Spain’s GDP comes from the construction sector, and Spain is far more dependent upon construction for Economic growth than other European countries.
I did some further research on the subject, and discovered that the construction sector’s share of GDP has grown from 7.5% in 2000, to 10.9% in 2006, an increase of 45%. Spain’s booming real estate sector has created jobs and wealth for Spain, which most people would welcome. But the rise in construction has come at the expense of other types of economic activity, increasing Spain’s exposure to one volatile sector, and leaving Spain more vulnerable than most other European countries to a real estate bust.
This concern has been brought to light in a recent report from the Bank of Spain (Los precios de la vivienda y la reasignación del empleo: una evidencia internacional) highlighting the negative effects on Spain’s broader economy of the recent property boom. The report finds that the boom has taken place at the expense of other sources of economic growth, and that unemployment in Spain could rise substantially in the event of a construction sector downturn. The report explains that the lure of short-term profits to be had in the property boom have diverted investment from other sectors. “If investors have a short-term perspective, then high returns from construction reduce profitable long-term investments in other productive activities,” says the report.
SEOPAN – a trade body representing Spain’s biggest builders – warned in March that a real estate sector downturn could destroy 200,000 Spanish jobs in 2008.
Enrique Aldama – President of SEOPAN – argued that if housing starts fall by 100,000 units (15% of the total, according to SEOPAN) in 2008, unemployment would rise by 200,000 as a consequence.
Aldama warned the government to “think carefully about what to do, because I can’t see any sector that will take over from construction, which creates 25% of all new employment, and 30% of economic growth in the last 5 years.” To avoid a crisis in 2008, Aldama has urged the government to protect the construction sector, and increase the supply of building land.
When it comes to construction, the government finds itself between the devil and the deep blue sea. It certainly looks as if Spain’s construction boom is unsustainable, and has taken place at the expense of balanced, long-term economic growth. But once an economy gets hooked on construction for employment and economic growth, it is difficult to rebalance without serious economic distress.
Spanish mortgage rates rise again
Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose again in March to 4.106% (to be confirmed by the Bank of Spain).
This is the 18th monthly increase in Euribor, and places it at its highest level since August 2001. Euribor is now 32% higher than it was a year ago. This means that variable-rate mortgage interest payments in Spain (98% of all mortgages in Spain are variable rate) have also risen substantially.
Euribor is derived from the Eurozone base rate set by the European Central Bank (ECB). The ECB raised base rates in March from 3.5% to 3.75%, a move that was widely expected by the markets, and already priced into Euribor rates.
According to Jean Claude Trichet – President of the ECB – interest rates for the Eurozone are still moderate and expansionary, suggesting that there are more interest rate rises to come this year. Many analysts expect rates to rise to 4% this year (with another increase in June or July), though some financial institutions, most notably the Spanish bank BBVA, expect base rates to go as high as 4.25% this year.
Also in March, Spain’s National Institute of Statistics announced that the average mortgage value in January rose to 147,322, a 13.2% increase in a year. The Spanish Mortgage Association announced that mortgage default rates in Spain have risen to 0.41%, a level that is still close to historic lows.
But according to Spain’s Association of Independent Financial Advisors (La Asociación de Profesionales Asesores Independientes Financieros – AIF), quoted in the Spanish daily ‘La Vanguardia’ many Spanish households are struggling to meet today’s higher mortgage payments, which is why properties are now coming onto the market “20% cheaper than 3 months ago.”
Property boom starts deflating in Madrid and eastern provinces
Is this the beginning of the end of Spain’s property boom? asks the financial daily ‘El Economista’. Yes, at least according to the latest figures from Spain’s property register, showing a fall in property registrations in the Spanish Levant (the provinces of Castellon, Valencia, Alicante and Murcia), and large interior cities like Madrid. According to Eugenio Rodríguez Cepeda of the property registry, recent demand has been driven by the baby boom of the 1970s, which has now largely worked its way through the market. Rodríguez doubts that Spain will be able to absorb any more years of record housing starts, like the 883,000 housing starts in 2006.
Property investors in Madrid left with empty properties
The Spanish daily ‘El Pais’ reports that investors bought off plan a third of all properties built on new housing developments around Madrid in the years 2002 to 2005, but are now struggling to sell or rent these properties, with half of all new properties standing empty.
Plans for sustainable development of Spain’s coast
José Fernández – general director of the coastal department of Spain’s Ministry of the Environment has announced the preparation of a plan for the sustainable development of Spain’s coastline. The plan is expected to implement a construction moratorium in over-developed coastal areas with fragile environments such as La Playa de Isla Canela (Huelva province), La Manga del Mar Menor (Murcia), the Ebro River Delta (Tarragona), the beaches of the Spanish Levant, and some parts of the Balearics. The plan should be ready by December, presumably when there is no fragile coastline left to protect from mindless development.
