Good news for those intending to buy property in Spain. Bad news for those who want to sell:
Property experts are nervously watching the Spanish housing market as fears mount that it could be about to implode.
If it does, the 250,000 Britons who decided to live the dream of a life in the sun could find themselves trapped in a nightmare.
The Spanish property market, which had been one of the strongest in Europe with double-digit inflation since the early 1990s, has ground to a halt. Worse still, prices are falling in many areas.
The Costa del Sol is taking a battering, largely due to a flood of development properties suffocating the market. But it has also been hammered by corruption scandals, rising crime and interest rate hikes.
The Costa Brava appears to be holding its own, for the time being at least.
Knight Frank research partner Nick Barnes said: “We have reached the position in some areas that unless a property is exceptional and ticks every box for the buyer, you will struggle to sell it at the asking price and will have to be prepared to accept less.”
Mike Boles, a director at Savill’s international division went further. He said: “It is hard to be categorical about what precisely is happening to prices, as so little is selling.”
The Spanish property market is in a league of its own. According to the Royal Institution of Chartered Surveyors (RICS) 2007 European Review, home ownership is among the highest in the EU, at 82%. Similarly, most household wealth (87%) is tied up in property, including 21% in second homes. This makes the ordinary Spaniard particularly vulnerable to price fluctuations.
Demand for property should be falling because of the collapsing birth rate. Spain, with Italy, now has the lowest birth rate in the EU, with women having just 1.3 children on average.
However, demand for property has until now remained strong, perhaps because Spain has the highest rate of immigration in Europe, reaching 640,000 in 2005 and accounting for almost half the net immigration into the EU.
David Stubbs, senior economist at RICS, said: “This group is made up predominantly of older people from north-west Europe, particularly the UK, who wish to settle in the sun but not participate in the labour market. They are the mainstay of demand in the coastal and other tourist areas.
“But others come from central and eastern Europe, Africa and Latin America and migrate for economic reasons. However, low incomes prevent this latter group from entering the property market.”
There is no doubt that Britons have flocked to Spain, drawn by the sunshine, easy living, cheap property and lower taxes.
Against this background, developers began building at record rates, which made Spain the most prolific builder in Europe. Last year more than 750,000 properties were started, again mainly around the coastal resort areas. This is more than treble the 200,000 annual builds which characterised the market for most of the 1990s.
Spanish property development continued to expand, until it reached the current position where big chunks are looking unsaleable, certainly in the short term, or without huge discounts.
For this reason the share prices of a number of big developers slumped last week, fuelling speculation that the market is about to collapse.
- Source: Scotland on Sunday, Apr. 29, 2007