February 2005 news review

A report released by Deutsche Bank in February 2005 claims that Spain is on track to overtake the United Kingdom in terms of income per capita by the year 2015.

If the Deutsche Bank forecast were to come true then the British have precious little time left (maybe 5, 6 years max) to buy property in Spain whilst they are still rich compared to the Spanish and whilst Spanish property is still relatively cheap compared to British property.

Big if. Much as I love Spain and recognise its economic achievements in recent years I don’t see any strong evidence in daily life of an Iberian über-tiger in the making. The quality of life might be world-class but economic productivity leaves a lot to be desired. Of course the British economy, sinking under the weight of rules and regulations that are assiduously applied by a growing army of bureaucrats, might develop something akin to rigor mortis and allow the Spanish to overtake on the inside without much effort. Otherwise I expect relative positions to be maintained, not least because EU structural funds will soon stop gushing into the Spanish economy. Which funnily enough might have something to do with Deutsche Bank’s report. There’s going to be an almighty fight over those structural funds and reports like these undermine the Spanish position. Maybe the Germans are just showing the Spanish the cudgel with which they plan to beat them in the negotiation process.


The supply and demand for property in Spain

A new report by the Spanish savings bank ‘Caixa Catalunya’ reveals that whilst 700,000 new properties were started in Spain during 2004 the annual demand for properties in Spain stands at around 400,000 units. The President of the Council of Architectural Colleges of Spain goes even further, claiming that the supply of new housing starts is three times the level of ‘real’ demand for property in Spain.

Foreign buyers prefer the Costa del Sol.

Inmueble Magazine reveals that the Costa del Sol is the preferred destination of foreign buyers by a wide margin. 42% of foreigners buy property on the Costa Del Sol, followed by the Costa Blanca (15%), the Balearics (13%), the Costa Brava (9%), the Canaries (8%), the Costa De La Luz (4%), the Costa Dorada (4%) the Costa de Azahar (2%) and the Costa Cálida (2%).

Mortgage defaults in Spain at record low

The Mortgage Association of Spain has published new figures showing mortgage defaults have dropped to below 0.5% – a record low. This shows that despite property price increases the ability to meet mortgage payments is more robust than ever.

40% of Spanish adults still live with their parents

The National Institute of Statistics has revealed that 40% of Spaniards between the age of 25 and 34 still live at home with their parents. This translates into a total figure of 2.6 million young and not-so-young Spanish adults living with their parents. Of this figure 1.8 million are employed with the remainder looking for work. The high number of adults living with their parents has its most likely explanation in the high price of Spanish property which prices first time buyers out of the market.

Foreign investment in Spanish property holds steady

New figures from the Bank of Spain reveal that foreign investments in Spanish property held steady between January and August 2004, rising a mere 0.3% to 4.653 billion Euros. Foreigners invested 464 million Euros in Spanish property during August 2004, a 6% drop on August 2003.

Average rents rise by 4% over 12 months

Figures from the National Institute of Statistics show that average rents in Spain rose by 4% over the last 12 months. With inflation of around 3.2% over the same period this means real rents rose by less than 1%. With average property prices rising by over 17% in 2004 rental yields must be plunging.

18.5% of Spanish families own a second home

Inmueble Magazine reports that 18.5% of Spanish households own a holiday home, whilst 30% of Spanish households own real estate assets other than their principal homes, including holiday homes, plots, rural land, commercial premises and industrial premises.

Spanish inflation at 3.3% in February 2005

Provisional figures released by the National Institute of Statistics estimates the Spanish (12 month) inflation rate in February at 3.3%, up from 3.1% in January. This compares with the Euro-zone average inflation rate for January 2005 of 1.9%, down from 2.4% the previous month. Definitive figures will be released on the 11th March.

Euribor drops to 2.310% in February 2005

Euribor – the base rate used to calculate mortgage payments in Spain – fell in February to 2.310%. However according to the Spanish Mortgage Association, mortgages on variable regimes will experience an increase in monthly payments due to the timing of revaluations based on the previous period’s Euribor rate.

Property represents 80% of all household wealth in Spain

A survey by the Bank of Spain reveals that property makes up 80% of all private wealth tied up in assets owned by Spanish families. The main home contributes 58.1% of this wealth.

More new properties than newborn children in Spain

More new properties have been built in Spain than children born over the last 5 years, despite a slight rebound in the Spanish birth rate and the increasing number of children born to immigrants. If this trend were to continue sooner or later the supply of property in Spain would far exceed the potential local demand for Spanish property. It would fall to the demand created by retiring Northern Europeans to soak up the excess.

Metrovacesa estimates new-build prices will rise by 7% – 15% in 2005

Metrovacesa – Spain’s largest developer – estimates that prices for newly built property in Spain will rise by between 7% and 15% in 2005, down from a 17.4% property price increase during 2004. The company’s president – Joaquín Rivero – expects this deceleration of property prices in Spain to continue, with prices stabilising within 2 years. According to Joaquín Rivero “It would be very difficult for the property market to continue increasing after the recent records in both prices and number of new promotions started”. He goes on to explain that failing interest rates and increasing mortgage life-spans, both key drivers of property price increases in recent years, have reached their limits and will no longer boost demand to the same extent. Nevertheless he sees the slowdown in price growth as taking place gradually and rules out any possibility of an abrupt fall in Spanish property prices. Joaquín Rivero believes that demand for Spanish property still outstrips supply and noted that his company has already sold off-plan all the properties that it will build over the next year and a half.

Only 20% of Spanish property owners have an outstanding mortgage

Inmueble Magazine – the leading Spanish real estate trade magazine – reveals that 82% of Spanish households are owner-occupiers, one of the highest rates in the world. Only 21% of these owner-occupiers have an outstanding mortgage on their property. The value of the average property is 97,300 Euros though this figure rises to 116,100 Euros when limited to owners between 45 and 54 years of age. The fact that the 80% of properties owned by Spaniards are mortgage-free can be interpreted as lending considerable stability to the Spanish Property market. It could also generate considerable resistance to any downward pressure on prices.

7.1 years average Spanish net income to buy a property in Spain

The average Spanish family now needs to dedicate 7.1 years of net income to pay off the purchase of the family home according to a report by Caixa Catalunya. This means that the cost of the average Spanish property is the equivalent of 7.1 years of average Spanish household income. This compares with 4.6 years in 1996. This means that average Spanish property prices are 54% more expensive relative to average Spanish incomes than they were in 1996.

© 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.