30% of Spanish estate agents will be wiped out by downturn
An article in the Spanish financial daily ‘Expansión’ quotes Óscar Martínez – president of the Association of Property Experts (Asociación de Expertos Inmobiliarios – APEI) – as saying that some 30% of the 60,000 estate agencies estimated to exist in Spain could go out of business in the coming property market slowdown. According to Martínez, the fall in demand for property, and an expected increase in regulation by both national and regional authorities mean that we can “expect a radical change in the Spanish estate agency business in the coming months.”
New law to tighten up property valuations
In a draft bill to reform Spain’s mortgage market the government proposes tightening up property valuation practises, and punishing appraisal companies that produce biased valuations. The reform aims to increase the “independence and professionalism” of appraisal companies by addressing a conflict of interest between mortgage lenders on the one hand, and appraisal companies on the other. Appraisal companies, many of which are owned or heavily dependent upon mortgage lenders, are suspected of producing biased valuations to please mortgage lenders, rather than fair valuations reflecting true market prices.
The Costa del Sol pays the price for Marbella
An article in the Spanish financial daily ‘Expansión’ reports that Marbella’s corruption scandals are damaging the property market on the Costa del Sol. The article cites a report by property consultants Aguirre Newman showing that property prices on the Costa del Sol have fallen 4.7% in the last 12 months.
Developers abandoning the coast
And article in the Spanish daily ‘El Pais’ claims that the residential property market is fast losing steam, especially in coastal areas. As a consequence developers and investors are abandoning residential developments on the Spanish coast. The supply of land with planning permission and building licences is rising – a situation almost unheard of in Spain in recent years – whilst demand from developers and investors in falling.
Spanish property glut grows, prices under pressure
An article on ‘elconfidencial.com’ highlights the growing gap between the supply and demand for property in Spain. According to the data available, the supply of new property is growing at the fastest rate in years, as shown by the number of housing starts, and the record levels of cement consumption in Spain. On the other hand there are signs that demand for property in Spain is falling, which one would expect in response to rising interest rates. The result is a growing glut of Spanish properties, which will inevitably put pressure on prices.
Housing ministry forecasts quarterly fall of 1% in property inflation rate María Antonia Trujillo – Spain’s Minister for Housing – forecasts that property inflation rates in Spain will fall by 1% per quarter during 2007. If correct, this means that annual Spanish property inflation will fall from 9.1% in 2006, to around 5% in 2007. “We are in a market that is beginning to stabilise, that is adjusting in the gradual way that we all want,” Trujillo is quoted as saying.
© Mark Stucklin (Spanish Property Insight)

2007-03-13T20:50:00.000Z

http://www.spanishpropertyinsight.com/news.htm#2

SPANISH PROPERTY NEWS
February 2007 news review
Every year, at the end of February, I review the performance of the Spanish property market in the previous year, and look at the forecasts for the coming year. The bottom line is that 2006 was a difficult year in many parts of coastal Spain (but not all). But it’s also clear that, when the price is right, attractive properties in pleasant areas don’t hang around, and potential demand is still strong. In my opinion there is no point waiting for attractive, quality properties to fall to bargain prices because I don’t think it will happen. On the other hand it should be possible to find good value this year, but only if you do your research. And in this jumpy market, buyers would be well advised to focus on quality property, which always holds its value in the long term.
For more detail on forecasts for 2007 check out the report (see below).MARK STUCKLIN
Spanish property market review
A review of 2006, plus forecasts for 2007 + more
Spanish Property News
Spanish property market slowdown is talk of the town
The slowdown of the Spanish property market was a popular topic in the Spanish press during February.
The Spanish daily ‘El Pais’ reports that “the party is over”, at least according to Joan Ollen – president of Barcelona’s professional association of estate agents. This is based on the fact that sales of resale properties have fallen by between 40% and 50% since June 2006. Figures from the land register also reveal that the number of property transactions in Spain has been falling for some time, with 22,800 fewer transactions in the first quarter of 2006, compared to the same period the year before. The almost complete disappearance of property investors is one of the causes of the slowdown mentioned in the article.
An article in the Spanish financial newspaper ‘El Economista’ says that property developers in Spain are beginning to feel the pinch in their pockets, as their margins shrink. The article refers to a new report from the consultancy ‘Grupo I’ showing that developers’ before tax margins have fallen from 15%-20% in 1990, to 13-18% in 2005, and 9%-14% this year (expected).
All of which is keeping developers awake at night, according to an article in the Spanish daily ‘ABC’. What most worries developers is a price war if some start offering discounts to try and shift the many newly built properties presently hanging around on the market. Developers who drop prices and make sales may benefit, but it might lead to a slump in the price of newly built and off-plan property.
Developers in the Autonomous Region of Valencia see the slowdown as a return to ‘normality’, according to an article in the regional newspaper ‘Levante’. In the recent boom years 50,000 properties were built and sold each year in the province of Alicante alone. Between now and the year 2010 developers forecast 65,000 property sales per annum in the whole of the Valencian Region, of which only half will be newly built properties. The article quotes Benjamin Muñoz of the Valencian developers’ association as saying that the slowdown “is a return to normality, and not a crisis.”
