November 2004 news review

The Spanish refer to resale properties as ‘segunda mano’ or second hand. The term isn’t entirely flattering, implying that you are buying someone else’s used goods, and price developments in recent years clearly show how the property market in Spain has placed a premium on new build. At the end of 1996 the average price for resale property up to 10 years old was the same as for newly built property, whilst newly built property was on average 26% more expensive than property over 20 years old. By 2002 the premium for new build had risen to 30% compared to 20-year-old property and 5% for property up to 10 years old.

However it looks like things might be starting to change. By the end of 2003 the difference had dropped to 21% and 4% respectively, showing that the premium paid for new property is shrinking. By some measures – using a different data series – it even appears to be cheaper to buy new property than properties up to 10 years old.

There is a relatively straightforward explanation for this. The price of property is made up of three main components; the land on which the property is built, the labour/materials used to build the property and the cost of capital (profit margins) of developers and brokers. Labour, building materials and capital are far less scarce than desirable locations for building on. Thus the land price component is increasing far more rapidly than the others, reducing the premium paid for new build. Most of the best locations have already been taken, as any drive down the Spanish costas will demonstrate. If I were a property investor I would be looking for shabby properties in great locations with a view to refurbishing. I would also be steering clear of off-plan investments in dreary out-of-the-way locations with views of the motorway.


Spanish property price inflation 12.88% in the year to date

According to figures just published by the government average Spanish property prices increased 3.54% in the 3rd quarter of the year, down from the 4.72% clocked in the previous quarter. Over the last 12 months to the end of September property prices have increased by 17.18% with the highest regional increase taking place in Murcia (25%) and the highest city increase in Valencia (29.6%). Taking into account the latest price increases Spanish property is now 12.88% more expensive on average than it was at the beginning of the year.

Euribor rises in September

Euribor – the base rate used to calculate mortgage payments in Spain – rose in September to 2.377% having fallen during the previous 2 months. Euribor in September 2004 was 0.12 points higher than a year earlier, meaning that monthly payments on the average Spanish mortgage (120,000 Euros at 20 years) were 7 Euros higher than a year earlier.

Spanish mortgage lending increases

The average Spanish mortgage has risen to 119,561 Euros, up 13.3% on 2003. In June of this year 140,798 mortgages were granted in Spain, up 25.43% on June 2003. However due to recent property price increases the rise measured by value was 40.11%.

Spanish property prices up 121% in 7 years

A new report published by Metrovacesa – one of Spain’s biggest developers and constructors – claims that Spain experienced the second highest property prices increases in the developed world between 1997 and 2004, behind Ireland (174%) but in front of The United Kingdom (116%), Australia (113%) and The Netherlands (75%). At the other end of the scale were Japan (-22%) and Germany (-3%).

IMF warns of risks of brusque price correction in Spanish property market

The IMF has expressed its concern about the sustainability of property prices in Spain and warned of the risks of a brusque correction in prices if interest rates go up. The European Central Bank, The Bank of Spain and The Economist Magazine have already aired the same concerns in recent months.

Spainis property ‘time-to-sell’ on the increase

Property brokers surveyed by Inmueble magazine report that the average time needed to sell an apartment has increased from 30-40 days to 3 months. Lengthening sales time are a symptom of a cooling property market.

24% of resale properties sold at a discount to the asking price

A study by Gerco – a Spanish property company – based on a survey of 1,149 properties, reveals that 24% of resale properties are sold at a discount to the original asking price. The average discount was 10%.

450,000 new Spanish properties in 2004

ASPRIMA – an association of Spanish developers – has published a report claiming that 450,000 new properties will have been built in 2004, a quantity that the report claims the market will have no difficulty in digesting. The report also forecasts that 2004 will close with price increases of 15%, dropping to 10-13% in 2005.

New build expected to decline

According to the Spanish trade magazine Inmueble, the number of new properties started each year in Spain is expected to drop to a figure of around 350,000 after an all time record high of 636,322 properties started in 2003 (690,206 if you include refurbishments). Even after the expected drop Spain would still have one of the highest levels of new build in all of Europe.

Estate agents active in just over half of all Spanish property sales

Spanish estate agents play a far smaller role in the property market than is the case for other Western countries where on average estate agents are involved in 75% of all property transactions, rising to 90% in the United States. However the importance of estate agents in Spain is on the rise due to the reliance of foreign buyers on brokers and the increasing acceptance by Spanish buyers of the value offered by brokers.

Spanish Government to increase housing subsidies by 33% in 2005

One of the priorities of the new socialist government is to increase access to property ownership, especially amongst younger buyers. The government will increase subsidies and grants in the 2005 budget to those groups most disadvantaged by recent property price increases. It is not yet clear how the new government’s housing policies will distort the property market. However providing certain groups with public money to buy private property will of course drive up demand further and risks inviting speculation and abuse of the system.

© 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