| 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
| OVERVIEW OF THE SPANISH REAL ESTATE MARKET |
May 15th, 2007 |
Some alarming things have been written about the Spanish property
market in recent articles like ‘Survive the Costa property crash’
(Sunday Times, April 29), ‘Costas house price crash’ (Times, April 27),
‘Euro helps topple Spanish property’ (Telegraph 25 April), and ‘Spanish
property boom ends’ (Financial Times, April 24). Based on the headlines
would think that the Spanish property market was in an advanced state
of collapse. This is not actually the case.
The event that inspired all these gloomy articles was a share price
correction of property companies quoted on the Madrid stock exchange,
as jittery investors dumped construction stocks in April. At the time
of writing shares of property companies are some 25% below their
February highs. One company – Astroc – is down over 80%, though that
still leaves it 120% up over 12 months – a great annual investment
return by any measure.
The fall in property share prices was overdue and somewhat expected
after speculation had pushed up prices too far. Much of the press
reporting glossed over the stock market context, giving the misleading
impression that it was the Spanish property market in trouble. Of
course trouble in the stock market is not good news for the property
market, as it reveals increasing pessimism about Spain’s housing
market. But falling stock market confidence and property share prices
it is not the same as a housing market crash.
In fact, the reality of Spain’s property market’s performance in the
last quarter is not as bad as you might think from recent articles, but
not as good as the official housing price figures from the Government
imply. Spain’s decade long real estate boom is over, and it is a
buyer’s market, but it is also a complex situation of regional markets
performing in different ways.
Latest figures on the Spanish property market
Average national Spanish property prices rose by 7.2% to 2,024 euros/m2
over 12 months to the end of March 2007, according to figures from the
Spanish housing ministry.
The story these figures tell is one of Spanish property inflation
slowing down from 18.5% in 2003, 17.2% in 2004, 12.8% in 2005, and 9.1%
by the end of 2006. This is the lowest rate of property price inflation
since 1998, when Spain’s property boom started. 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 rise in line with
general inflation. At the same time, all areas are still experiencing
annual property price growth, and the national average is double the
general inflation rate, providing a reasonable return on investment.
By autonomous region property prices rose the most in Ceuta and Melilla
(13.8%), followed by Galicia (12.3%), and the least in Madrid (4.5%)
and La Rioja (2.6%). Price increases in all of Spain’s Mediterranean
provinces were below 10% for the first time in 10 years.
The problem is that the government’s figures have to be taken with a
pinch of salt. They can be unreliable, and sometimes show property
prices as increasing when they are falling. It is difficult to gather
reliable housing price statistics in a country like Spain where
under-the-table cash payments are still widespread. When cash payments
start to fall, as it appears they might be, property prices recorded on
deeds go up, even if transaction prices are falling.
Whilst the government’s figures show reasonable, if cooling, price
increases, figures from Spain’s land register show a clear slowdown in
transactions during 2006.
The total number of property transactions recorded in Spain’s property
register – the Spanish equivalent of the UK’s land register – fell from
989.341 in 2005 to 916.103 in 2006, an annual drop of 7.4% in unit
terms.
Resale property transactions fell by 4.97% to 526,509 units (57% of the
total), whilst completed transactions on newly-built properties fell by
10.11% to 389,594 units (43% of the total). Transactions fell in
Andalusia by 7.3% to 178,189, in Catalonia by 8.8% to 152,802, and by
8% in the Valencian Region to 136,720. These figures show a market
contracting against a background of an increasing supply of new
properties. The notaries association has announced reported that
property transactions in March of this year were 30% down on the year
before.
On the question of property asking prices, which say something about
the confidence of vendors, figures from Kyero.com show big variations
in changes of regional asking prices over 12 months to the end of
April. For instance asking prices appear to have increased by 10.7% in
Malaga province, to an average of €304,355, but fallen by 12.5% in
Mallorca, to an average of €515,000. This would imply that vendors are
in the ascendancy in Malaga, but losing power in Mallorca. What is
certainly true is that buyers and vendors have to adapt to the
conditions of local markets, and negotiate accordingly.
Spanish property market feedback
The government’s figures may not be the most accurate, but they do at
least capture the slowdown in the Spanish property market. Information
from other sources tells the same story. Real estate consultants
Knight Frank report that sales times on the Spanish coast have doubled
to between 24 and 30 months over the last 3 years. A study by property
consultants Aguirre Newman finds that property prices on the Costa del
Sol have fallen by 4.7% over 12 months, though part of this fall can be
explained by a trend towards smaller properties. And a report from
consultants Grupo I estimates that demand for newly built holiday homes
on the Spanish coast will fall by 18.3% to 90,000 properties this year,
with the market shedding 26,000 transactions – a drop of 22.4%- of
newly built property in 3 years.
To understand what is really going on you have to break it down by region.
COSTA DEL SOL......