Spanish mortgage rates rise again
Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose again in February to 4.09% (to be confirmed by the Bank of Spain).
This is the 17th monthly increase in Euribor, and places it at its highest level since August 2001. Euribor is now 40.5% higher than a year ago, and 95% higher than in June 2005. This means that variable-rate mortgage interest payments in Spain have also risen substantially.
As a result of the latest increase in Euribor, monthly mortgage repayments on the average Spanish mortgage of 140,275 Euros over 25 years will increase from 696 Euros/month to 787 Euros/month, an increase of 91.5 Euros per month, and 1,100 Euros per year. The value of the average mortgage loan taken out in Spain grew by 12.6% in 2006, according to Spain’s National Institute of Statistics (INE). Overall mortgage lending grew by 23.3% in 2006 – the lowest level of growth since 2003.
Euribor is derived from the Eurozone base rate set by the European Central Bank (ECB). The ECB left the Eurozone base rate unchanged at 3.5% in February, but is expected to raise it gain at the next governing council meeting on 8 March, most likely by 25 basis points to 3.75%. Futures trading shows that markets expect the ECB to raise the base rate to 4% by September, even though inflation has stayed below the ECB’s 2% ceiling for the last 5 months.
Commenting on base rates during a February interview European Central Bank council member Axel Weber (head of Germany's Bundesbank) said, “We need to reach a rate level that's more appropriate than the current one.”
BBVA – one of Spain’s largest banks – expects the base rate to rise to 4.25% in 2007, with quarter point increases in March, June, and September. To some extent the present Euribor rate already reflects some of the expected increases in the base rate. Nevertheless, if the base rate does continue to rise, Spanish mortgage rates, and with them the financial burden on property owners in Spain, will also rise.
Chiclana – another Marbella?
The Spanish financial newspaper ‘El Economista’ reports of alleged plans by the town hall of Chiclana de la Frontera (Cadiz Province, Andalusia) to allow the construction of 40,000 illegal properties without planning permission (10,000 more than the number of illegal properties in Marbella). In the light of multiple urban planning irregularities in this municipality, Jose Chamizo – the citizen’s ombudsman of Andalusia (defensor del pueblo) – has called on the authorities to investigate at once. Foreigners thinking of buying in this area should take note and proceed with extra caution.
6 times more new properties than new resident in Galicia
The housing stock in Galicia (North West Spain) is growing 6 times as fast as Galicia’s population. In the last 6 years planning permission has been given for 204,000 properties, at a time when the population has only gown by 35,000 people. Which begs the question; who is going to live in all those new properties?
Spanish resale property asking prices at least 10% too high
According to a recent article in the Spanish daily ‘El Mundo’ the asking prices of resale properties in Spain are between 10% and 30% (or more) too high. Many experts expect the slowdown in Spain’s property market to bring down asking prices to more realistic levels.
Indebtedness of developers and builders worries Bank of Spain
Jose Luis Malo de Molina – director of research at the Bank of Spain – has expressed concern at the increasing level of indebtedness of Spanish developers and construction companies. Developers appear to be borrowing on the assumption that Spain’s real estate boom continue indefinitely, when all the evidence points towards a slowdown in the market.
Bank of Spain questions validity of official housing market statistics
High leverage in the property sector was not the only thing worrying Jose Luis Malo de Molina of the BoS in February. He also pointed out that the official statistics for the housing market in Spain are not good enough. Given that housing is one of Spain’s principal concerns, and house building one of the most important sectors of the economy, Malo de Molina thinks it is time to introduce more accurate and reliable statistics.
As things stand, the official figures from the Spanish ministry of housing are prepared using data from the professional association of architects, notaries, property registrars, and registered appraisal companies.
But as Malo de Molina points out, the data from these sources is often contradictory. One of the reasons for this is that many transactions witnessed by notaries are not then inscribed in the land register.
Spain at risk of property crash
Spain and Ireland are the 2 Eurozone countries most likely to suffer a real estate crash, according to a new report from American Express Funds. The report likens the situation in these countries to the US housing market between 2003 and 2005, which lead to the US real estate slump that started in 2006
© Mark Stucklin (Spanish Property Insight)

2007-03-13T20:42:00.000Z

http://www.spanishpropertyinsight.com

Spanish property market review & forecast
2006 - 2007
February 2007: Every year about this time I review Spanish property market’s performance in the previous year, and take a look at the forecasts for the coming year.
Spanish property market overview
A few years ago Spain was in the grip of a property boom, and foreign buyers were falling over themselves not to ‘lose out’. Much of the heat has now gone out of the market, not least because a constant stream of bad news has shaken foreign buyer confidence in Spanish property, whilst relatively high prices, and competition from cheaper destinations such as Morocco and Bulgaria, has reduced demand for Spain. It is now a buyer’s market in many popular tourist areas, and great value can be found if one is prepared to make the effort. But whilst the stock of unsold properties is accumulating, and prices in many areas are stagnating, there is still a sizeable overhang of overpriced properties lying in wait for ill-informed buyers. This is especially true of resale properties, as many vendors have not yet adjusted their price expectations to market realities. It may be a buyer’s market, but buyers need to be savvy, and seek out value if they are to avoid overpaying.
