June 2004 news review

NEW SOCIALIST GOVERNMENT APPOINTS MARÍA ANTONIA TRUJILLO MINISTER FOR HOUSING.

The main challenge facing the new minister will be to check the escalating cost of property in Spain. The government is expected to modify the existing laws covering the allocation of building land (La Ley del Suelo) on the statute books since 1998, and publish new proposals to increase the amount of subsidised housing available to the less well off. The new government has made it clear that it wants to reduce the ratio of annual household income spent on financing the cost of housing to around 30%, down from the present high levels of around 50% (see below). Other government proposals to contain t property price increases include reducing the fiscal advantages of buying a property and stimulating the rental market. Several of the leading industry bodies have expressed alarm at the possible effects of these measures on the Spanish property market.

FOREIGNERS BUY 135,000 PROPERTIES IN SPAIN DURING 2003 – UP 50% ON 2002

According to José Prado – President of the national commission of residential tourism run by the Association of Spanish Developers and Constructors – 135,000 Spanish coastal properties were bought by foreigners during 2003 for an overall value of 7,167 million Euros. This represents a 50% increase on the 90,000 Spanish coastal properties bought by foreigners during 2002. Of the total number of properties bought during 2003 by foreigners, 38,500 or 45% of the total (with a value of 3,225 million Euros) were located in the Province of Málaga, which includes the Costa Del Sol. The breakdown by nationality of foreigners buying in The Province of Málaga during 2003 is as follows: British 52% (20,020 properties / 1,677 million Euros), Germans 20% (7,700 properties / 645 million Euros), French 8% (3,080 properties / 258 million Euros), Italians 6% (2,310 properties / 193.5 million Euros), Belgians 6% (2,310 properties / 193.5 million Euros) and Scandinavians 5% (1,925 properties / 161.25 million Euros).

NEW FIGUERS FROM THE BANK OF SPAIN INDICATE THAT FOREIGN DEMAND HAS COOLED ON FEARS OF A BUBBLE

New figures released by the Bank of Spain show that growth in foreign demand for Spanish property has fallen to 11%, down from the 30% growth levels witnessed during the first 3 months of 2004. Experts believe that fears of a possible price bubble in the Spanish property market are responsible for the decline.

AVERAGE SPANISH PROPERTY PRICES MORE THAN DOUBLE BETWEEN JANUARY 1996 AND DECEMBER 2003

Average Spanish property prices increased by 126.5% between January 1996 and December of 2003, with the average price per square metre increasing from 667 Euros / m2 to 1,511 Euros /m2. However according to The Association of Spanish Mortgage Lenders (Asociación Hipotecaria de España) the increases were far from homogeneous. Whilst average prices doubled in 11 of Spain’s autonomous regions the average price of property in the Balearic islands triple with an increase of 200.6%. During these 8 years the price of property in Catalonia increased by 150%, in Madrid by 145%, the Basque country by 144.6%, The Canaries by 138.3%, the autonomous region of Valencia by 132%, and Andalusia by 118.9%.

MORTGAGE LENDING IN FEBRUARY 2004 INCREASES 24.1% OVER PREVIOUS YEAR

Spanish mortgage lending in February 2004 was 24.1% greater than in February 2003. As a consequence the total amount of mortgage lending in Spain has risen to 483,058 million Euros.

EXPERTS PREDICT THAT RESALE PROPERTY PRICES IN MADRID WILL INCREASE BY BETWEEN 5 AND 10% IN 2004

According to a new report released by estate agency Tecnocasa resale property prices in Madrid will increase by between 5 and 10% in 2004. After the high double-digit price increases of resent years this would represent a significant reduction in the rate of price increases for resale properties in the Spanish capital.

ONLINE BANKING SECTOR INCREASES COMPETITION IN THE SPANISH MORTGAGE MARKET

Increasing competition between Spanish mortgage lenders and in particular online mortgage lenders is translating into fantastic offers never before seen in Spain.

PROPERTY RESPONSIBLE FOR 40% OF ALL FOREIGN INVESTMENT IN SPAIN DURING 2003

During 2003 foreigners invested 7,179 million Euros in Spanish property, representing 40.5% of the total amount invested in Spain by foreigners. Foreign investment in Spanish real estate now represent 1% of Spanish GDP.

The increasing amount of foreign capital invested in Spanish property, generally in second homes located in Spanish coastal regions, is one of the principal drivers of property price increases in Spain. Nevertheless the foreign demand for Spanish property has not increased at a uniform rate in all coastal areas. Whilst demand has decreased in areas once popular with German buyers such as Palma de Mallorca due to the poor performance of the German economy areas such as the Costa del Sol and the Costa Brava continue to enjoy strong demand.

VALENCIAN MINISTER OF HOUSING FORECASTS DEMAND FOR 25,000 HOLIDAY HOMES PER YEAR

Rafael Blasco, the housing minister of the regional government of Valencia, has announced that a third of the 75,000 to 80,000 properties built each year in the autonomous region of Valencia (which encompasses the Costa Blanca and the Costa del Azahar) are used as holiday homes, principally by foreign buyers led by the British, the Germans and the French.

HOUSEHOLDS IN MADRID SPEND 56.1% OF ANNUAL INCOME TO MEET THE COSTS OF THEIR PROPERTY PURCHASE

According to a new report by the property consultants Aguirre Newman families in Madrid spend 56.1% of annual income on financing the purchase of their home. This is 23% more than many experts believe is the sustainable level (33% of annual income) that households can afford to spend on property financing costs. High purchasing costs in relation to annual income are explained by the recent increases in property prices in Madrid (31.6% for newly built property during 2003).

PROVISIONAL FIGUERS INDICATE EURIBOR RISE WHILST ECB LEAVES BASE RATES UNCHANGED AT 2%.

Provisional figures to be confirmed in mid-June by the Bank of Spain indicate that Euribor – the key rate that Spanish mortgage lenders use to determine mortgage rates – rose in May to a monthly average of 2.297%. This means that Spanish mortgage borrowers on variable rates will see their monthly mortgage payments rise for the 1st time in 3 years. Meanwhile the ECB has left the base rate unchanged at 2%.

CHANGING DEMOGRAPHICS AND LIFESTYLES IN SPAIN INCREASE THE DEMAND FOR SMALL 2-BED APARTMENTS

Smaller families, an ageing population, children leaving home earlier and the rising divorce rate means that demand for small 2-bedroom apartments in Spanish cities is growing dramatically. As a consequence the size of the average newly built apartment in Spain has fallen by between 10 and 20 square metres.

THE CONSTRUCTION SECTOR IN SPAIN NOW CONTRIBUTES 17.7% OF GDP

According to Enrique Aldama – the new President of SEOPAN (association of large constructors in Spain) – the construction sector is responsible for 17.7% of Spanish GDP and employs almost 2 million people (11.9% of the working population). Spain has the 5th largest construction industry in the European Union, behind Germany, France, The United Kingdom and Italy.

© Mark Stucklin (Spanish Property Insight)

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.