Courtesy of Spanish Property Insight September Newsletter September 2007
Property prices may start to fall on the periphery of Spanish cities, according to Sociedad de Tasación – one of Spain’s largest property appraisal companies. However, the company does not expect property prices in city centres to fall, and may even rise on the back of sustained demand. Bear in mind, however, that there is also anecdotal evidence that demand for central district property in Spanish cities like Barcelona is also starting to dry up.
Meanwhile, the Spanish real estate agency Expofincas has announced that, resale property prices fell by 2% in the Madrid region, 3% in Aragon, and 1% in Navarre during the first half of the year, though average Spanish property prices rose by 4.3% on a national basis,
Figures from the Spanish property register show that the number of property sales fell by 10.1% in the first six months of 2007, compared to the same period last year. Sales of new properties fell by 12.77% to 183,992 transactions, whilst resales fell by 8.21% to 254,364 transactions. The Property Registry blames the fall in transactions on deteriorating housing affordability, but expects cooling property prices, an expected halt in interest rate rises, and increasing salaries to improve the affordability of housing in future.
In the Autonomous Region of Valencia (which includes the popular Costa Blanca) over half of all new properties built remain unsold, according to figures from the regional government’s Housing Observatory. Developers in the Autonomous Region of Valencia (which includes the popular Costa Blanca) have only managed to sell 44% of newly built homes, which clearly reflects a slowdown in the market. Of the 128,676 new properties finished in the Valencian Region between January 2006 and March 2007, only 62,985 have been sold. The situation deteriorated in the first quarter of 2007, when the stock of unsold newly built properties rose from 51% to 56%.
Due to liquidity problems the Spanish property developer Llanera filed for protection from its creditors on Monday 1 October, the first major Spanish developer to do so as a consequence of the Spanish property downturn. Llanera specialised in developing second homes in the Valencian Region and Murcia, and spent heavily on marketing in the UK, where it sponsors Charlton Athletic FC. It is unclear what will become of the Llanera’s ongoing developments, and how buyers on these developments will be affected. Llanera is unlikely to be the last Spanish developer to run into financial difficulties, so buyers on new developments in Spain would be well advised to check the balance sheets of developers before they buy.
The Economist Magazine has once again pointed out the risks of a Spanish property bubble after a decade of property price increases and burgeoning residential construction that make the housing boom in America look modest in comparison. Property prices in America have risen by 103% in the last decade, compared to 189% in Spain. As a consequence Spain is a much more likely candidate than America for a housing bust. Property prices in the US fell by 3.2% in the last quarter, but rose by 5.8% in Spain.
Deutsche Bank Research, on the other hand, takes a much more optimistic view of Spain’s housing boom, and future prospects. In a report published in September, entitled “Spain 2020 – the success story continues”, the egg heads at Deutsche Bank Research argue that Spain’s housing boom has sound fundamental drivers, and that “the need for a correction is much smaller than often assumed.” They suggest that Spain’s GDP per capita will be higher than Germany or Italy by 2020, and conclude that Spain’s housing boom and external deficit “are more symptoms of past and current strength than causes of future economic weakness.” If they are right then now is the time to take advantage of the weak housing market and buy property investments in Spain.
Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose again last month to 4.725%, pushing up the cost of financing a Spanish property purchase with a mortgage in Euros. There have now been 24 consecutive monthly increases in Euribor, taking it to its highest level in 7 years since December 2000. Euribor is now 27% higher than it was a year ago, and 125% higher than in June 2004.Spanish Property Insight