2006
According to the Spanish government’s figures, average national Spanish property prices rose in nominal terms by 9.1% over 12 months to the end of 2006, ending up at 1,990 Euros/m2. This represents a clear slowdown in Spanish property inflation, down from 18.5% in 2003, 17.2% in 2004, and 12.8% in 2005. Based on the Spanish government’s figures, it looks like the Spanish property market is on course for a soft landing, in which property prices will rise in line with general inflation.
Year
Property inflation %
1996
0.2%
1997
1.2%
1998
7.7%
1999
9.6%
2000
7.7%
2001
11.1%
2002
17.3%
2003
18.5%
2004
17.2%
2005
12.8%
2006
9.1%
Continuing with the Spanish government’s figures, property prices rose the most in the province of Lugo (Galicia) at 18.5%, and the least in Caceres (Extremadura) at 3.3%. It is interesting to note that the best performing regions last year were in central and northern Spain, which are largely ignored by English-speaking buyers. On the other hand Spain’s Mediterranean coastal provinces and islands were some of the worst performers: Prices in Alicante province (Costa Blanca) rose by only 5.1%, and in Tenerife (Canaries) by 5.6%, though Girona (Costa Brava) managed a respectable 13.2%, and the Balearics 11.8%. Madrid had a bad year near the bottom of the table with 6.1%, whilst Barcelona did somewhat better with 10.4%, up from 8.9% last year. Overall, though, the government’s figures paint a picture of a slowdown in the Spanish property market. + see full table of prices
Figures from Kyero.com – a leading Spanish property portal that publishes a Spanish Property Index - show that average asking prices fell in 2006, down by 1.6% to an average asking price of 245,000 Euros (asking prices are not the same as transaction values, which are likely to be between 5% and 30% lower in a buyer’s market). Kyero’s figures confirm the broad trends seen in the government’s data: The market is coming off the boil, and previously hot Mediterranean markets like Alicante (- 1.5%) and Malaga (+3.4%) are now struggling to deliver positive results. On the other hand the Balearics had a good year, up 15% to an average asking price of 458,800. Star performers were the provinces of Jaen (+23.2%) Seville (+17.8%), and Castellon (+16.6%). Jaen is still one of the cheapest provinces, with an average property price of 85,000 Euros, according to Kyero.com.
Interviews with property professionals in different parts of Spain lend some support to these figures, but if anything show that the government’s figures are too optimistic. Property professionals working in Malaga province on the Costa del Sol report that the overall market is tough, and prices are where they were 2 or 3 years ago. On the other hand they also report that attractive, quality property that is well priced still sells quickly. In Murcia and the Costa Blanca the story is more or less the same, though in the most over-developed areas of these regions it is increasingly difficult to describe anything as ‘attractive’.
In the Costa Brava and the Balearics, property prices still appear to be rising modestly, though properties are not selling as easily as they did 3 or 4 years ago. In Ayamonte, on the border with Portugal, off-plan investors were still driving the market in 2006, though that now appears to be cooling down. All agents, in all areas, report that demand from Spanish buyers was more robust than foreign demand, especially at the expensive end of the market.
So 2006 was a year in which the Spanish property market continued to cool down after the boom years of 2000 - 2004. Mortgage borrowing growth peaked, and foreign investment in Spanish real estate fell 12.6% (12-months to the end of October 2006), having also fallen in 2004 (-6%) and 2005 (-17%). Interest rates (Euribor) rose from 2.833% at the start of 2006, to 3.93% at the end, a 41% increase in percentage terms, adding another 1,000 Euros per annum to the costs of paying the average Spanish mortgage. Spanish property prices that have now risen on average 100% in the last 5 years, and demand, both local and foreign, is cooling in response to all these factors. As a result properties are taking longer than ever to sell, and the stock of unsold properties is increasing.
But perhaps the most alarming imbalance in the Spanish property market today is the high level of housing starts in Spain. There were approximately 800,000 housing starts in 2006, almost 3 times the EU average. Spain is Europe's biggest cement market, consuming 66 percent more than Germany, whose economy is almost three times as large. This is clearly unsustainable, and Spain’s economy has become alarmingly over-exposed to the construction sector as a consequence (50% of all Spain’s capital investment goes into real estate, which is also responsible for half of all new jobs and a sizeable chunk of both Spanish GDP and GDP growth).
If housing starts continue at this level, or even at the rate of 600,000 forecast for 2007 by the Madrid House Builders’ Association (ASPRIMA), Spain could hit a crisis of oversupply, if this is not already happening. As things stand the industry does not appear to be adjusting to cooling demand. In an unusual step the Bank of Spain has warned the property sector this February about expanding capacity and increasing borrowing at a time when demand is clearly cooling.
