August 2005 news review

The winter rains failed and Spain is now in the grip of the worst drought since 1947. Some reservoirs in the south, only 20% full, have been emptying at a rate of more than 2% per month over the summer. And in places like Murica, agricultural land on the edge of new developments has been watered with untreated sewage, leading British owners to report unpleasant odours wafting across their verandas.

All of which means that Spain’s eternal water problem has come to a head this year, though hopefully the crisis will galvanise the authorities out of their complacency and get them thinking seriously about long-term, sustainable solutions. This issue affects anyone who owns or plans to buy property in Spain, as most foreigners tend to buy in ‘dry’ Spain, along the Mediterranean cost where water is scarce. Some owners in rural areas of Alicante, Murcia and Almeria have already suffered shortages this year, though for the vast majority the taps haven’t yet run dry.

But considering the level of residential development and golf courses planned or under construction in areas where it quite clearly doesn’t rain much, the risk of shortages will only increases unless effective solutions are implemented. The single most effective step would be to raise the cost of water significantly (The Economist magazine recently reported that on average, water in Spain costs one-thirtieth of prices elsewhere in Europe) but, for the time being at least, politicians don’t appear to have the cojones to do this. Instead there is much talk of desalination plants and diverting rivers like the Ebro, both of which have a high environmental cost, though fortunately the latter plan has been shelved for now. The time will come, though, when the cost of water will have to go up. Foreign buyers should welcome such a step if it helps to solve Spain’s water problem, as more expensive water is better than the alternatives, and the impact on their living costs would be modest. As The Economist says “unless prices are raised, Spain will suffer: subsidised water producing subsidised crops, and aiding the coastal construction boom. The biggest lesson of this drought should be economic, not environmental.”

So Spain has a problem and bold solutions are needed. However let’s not forget that London and the South East are also heading for almighty water problems over the next 20 years. If shortages are to be suffered, I’d rather suffer them in Spain.



Buying property off-plan in Spain involves putting down a substantial amount of money for something that hasn’t yet been built, and in the worst case may never be. So when buying off-plan you need to know what you are doing.


Leading Spanish appraisal company expects stagnating or falling property prices in near future
Lengthening sales times for new developments, economic uncertainty in Europe, Spain’s shrinking income from EU structural funds and the increasing price of oil are some of the reasons given by Tecnitasa – a Spanish appraisal company – to justify its forecast of a slowdown in the Spanish property market over the coming moths. The company believes that prices for second homes are the most likely to fall, and that foreign investment in Spanish residential property will continue to retrench, as happened in the first quarter of this year.

The average Spanish home cost close to 190,000 Euros in 2004, 16% up on 2003
Don Piso – one of Spain’s largest chains of estate agents – reports that the average price of the properties it sold last year was 187,468 Euros, 16% more than in 2003.

Empty Spanish properties up by 25% over the last decade
The latest report by the Foundation of Savings Banks (FUNCAS) reveals that the number of properties standing empty in Spain grew by 25% over the decade to the end of 2001, reaching just over 3 million empty properties. The number of second homes increased by 15% to 3.36 million properties over the same period.

The report finds that 41% of empty properties are concentrated in Spain’s cities and environs, mainly in Barcelona and Madrid, whilst 54% of second homes are located in smaller municipalities and the tourist coasts. 8.4% of second homes are located in the province of Alicante, 8.2% in Madrid, 5.9%% in Valencia, 5.8% in Barcelona, 4.8% in Malaga and 4.4% in Tarragona Province.

18.5% of empty properties are in a bad or uninhabitable condition, with an average age of 38.7 years.

Record sales of Spanish coastal properties in 2004
A new study just released by the consultancy DBK reveals that a record 181,000 Spanish coast properties were sold in 2004 – 13.1% more than in 2003 and almost 25% of the total number of properties sold in Spain. The report forecasts a slight drop in sales of properties in the coastal municipalities of Andalusia, the Autonomous Region of Valencia, Catalonia, the Balearics, the Canaries and Murcia, to between 170,000 – 175,000 units in 2005.

The region with the highest number of coastal properties sold in 2004 was Andalusia, with 55,500 properties and 31% of the total, followed by the Valencian region (47,500 properties) and Catalonia (31,000 properties). Murcia was the region with the highest percentage growth in the number of coastal properties sold, up by 47% between 2001 and 2004, compared to an average growth rate of 12% for coastal and second line municipalities.

