According to an article in the Spanish daily ABC, the association of Spanish developers (APCE) asserts that almost all of the 1.6 million new properties built in Spain over the last 3 years have already been sold, refuting claims that 1 million newly built Spanish properties remain unsold.
The association also argues that reports of 800,000 odd housing starts each year are substantially exaggerated, as this figure relates to planning approvals, not all of which get built. According to the Spanish housing ministry’s figures 665,000 new properties were started last year, and 597,600 were finished.
Figures from the Bank of Spain reveal that foreign investment in Spanish property increased by 19.2% in the first 5 months of the year compared to the same period in 2006. The amount invested by Spaniards in property outside of Spain almost doubled over the same period.
The total amount invested by foreigners to the end of May was 2.252 billion Euros, almost the same as the amount invested in 2005, though still significantly below the 2.925 billion Euros invested in the peak year of 2003.
How does one reconcile this increase in foreign investment in Spanish property at a time when the market is clearly turning down?
One explanation might be that many of the off-plan sales made in 2004 and 2005 are only now being recorded as investments as buyers take possession of their properties and complete the purchase before notary. This is the moment when the investment is recorded in the national accounts.
Nevertheless, the figures do seem to suggest that foreign demand for Spanish property has picked up significantly since last year, even though property professionals report that the market is still very slow. By the end of the year we should know whether foreign demand has rebounded, or whether these figures can be explained by some other factor.
- Source: Excerpted from SpanishPropertyInsight.com, via Expatica.com, Sep. 2007
Archive for September, 2007
Sept. 18 (Bloomberg) — A residential real estate slump in Spain, where prices have almost tripled since 1997, is “unthinkable,” the top economic adviser of Prime Minister Jose Luis Rodriguez Zapatero said.
The solvency of the banking system and of real estate developers, as well as the unmet demand for new homes, will prevent any meaningful price erosion, David Taguas, head of the prime minister’s economic research unit, said in an interview yesterday at his office at the presidential palace in Madrid.
“To talk about severe adjustments or a meltdown in prices is ridiculous,” Taguas said in response to reports pointing to an end of the Spanish real estate boom. “That sort of crisis is unthinkable.”
The gains in housing prices are already slowing and excess supply may lead to a decline in prices, predicted Gonzalo Bernardos, an economics professor at the University of Barcelona, who expects a 20 percent drop by 2009. Home prices rose 5.8 percent in the second quarter from the year earlier period, the smallest increase in at least three years.
The Spanish banking system is also solid enough to withstand rising financing costs triggered by the fallout from the surge in defaults in the U.S. subprime mortgage market. A run on mortgage- lenders such as Newcastle, U.K.-based Northern Rock Plc or funding difficulties like those at Countrywide Financial Corp. in the U.S. are “unthinkable” in Spain, Taguas said.
[...]Rising interest rates have pushed home prices beyond the reach of many Spaniards.
[...]Still housing demand has been sustained by an economic expansion that has outpaced that of the euro region for more than a decade. The European Commission predicted on Sept. 11 that the Spanish economy will grow 3.7 percent this year compared with the 2.5 percent rate in the euro region.
- Source: Ben Sills, Bloomberg, Sep. 18, 2007
The recent property market upheavals have created ample opportunities for finding wonderful bargains in Spain – but caution is vital in choosing what you buy.
Although fears of a Spanish property crash did not materialise this year, the decade-long housing boom – which gave rise to stories of investors reaping double-digit returns almost overnight – has come to an end. Prices have risen by less than 6 per cent over the past 12 months, according to figures from the Spanish Government, which is the slowest rate of growth since 1998. Put differently, growth has slowed by 70 per cent since April 2004, and in certain provinces the prices have started to fall slightly.
Anecdotal evidence, however, suggests that the Spanish market is even more fragile in parts than the official figures suggest. Research by GRUPO i, the property consultants, reveals that it now takes an average of 20 months to sell a flat on the coast, compared with less than a year in 2004. Spain’s problem with oversupply is highlighted by GRUPO i’s prediction that 35 per cent of all new holiday homes built on the Spanish Costas this year will remain unsold.
[...]A straw poll of British agents in Spain reveals a significant drop in interest. Some of those who want to sell are unable to do so unless they are prepared to accept a loss. Patrik Connellan, the managing director of Euro Horizon in the Costa de Azahar, south of Barcelona, reports that purchases of property by British nationals have declined by about 50 per cent. This is bad news when you consider that the British are the biggest group of buyers in Spain after the Spanish. It is not surprising that homes are failing to sell unless owners are prepared to accept a loss.
Despite the gloom, there are good reasons to buy in Spain. The Spanish economy is still growing healthily and unemployment is at its lowest level since 1978. In a weak property market, bad news for sellers is good news for buyers looking for long-term investments.
The continuing price surge since the late 1990s meant that many homes became vastly overpriced – even badly located and poorly built ones – as profit-hungry investors rushed to buy. The recent shake-up in prices has gone some way towards restoring sense to the market. Real differences in prices are emerging between the good, the bad, and the ugly concrete monstrosities put up illegally.
Pockets of opportunities are emerging. Inland properties continue to do well. Growth in AndalucÃa, for example, has been driven by price rises in Seville, Córdoba and Jaén rather than the Costa del Sol.
The Balearics continue to do well. Urban planners in Majorca curbed excessive development over the past decade, so that prices here are higher than on the mainland.
[...]But no matter what or where they buy, investors must proceed with caution. “Many of the problems that buyers have had, such as land-grab, stem from the fact that they did not take independent advice when they bought,†says Conn. Accepting the local notary recommended by your estate agent could be a bad move.
[...]
- Source: The Times, Sep. 14, 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.
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