But despite the slowdown, it is also looks as if there are deep reserves of potential demand for Spanish (coastal) property amongst foreign buyers, principally the British and the Irish. A recent survey from the Institute for Public Policy Research shows that there are already 761,000 Brits living in Spain (990,000 if you include part-time residents), and millions more wish to join them.
The demand exists, but given a) Spain’s high property prices, b) the chance that prices might fall, and c) the stink of corruption and illegal building wafting from Spain’s property market, many potential foreign buyers are deciding to wait and see. So the problem is not the level of potential foreign demand for property in Spain, which I believe is still strong. The problem is that buyers are worried about risking their savings in a market blighted by corruption scandals, illegal building, mindless development, and dodgy property companies. It's essentially a confidence problem, not a demand problem.
One of the most important changes in the market is the fact that English-speaking buyers in general are now better informed, more aware of the common problems, and more demanding than in the past. This is a structural change that companies selling to foreigners will have to come to terms with. In the internet age, geographically dispersed buyers can share their knowledge and experiences to an extent that was not possible even 5 years ago. This has led to a power shift away from sales organisations and towards buyers.
To take advantage of the present market buyers need to be savvy, well informed, and looking for value. 2007 will be a good year for buyers who are prepared to look around, and do their research. Vendors who are serious about selling will need to drop their prices, as will developers of mediocre new developments (some of whom will run into financial difficulties this year).
2007 FORECASTS
OECDThe OECD expects a “modest correction” in Spanish property prices.
Lombard Street Research Ltd. (London)Diana Choyleva, an economist at Lombard Street Research Ltd. in London, is bearish, and predicts that the end of the housing boom will also be the end of Spain's boom. Bloomberg quotes her as saying, “You don't even need house prices to fall to have a big correction. All you need is house prices to stop growing. Most likely, things are going to begin to unravel in 2007. We've already had a slowdown in house price inflation.''
Spanish Ministry of FinancePedro Solbes – Spain’s Minister of Finance – says that Spain’s recent property price increases are “difficult to justify”, and forecasts that property inflation in Spain will fall inline with general inflation (currently 2.4%).
Economist, architect, and Spanish property expert Ricardo VergésProperty analyst Ricardo Vergés, of Spain’s association of architects, is quoted in the Spanish press as saying; “Property should cost 3 times annual salaries, not 6 or 7, as is the case in Spain today. Vergés thinks that a property crash is more likely than a soft landing.
Standard & Poor’s: International credit ratings agency Standard & Poor’s forecasts an ‘abrupt’ landing for Spain’s property market in a recent report entitled ‘Storm clouds over European Property Markets’.
Institute of Economic Studies (IEE): Given Spain’s booming economy, job creation, and increasing number of new households, the Institute of Economic Studies expects the property market to continue growing, and discounts any sudden price correction.
Caixa Catalunya: One of Spain’s largest savings banks forecasts that Spanish property prices will increase by 8% in 2007.
C.B. Richard Ellis: Real estate consultants C.B. Richard Ellis also forecast average property price increases of 8% for 2007, and do not expect property inflation to fall to general inflation levels for a couple of year yet.
BBVA: One of Spain’s largest banks forecasts that average prices will increase between 3% and 5% in 2007
The Spanish People: A survey of Spaniards by Gallup at the end of 2006 revealed that 29.4% believe property prices will increase considerably in 2007, 6% believe property prices will increase a bit, 15.2% say prices will stabilise, and only 2.3% of Spaniards believe that Spanish property prices will fall a bit or a lot in 2007.
And lastly.... For my part I’m bearish about the wider Spanish property market’s prospects for the next few years. I think that over supply, rising interest rates, scandals, and high prices will all take their toll on demand. A slowdown in the construction sector is inevitable, which could weaken Spanish economic growth significantly, and further reduce demand. As a result I believe the most likely scenario is one in which property prices in many parts of Spain stagnate this year, and stagnate or fall next year. I’ve been saying this for the last 2 years, and have been wrong the last 2 years. Sooner or later I’m going to be right.
I am more optimistic about the market for quality property in coastal areas, and other areas popular with European buyers, where demand is more diversified. I think attractive properties in good areas and on the best developments will hold their value in the short term, and deliver solid returns in the long term. But when it comes to mediocre property in over-developed areas all I can say is there is far too much of it around, and I am not optimistic about it.
Spanish Property Prices 2005 vs 2006
The following table gives average property prices by Spanish province and autonomous region for 2005 and 2006 in €/m2, and property inflation rates in 2006. Coastal regions popular with European buyers are highlighted.
