What is really happening with the Spanish Property Market?
Posted by jamesdearsley on May 27, 2009
The Spanish property market has been and always will be the major market for the British and European second home buyers. However, it has had a troubled time over the last couple of years and has been lambasted in the media, as so often is the case with a market leader.
In this article I am going to give a balanced view of what I feel has happened in the past and where this market is set to go now, given all the media exposure it has had, both positive and negative. Given my position in the industry it could be argued that I would want to talk up the market but that is not my aim here.
It would be stupid of me not to acknowledge that the market has had a hard time over the last couple of years. We started to notice a slight dip in demand, especially from the UK market, a couple of years ago and started to make changes in our organisation to shift a lot of emphasis over to our European operations who were not seeing the recessionary effects.
The UK and Irish markets have always, historically, been the dominant force in buying property in Spain. As mentioned, during 2006 and 2007 we started to see sales start to stagnate and drop as the recessionary effects started to kick in. On the other hand, from 2004 to 2007 there was an incredible amount of building work in Spain; in fact at one point there were more planning approvals in Spain than there were in the UK, France and Germany combined! When you put the two market events together and then use the very simple supply and demand equation it was only going to be a short time before the market started to struggle.
Fast forward to the first quarter in 2008 when the strength of Sterling plummeted to 1.02 against the Euro and it meant that the British market now had two issues to contend with. The Sterling issue was actually the most damaging issue for the British market as other markets were still not seeing any major problems. Regardless of this, the British market was so important to the Spanish market, so it again suffered.
We have to put this all into context however, there have been some “media” reports that the Spanish market has lost in the region of 25-35% of its value dependant on area – certainly areas in the Costa Del Sol have lost more and have more property sitting vacant than other areas – but you have to view the British market to assess that actually it is all relative – we have lost between 20-40% again dependant on area – some of the new build flats in Leeds are reported to have lost even more than this!
However, let’s look at absolute fact rather than speculation. The most up to date research on this however was released from Knight Frank the UK real estate company who report the Global House Price Index each quarter. Property prices in Spain, on the whole, lost 6.8% of their value against the same period last year whereas the UK had lost 16.5%. See the complete report here. Maybe it isn’t as bad as our media have made it out to be?
|Country||Year on year (% change)||Rank, year on year||Quarter on quarter (% change)||Rank, quarter on quarter|
|2009 Q1||2009 Q1||2008 Q1||2009 Q1||2009 Q1||2008 Q1|
Source: Knight Frank
I can only conclude that a lot has been made of the Spanish property market which is probably not 100% fair. Certainly I am a great believer that this is a recession like no other we have seen before and I believe a lot of this is down to the media coverage – look at the following Robert Peston now has in the UK having made a name for himself during his own coverage on TV of talking down the financial markets during the start of the credit crunch! Funnily enough he released a book shortly after the market calmed down a little bit! How much of his reporting was therefore sensationalist just in order for a bit of self promotion I have to ask?
If we compare this recession to the one back in the 1990’s we never had the media streams that we do today – we didn’t have SKY television with its 100 channels, the internet was practically non existent and so we didn’t have online media streaming of news channels. The down talking of the market was a lot less apparent as today as almost every media stream you turned to was all talking about doom and gloom. You simply couldn’t escape this torrent of bad news. The argument could be have been quicker into the recession because of the media and will therefore recover quicker because we will also be able to publicise the good news quickly as well – however this doesn’t make sensationalist viewing so I am not so sure – just look at recent figures by the Royal Institute of Chartered Surveyors (RICS) from the UK stating that the new buyer enquires have risen for the 5th month in a row and actually the Halifax Building Society even reported a rise in house prices in March this year. This was reported so quietly compared to the sensationalist headlines created about the drops we had been seeing.
Back onto property however and away from my disgust of the Media during the last 2 years who I hold almost as responsible as the banks for this recession being the worst since the 2nd world war – oops, doing it again!
So, what is going to happen to the Spanish property market?
We are already seeing a slight market shift in Spain at the moment with regard the UK and Irish market. Though the investors have pulled out and with them a lot of the investment companies that supported this market, there are still the people who have a/ always dreamt of owning their property in Spain in view of moving their permanently and b/ the holiday home market who still want their bolt hole abroad.
We are already seeing an increased interest in Spain once more. Take for example the latest research by http://www.primelocation.com, an International Property Portal based in the UK. Their searches increased in January 2009 by 72% month on month with Spain the most popular with just under 300,000 searches! This was a 26% leap against the same period the year before. Spain took 23.4% of all searches on the sight!
People are currently buying with cash as opposed to those who want to take out a mortgage as they are worried (once again I feel this is stirred up by the media as Spanish banks are happy to lend). We are also seeing a shift towards the resale market whereas before a lot of clients were buying off plan.
As far as I am concerned this is a fabulous shift as it means the market in Spain has completed its total life cycle. Markets like Dubai are going to really struggle in coming months and years as there is no established Resale market – see the market report in the Times this weekend here. The Spain property market has been established for over 30 years (Dubai hasn’t even been going for seven) and has a competent infrastructure to support the population and resale market to go with it.
One of my major worries at the moment is the for the clients that have been waiting for some time to get into the market thinking that the prices are going to fall further – because the media has told them this. There is a serious case of “supply and demand” occurring again as builders are simply not starting new developments at the moment.
Firstly the number of proposed developments has stalled. The Ministry of Development in Spain has reported a tremendous drop in plans being submitted by up to 60% with areas like the Alicante Province falling by 74% in 2008. This is an 85% drop compared to 2004! To show this in terms of new properties that are being built; in 2004 there were an average 13,000 housing starts – this has dropped to 960 in the first quarter of 2009!
Despite having a glut of properties available at the moment (though the major cities have this concentration rather than the coast) these are quickly going to get bought and my worry is that the clients who are thinking that they will leave it for the next year will lose out. Those buying now will get the choice of the best available property and, simply because nothing more is being built, the people waiting for a year will have a lot less choice and obviously not the best property. The people who think they will buy in a couple of years will lose out hugely because there will simply not be any properties, save resale properties, available to them.
You also have to look at other factors as well. Over the years Spanish property has been an amazing investment. Despite the falls in the last two years, the Spanish market has still risen over 167% in a 10 year period according the Ministry for Housing.
However people, as in the UK, have viewed their properties as investment vehicles for making money. My argument, even now when banks are seemingly unsafe, is that property overseas provides you with an investment that you can enjoy. I cannot describe the feeling of sitting on a veranda while the sun sets, knowing that for the long term you have invested well.
Take another view held by many and discussed in the magazine, “About The Costas”, the cost of living, even despite the weakening sterling, is dramatically lower in Spain. For every £150 a British family spends, it only costs £100 in Spain.
Therefore, in conclusion, do I say, as a salesman would, now is the best time to buy? No as it wouldn’t be balanced. I do say however, that it is the sensible time to buy as I cannot see that prices will fall a great deal lower (the same could be said for the UK market here) but I am really worried if people want to buy a dream property that they have been saving up for over the last 10 years and yet they get a limited amount of bad stock to choose from.