MURCIA
Murcia is an ambitious latecomer to the property game. There has been
an explosion in the region’s property supply, with 10 times as many
properties now being built than 10 years ago, much of it on golf course
developments intended for foreign buyers.
In recent years relatively high prices on the coasts to the north and
south drove property buyers, especially investors, into the arms of
Murcia’s developers, with their easy-to-sell off-plan investments. But
Murcia’s prices increased too far too fast, and resale prices on many
projects have been coming down in search of demand for the last couple
of years.
“Some developers don’t seem to build what British buyers want,”
comments Gordon of Blue Med Properties. “When prices rise, buyers
expect more in return, so there is now a glut of properties on new
developments that don’t match buyer requirements at the price. That’s
going to stop prices rising anytime soon.”
There are fewer British buyers around than in past years, though the
ones that there are seem well informed, looking for value, and serious
about buying if they can find it. Overall, the number of transactions
is down, and given the amount of new property coming onto the market,
expect prices to remain in the doldrums for some years. The few
outstanding developments in the region, such as Hacienda del Alamo,
which tick all the right boxes for British buyers, should benefit from
buyers who like the region, and don’t mind paying for quality.
Example property price changes over last 2 years:
+ Typical 2-bed flat on coast, fully furnished, in complex with
communal garden, pool, private parking now costs was around 150,000 a
couple of years ago, now 135,000 Euros
+ Typical villa on a golf course (not front line) 3-bed, 3-bath, 200m2 plot (no pool), was 380,000, now 350,000 Euros
SOUTH COSTA BLANCA.....
NORTH COSTA BLANCA......
COSTA BRAVA.......
MALLORCA.......
Other factors
Interest rates and debt levels
Euribor - the interest rate used to calculate repayments for most
mortgages in Spain – now stands at 4.249% after rising for 19
consecutive months. Euribor has risen by 32% in a year, and by over
100% since June 2004. Over 96% of mortgages in Spain are variable rate,
which means that rising interest rates have an almost immediate impact
on household budgets. At the same time, Spanish household debt has
risen from 75pc of disposable income in 1999 to133pc at the end of
2006. Spaniards are up to their ears in debt, and the cost of debt is
rising fast. This is bound to reduce local demand for holiday homes on
the Spanish coasts, once again at a time when the supply of such
properties is increasing.
Spanish housing starts
In 2006 there were 915,745 planning approvals according to Spain’s
college of architects. According to the government there were 664,924
housing starts, and 597,632 building completions. In comparison there
were 235,360 housing starts and 213,717 building completions in the UK,
so Spain is building almost 3 times as many new properties as the UK.
For several years now the supply of new properties in Spain has
overshot demand for housing, and some 50% of these new properties are
located in provinces along the Spanish Mediterranean coast.
If housing starts continue at present levels, the chances of a price
crash in the Spanish property market will increase significantly. Both
the Pedro Solbes (Minister of Finance) and José Luis Malo de Molina
(Bank of Spain’s head of research) have suggested 450,000 to 500,000
annual housing starts as appropriate to meet demand for new housing in
Spain, which in theory is driven by demographics, life style changes,
holiday home buyers from northern Europe, and immigrants from the
developing world. At present price levels, and with interest rates on
the rise, it is difficult to see how demand will cope with even the
reduced levels of supply suggested by Solbes and Malo de Molina.
Conclusions
The Spanish property market was incorrectly portrayed as melting down
after the share price correction on the Spanish stock market. In
reality, the overall market is not falling, though some regional
markets are faring better than others. But the stock market jolt has
help focus people’s attention on the serious imbalances affecting
Spain’s housing market.
The big risk to the market comes from over-provision, as Spanish
developers build several hundred thousand more properties per year than
the market needs. This oversupply is partly due to years of
inappropriately low interest rates for Spain once in the EUM.
With the Spanish economy now over-dependent upon the housing sector for
economic growth and employment, there is a risk that a much-needed fall
in housing starts will bring about a construction-lead recession in
Spain. If this happens, demand for holiday homes will be hit hard, and
house prices will fall in many areas. But even in this worst-case
scenario, attractive properties in desirable locations with foreign
appeal should hold their value, and recover quickly as economic
conditions improve.
With the Spanish economy growing at close to 4% - one of the highest
rates in the developed world – and with forecast growth of 3.7% in
2007, and 3.4% in 2008, it is difficult to imagine a construction-lead
recession at present. Without a recession, the Spanish housing market
is more likely to stagnate over the next few years than fall.
Having said that, there are many areas up and down the Spanish coast
that suffer from a serious glut of over-priced, poor quality,
unattractive properties in mediocre overdeveloped locations. Property
prices in some areas are starting to fall, and are likely to continue
doing so.
Buyers and sellers who wish to take advantage of the situation will
need to do their research, keep a close eye on the market, and study
local market conditions carefully.
© Mark Stucklin (Spanish Property Insight)
News provided by www.spanishpropertyinsight.com
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