Source: Spanish Ministry of Housing
© Mark Stucklin (Spanish Property Insight)

Spanish Mortgages

2007-01-04T16:22:00.000Z

Info from www.spanishpropertyinsight.com

SPANISH PROPERTY NEWS BULLETIN (DECEMBER 2006 REVIEW)
The shares of property companies quoted on the Madrid stock exchange rose by more than 60% in 2006. In theory stock valuations are forward looking, which means the stock market is (wildly) optimistic about the future of the Spanish property market. I must confess that I don’t share this enthusiasm, at least not in the short term. But I am optimistic about the best quality property and developments in Spain, which I think will benefit from a flight to quality as the market dips. The way that English-speaking buyers are starting to wise up, quality is bound to be the key attribute in future, and to this end I’m preparing a guide to the best residential developments in Spain (first version ready end of January), to help ‘ordinary punters’ identify quality, and benefit from what I observe as a property specialist on my regular field trips around Spain.
2007 is going to be a buyer’s market. If you are hoping to buy, go for quality. If you are hoping to sell, lower your price expectations. And if you just own property in Spain, then brace yourself for higher utility bills (though still low by EU standards), oh, and enjoy!
All the best for 2007.
MARK STUCKLIN
This month in the forum: An erudite discussion of the Spanish property market’s prospects for 2007. >GO
SPANISH PROPERTY FEATURE
Bank guarantees and buying off-planMake sure you get a bank guarantee for your stage payments when buying off-plan . > GO
SPANISH PROPERTY NEWS
Millions to abandon Britain by 2050, Spain the top European destination
A new report by the Institute for Public Policy Research envisages that as many as 3.3 million pensioners might move abroad by the middle of the century. This would be a threefold increase in the 1 million or so British pensioner already living overseas.

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All in all, an estimated 5.5 million British people live permanently abroad – almost 10% of the UK population. During 2005, some 2,000 Brits left the country for good every week. “If current trends continue, we could expect as many as a million more British nationals to emigrate over the next 5 years” the report’s authors write.
Australia is the most popular overseas destination, with 1.3 million Brits now living down under. Spain is the second most popular destination, with 761,000 British emigrants.
Within Europe, Spain is the most popular destination by a wide margin. Ireland is next, with 291,000, ahead of France with 200,000. Other popular European ‘quality of life’ destinations are Cyprus (59,000), Portugal (38,000), Turkey (34,000), Italy (26,000), and Greece (18,000). Bulgaria has a paltry 800 British residents, though this rises to 10,000 when you include part time residents.
Including part time residents, there are 990,000 Brits in Spain, 74,636 of whom are pensioners. By age group, 39.4% are in the 45-64 years of age bracket, and 24.7% are 25-44 years old. To date, only 21.5% are 65 or above.
These figures show that, when it comes to attracting Brits, Spain continues to enjoy a thumping lead over the European competition. France is Spain’s biggest ‘quality of life’ competitor, but almost four times as many Brits choose to live (and buy property) in Spain than in France. In terms of popularity, all other European destinations are almost insignificant in comparison to Spain.
As the number of Brits abandoning the UK in favour of a better quality of life abroad increases, Spain will continue to be the top European destination, and may even increase its lead over competitive destinations. Spain’s reputation has taken a hit recently because of illegal building scandals, corruption scandals, and the scandalous behaviour of some large property sales organisations, all of which have combined to undermine buyer confidence in Spain. But these problems will be sorted out, and schemes will emerge to help Brits buy with total security in Spain. Once this has happened, there will be nowhere that can compete with Spain’s quality of life, whilst only being a couple of hours by plane from the UK.
For more information:http://www.timesonline.co.uk/article/0,,2087-2496628.html http://www.bbc.co.uk/britsabroad
Spanish mortgage costs continue to head north
Spanish mortgages have ended the year the way they started – getting dearer. Euribor - the rate used to calculate interest payments for most mortgages in Spain – rose to 3.92% in December (to be confirmed by the BoS), the highest level since 2002. By Friday 29 December – the last trading day before the New Year – Euribor had broken through the 4% barrier to reach 4.028%. Euribor has risen by 39% in 2006, and 87% in the year and a half since June 2005.
The latest rise will increase the pressure on homeowners with mortgages in Spain. Spanish mortgage repayments for an average variable-rate mortgage of 145,300 Euros at 25 years, with an interest rate of Euribor plus 0.5%, will increase by around 1,100 Euros per year, or 91 Euros per month.
Euribor rates are derived from the Eurozone base rate set by the European Central Bank (ECB). As expected, the ECB raised base rates in December from 3.25% to 3.5%. This is the sixth time the ECB has raised base rates in a year, and the highest level since September 2001. The ECB is expected to continue raising interest rates in 2007, though the recent strength of the Euro against the Dollar, and the fall in the price of oil, may cause the bank to postpone further increases in Eurozone interest rates.
Gregorio Mayayo, the president of the Spanish Mortgage Association (AHE), expects Spanish mortgage interest rates to continue increasing in 2007, but not as much as in 2006. He expects borrowers to cope “reasonably well” with higher payments, and only sees serious problems occurring if the economy stalls, and unemployment goes up.
