Sun is setting on Spanish property boom
Posted by admin September 08, 2007
Hundreds of estate agencies across southern Spain have gone out of business in a trend that experts say signals the end of a buoyant housing market that has fuelled the country’s economy over the past decade.
In a sure sign that the supply of houses is outstripping demand in overcrowded tourists resorts, more than 300 estate agent offices have closed this year on the Costa Blanca alone, property experts said yesterday. More are believed to have closed in other regions along the coast.
Many British owners of Spanish homes are now facing major losses with some experts claiming the property market is overvalued by as much as 30 per cent.
During the last decade vast swathes of the Spanish coastline have been developed in a construction boom that has made the nation one of the fastest growing economies in Europe. Spanish house prices have risen by more than 200 per cent in that period, encouraging many overseas investors - a large number of them British - to purchase property with the promise of short-term financial rewards.
But in the second quarter of this year the rise in house prices dipped below the rate of inflation for the first time in 10 years.
Analysts believe that because of low interest rates and poor regulations speculators have saturated the market.
Last year more than 800,000 homes were built in Spain, more than in Britain, France and Germany combined.
The result is a long anticipated downturn in the market with the worst hit areas in the big cities and on the Costa Blanca and Costa del Sol, where more than 250,000 homes are British-owned.
At the height of the construction boom in 2005 there were 7,000 estate agents on the Costa Blanca but 300 have closed this year, according to Enrique Llopis, honorary president of Alicante’s College of Real Estate Agents. “It is a symptom of the property bubble bursting,” he said yesterday.
“Demand is 10 per cent lower than it was a year ago and people are having to sell their property for less than they hoped.”
Earlier this year the Organisation for Economic Co-operation and Development said that Spanish house prices were so over inflated that during 2007 the country would see “an abrupt adjustment in which prices will plunge”.
The Spanish government said this week that the housing boom was coming to an end, bringing with it a rise in unemployment due to the expected further decline in new construction contracts being awarded.
In a bleak assessment of Spain’s prospects, the Socialist government admitted that the country faced an uncertain future.
“We face a period of uncertainty and lack of clarity,” said Pedro Solbes, the finance minister.
“This is always bad for the economy.”
- Source: Fiona Govan, Telegraph, Sep. 7, 2007
Related in The Telegraph:
• Mortgages to rise as crisis grips the markets:
Home owners are facing fresh misery as experts predict mortgage rates will rise as a direct result of the crisis that has gripped the financial markets.
Any increase in rates would be a severe blow to Britain’s 17 million mortgage borrowers, who have had to cope with five rises over the past year.
It would also be the first sign that the turmoil in the global money markets has crossed over the Atlantic and is starting to hit British consumers.
[…]Evidence has already emerged that banks are preparing the ground for higher mortgage rates.
In the past few days, five banks have increased their savings rates to around 6.7pc, according to Moneyfacts.co.uk, a leading financial research firm.
While this is great news for savers, economists warn that there is a sting in the tail. Danny Gabay, an economic consultants and former adviser at the Bank of England, said: “It is not in the nature of banks to offer savings rates higher than their mortgage rates. This is a precursor to higher mortgage costs.” Mr Gabay added: “Banks fear this is a problem that will stick around.”
Higher mortgage costs will be particularly harsh for two million home owners already expecting to be hit by a sharp escalation in their monthly payments, as their fixed rate deals - taken out at rock bottom rates around two years ago - come to an end over the next few months.
The Nationwide building society estimates that a quarter of a million mortgage holders will see their payments increase by £200 each month from October. Banks borrow much of their money in the wholesale markets, where rates have soared over the past month.
[…]
The Telegraph also offers a good overview of the global financial crisis which, like so many other crises in the world, is rooted in irresponsible behavior on the part of Americans.
• Q&A on the global financial turmoil:
What’s the problem?
The turmoil in the global financial markets is no longer just a concern for bankers and economists. Many experts predict that homeowners and shoppers in Britain will soon notice the effects.Why?
The credit crunch means banks and businesses are finding it more difficult to borrow money. And when they are able to borrow money, it is more expensive to do so.Why are they having these problems?
Small businesses borrow money from banks. But big businesses, like banks, borrow some of their money directly or indirectly from the wholesale money markets. They pay the London Interbank Offered Rate – the rate that banks are prepared to lend to each other. Since the end of July, three-month Libor, the benchmark rate, has shot up from 6.04 per cent to 6.88 per cent yesterday – an historic high, compared to the Bank of England base rate.How did this come about?
It all stems from the chaos in the American housing market, when US banks offered mortgages to people in no position to repay the loans. These mortgages – now worthless thanks to a US housing market crash – were then re-packaged and sold to investors and banks around the world. Many banks still do not know how badly they are exposed and are unwilling to lend money to anyone else until they find out.
[…more…]
