| FAIRWAY VILLA, PHASE 1 |
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| Location: HACIENDA DEL ALAMO |
| Floor space: 225 sqm |
| Bedrooms: 5 |
| Purchase price 795.000 Euros |
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| RESIDENCIAL SOL Y MAR |
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| Location: COMPLEJO - LOS NIETOS - MAR MENOR, MURCIA |
| Floor space: 102 sqm |
| Bedrooms: 3 |
| Purchase price 219.000 - 259.000 Euros |
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| FAIRWAY VILLA - ALHAMBRA |
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| Location: TRAMPOLIN HILLS GOLF RESORT |
| Floor space: 138 sqm |
| Bedrooms: 4 |
| Purchase price 299.000 Euros |
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| VILLA LOS BELONES |
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| Location: LA MANGA CLUB |
| Floor space: 390 sqm |
| Bedrooms: 5/7 |
| Purchase price 795.000 Euros |
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| VILLA LOS MOLINOS |
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| Location: LA MANGA CLUB |
| Floor space: 100 sqm |
| Bedrooms: 2 |
| Purchase price 345.000 Euros |
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| CORAL 4 E, PHASE 2 |
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| Location: HACIENDA DEL ALAMO |
| Floor space: 111 sqm |
| Bedrooms: 2 |
| Purchase price 269.500 Euros |
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« Overview
| SPANISH PROPERTY MARKET REVIEW & FORECAST 2006 - 2007 |
March 21st, 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
OECD
The 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 Finance
Pedro 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 Vergés
Property 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.
Spanish property prices 2006
Source: Spanish Ministry of Housing
© Mark Stucklin (Spanish Property Insight)
News provided by www.spanishpropertyinsight.com
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