Meanwhile, the number of mortgage defaults in Spain is on the increase, albeit from a very low base. In a recent report the Bank of Spain says, “ Although the default ratio is low, it should be pointed out that bad debts are increasing, in some cases at a high rate.”
Spanish property now takes four times longer to sell than in 2005
A recent article in the Spanish financial daily “Expansion” reveals that Spanish properties are now taking on average more than 2 years to sell, compared to 6 months at the start of 2005. In coastal areas, average sales times increase to 3 years. According to the article, vendors of resale properties are having to reduce their prices by an average of 18,000 Euros.
Foreign investment in Spanish property continues to fall
New figures from the Bank of Spain (BoS) show that foreign investment in Spanish property has fallen for the 3rd year running. Foreigners spent 3,5 billion Euros on Spanish property in the first 9 months of this year, down 14.3% on the same period last year. Spanish investments in foreign property almost doubled in the same period.
Spanish stock market stuffs Spanish property market
Spanish stock returns have stuffed Spanish property returns this year, according to an article in the Spanish daily ‘La Vanguardia’. Spain’s main stock market index – the Ibex – is up by 30% this year, compared to an average property price increase of just under 10%. The shares of property companies traded on the stock market did best of all, up by 66.45% in the year.
Property investors could have earned a bundle, and saved themselves a huge amount of hassle by simply investing in a basket of Spanish property company stocks. Investing in companies that invest in property takes away much of the pain of property investing. Shares don’t cost anything to maintain, they don’t have leaky roofs or blocked drains, they don’t have troublesome tenants, and they are traded on a large, liquid market so you can sell when you want to.
Government confirms 24% increase in housing starts
According to the latest figures from the Spanish government there were 674,629 new residential construction projects in the first 9 months of the year, 24% more than during the same period in 2005. This is set to be a record year for housing starts in Spain.
But all booms come to an end sooner or later. According to a recent article in the Spanish daily ‘El Mundo’, José Luis Miguel – president of the Valencian property trade fair ‘Urbe Desarrollo’ – expects Spain’s residential construction boom to end in the next 2 years. He forecasts housing starts to halve to around 450,000 per year in 2008, down from over 800,000 at present. “Demand will fall gradually to a structural level where people only buy to meet their housing needs,” Miguel is quoted as saying. With interest rates rising, investment demand falling, the job market wobbling, and baby-boomers already owning homes, it looks like the factors driving the present construction boom could disappear. “The adjustment will take place in 2 years, and prices will continue to moderate, falling to general inflation levels,” says Miguel.
According to a recent article in the Spanish daily ‘ABC’ the European trade organisation ‘Euroconstruct’ also expects Spain’s construction boom to end in 2008, when it forecasts housing starts to fall for the first time in 12 years. But in contrast to Miguel, who expects a dramatic fall of 50%, Euroconstruct forecasts a very modest fall of only 2.5%.
The Spanish daily ‘La Vanguardia’ reports on figures from Spain’s Technical Institute of Construction (ITEC), which forecast housing starts of 815,000 this year, smashing last year’s all time record of 730,000.
According to Josep Ramon Fontana – a director of ITEC – new regulations on building standards in Spain partly explain the surge in housing starts this year. The new regulations, introduced in October, tighten up standards for structural security, construction materials, and thermal and acoustic insulation, and require that all Spanish new developments include solar panels. The regulations are expected to increase residential construction costs in Spain by 10% to 15%, so many promoters are thought to have brought forward their projects to avoid the new regulations.
Fontana also thinks that Spanish promoters are rushing to take advantage of Spain’s real estate boom before it peaks. “Promoters are not behaving prudently in the light of evidence of a down turn in demand. On the contrary, they appear to be placing a risky bet on there being one last train,” Fontana is quoted as saying.
Also quoted in the article is Anton Checa – director general of ITEC. “There is a slow down in demand, which means that t sock of properties is building up that is hard to sell, a situation that is typical of the end of a boom.”
Spain leads in properties per capita
A recent article in the Spanish daily “ABC” points out that Spain has the highest ratio of properties per capita in all of Europe (data taken from recent report by FUNCAS entitled “Papeles de Economia”). There are 509.8 properties per 1,000 people in Spain, or just over 1 property for every 2 people. The next highest is Portugal, with 489 properties per 1,000 people, and the European average is 468.4 properties per 1,000 people. It seems that Southern European countries with pleasant climates and attractive coastlines, such as Spain and Portugal, have more properties per capita than Northern European countries, where there are fewer second homes.
Number of properties in Spain not excessive
The ratio of properties to households in Spain is at a reasonable level, according to the latest quarterly report on the Spanish economy by Caixa Catalunya – one of Spain’s biggest savings banks.
Between 1998 and 2005, 3.5 million new properties were built in Spain, whilst the number of new households formed during the same period was 2.7 million. This means that there were 800,000 more properties built than households created in the period, an excess of approximately 100,000 properties per year. But according to the report the difference between housing starts and new household formation is not excessive if one takes into account the objects of other types of demand, such as holiday homes and investments.
The recent growth in the number of households in Spain (driven by rising divorce rates, single person households, and immigration) means that the ratio of properties to households in Spain has actually fallen over the period, from 1.542 properties per household in 1998, to 1.494 in 2005. The greater increase in households compared to properties enables the bank to conclude that residential construction levels in Spain reflect genuine demand, and have a sold base in demographics.
Savings banks warn of over supply of Spanish property
Whilst Caixa Catalunya argued that the supply and demand for Spanish property is more or less in balance by historical standards (see news above), the Spanish Confederation of Savings Banks (CECA) was warning of a growing disconnection between supply and demand for Spanish property.
This concern was raised by Juan Ramón Quintás – President of CECA – in a recent presentation. He pointed out that whilst Spanish promoters are building at record levels, savings banks are noticing a significant fall in demand. Savings banks are the biggest mortgage lenders, and have an enormous stake in the health of the Spanish property market.
Although supply and demand have recently grown out of kilter, Quintás expects some equilibrium to start returning to the market in 2007, when housing starts should start falling in response to cooling demand, and prices start falling towards the 5% mark.
If the gap between supply and demand for Spanish property continues for too long, the risks of a hard landing increases, which could have “an impact on employment and Spain’s economic growth.”
Also in December the Spanish Ministry of Finance, run by Pedro Solbes, noted a change in demand. In its December report entitled “Synthesis of Economic Indicators” the department notes that cooling property prices anticipate a possible fall in demand for residential Spanish property.
Wall Street Journal bearish on Spain
In a December article the Wall Street Journal – a prestigious US financial daily – strikes a bearish note on the Spanish economy and housing market.
Without denying that the Spanish economy is growing fast, the article argues that Spain’s booming property market is hiding some serious economic problems that the Spanish government has done little to resolve.
Spain’s construction boom will result in 800,000 odd housing starts this year, almost double the level of France, a country with 17 million more inhabitants. Many of Spain’s new properties are bought as investments, rather than homes, and the market has been distorted by rampant corruption in town halls.
The article asks how long this construction boom can last, and how it might end.
Many of Spain’s banks are selling their share holdings in the country’s biggest developers and builders, which suggests that the banks expect the boom to end sooner rather than later.
The article argues that a correction in the Spanish property market will have a big impact on the wider economy, which depends upon the real estate sector for an too much of its growth. Construction drives 10.4% of Spanish GDP, double the Eurozone average.
Spain’s economy could be in for some difficult years. Over dependence on construction is bad for productivity, which reduces Spain’s ability successfully in a globalised economy. And if the property sector cools, the job market will struggle to absorb laid off construction sector workers.
The article concludes that unless the Spanish government takes urgent steps to diversify Spain’s economy, reduce bureaucracy, and liberalise both the job market and the energy market, the economic bonanza of recent years could soon be replaced by the mediocrity of Spain’s historical economic performance.
Abusive clauses common in property sale contracts
The Spanish Confederation of Consumers and Users (CECU) – a consumer protection group – reveals that a typical property sale contract contains an average of just under 5 abusive clauses. Of all the contracts examined by CECU, only one was deemed to be free of abusive clauses.
The most common abusive clauses found were as follows:
Forcing buyers to pay the vendor’s registration costs
Forcing buyers to take over the vendor’s mortgage, or pay the mortgage cancellation costs
Failing to provide precise dates for completion
Enabling developers to make changes to a property before completion
Stating that developers and builders are not responsible for any construction flaws
Forcing buyers to accept the vendor’s choice of notary
Forcing buyers to pay the costs of installing a connection to the mains (water, electricity)
CECU also finds that buyers in Spain are generally unaware of their consumer rights, and how best to pursue a complaint.
OECD expects modest correction in Spanish property prices
The OECD – a Paris-based club of rich economies – envisages a modest correction in Spanish property prices, but not one that will pose a serious risk to the Spanish economy. The Spanish property sector needs to cool down in the opinion of Jean-Phillippe Cotis -the OECD’s chief economist.
37% of Spanish properties purchased as an investment
A recent study of Spanish home buyers directed by Prof. José García-Montalvo of Pompeu Fabra University reveals that 37.2% of Spanish property buyers admit that either they, or a member of their family, have bought Spanish property in the last 5 years exclusively for financial gain. The study, reported in the Spanish daily “El Periódico de Catalunya”, shows that Spanish investors expect property values in Spain to increase by an average of 23.4% over the next 10 years. The greatest proportion of property buyers who plan to sell on their property investments are in Murcia (45%), Valencia (39%), Barcelona (38%), and Madrid (33%).
Spanish utility charges to rise in 2007
The Spanish government has authorised an increase in domestic utility prices for 2007. As of 1 January domestic electricity prices will increase by 2.8%, telephone line rental charges by 2%, and household gas prices by 2.2%. These increases will not change the fact that Spain has some of the lowest utility charges in the EU.
© Mark Stucklin (Spanish Property Insight) 2007