According to the study 60% of all coastal properties were bought by Spaniards in 2004, and 40% – roughly 72,000 properties – were bought by foreigners.

Looking to the future the study expects the level of sales of Spanish coastal properties to moderate under the influence of high prices and over-development in certain areas. Nevertheless DBK is optimistic that low interest rates for foreseeable future, along with the sophisticated installed base of facilities and services in Spain’s coastal areas (compared to competitor markets) and a good price-quality relationship for Spanish coastal property, will support demand and continue to attract European buyers looking for holiday homes or retirement homes. DBK also expects that new development will start moving inland from the coast to second line municipalities, as is already beginning to happen in the provinces of Malaga, Huelva and Cadiz.

Developers in Valencia forecast property prices to continue rising for next 3 years
According to the Technical Institute of Construction (AIDICO), developers in the Valencian region expect property prices to continue rising for the next 3 years, albeit at a reduced rate compared to recent years. This expectation of further price rises is based on present low interest rates, robust economic growth in Spain, increasing immigration and continued demand for holiday homes and retirement homes amongst European buyers.

Land costs represent 24% of the final price of Spanish property
According to a report by the Spanish trade union Comisiones Obreras, and based on figures provided by the Association of Developers and Builders of Spain (APCE), the cost of land now represents 24% of the sales price of the average Spanish property. The next largest component is the cost of construction, at 35%, followed by developers’ margins, at around 10 to 15%. The average sales price used to calculate these breakdowns do not include taxes and other conveyancing costs that buyers have to face.

The report points out that the phenomenal increase in land prices over the period 1999 – 2004, both in absolute and relative terms (relative to the sales price of property), coincided with the introduction of a law designed to liberalise the market for building land and thus take the heat out of the land costs. The trade union blames the spectacular increase in prices for Spanish building land on “rampant speculation” and restrictions in supply.

However, using figures provided by the Spanish Association of Architects (CSCAE), the same report also reveals that Spanish developers earned average net margins of 26.6% (developer’s net profit as a percentage of sale price) in 2004, up from 8.8% in 1996. According to these figures the land cost component in the final price of property has risen from 7.7% in 1996 to 22.7% in 2004, whilst construction costs have fallen from 65.1% of the sales price in 1996 to 37.4% in 2004. So developers’ margins and land costs have risen dramatically, whilst building costs (labour and materials) have fallen dramatically (all as a percentage of the overall sales price).

In the figures provided by CSCAE the average Spanish property was 120 m2 and cost 91,350 Euros in 1996. Of this price, 7,000 Euros went on the cost of land (7.7%) and 8,000 Euros (8.7%) went to the developer as net margin. Construction costs of 59,500 Euros represented the biggest component of the sales price, at 65.1%.

By 2004 (8 years later) the same property cost 220,300 Euros (141% increase), with 50,000 Euros going on land costs (22.7%), and 58,700 Euros going to developers’ net margins before tax (26.6% of the sales price and an increase of 634%).

Still too early to talk of a downturn in Spanish property prices says the Bank of Spain
In a recent bulletin the Bank of Spain has argued that it is premature to talk of a sustained trend towards lower levels of Spanish property price increases, despite the fall in the annualised rate of property inflation from 15.7% in the 1st quarter to 13.9% in the 2nd.

Although the rate of property price increases has slowed in recent months the Banks states that “Given the recent introduction of the new series of price statistics now being used by the Ministry of Housing – in principle more volatile than the old series – it is still too early to talk of a definite change in price trends”.

Nevertheless the Bank continues to warn of the risks resulting from the high levels of household debt. In the 1st quarter of the year household debt increased by close to 20%, mainly as a result of increased mortgage borrowing, which increased by 24%. The Bank identifies the increasing financial burden of debt and inflated property prices as the main threats to household spending in the medium and long term.

Euribor increases for first time in 3 months
Euribor – the base rate used for calculating Spanish mortgage repayments – rose in July to 2.168%, up from 2.103% in June and the first increase in 3 months.

London, Rome, Paris, Geneva and Madrid are Europe’s most expensive cities for renting
A new study by the National Real Estate Federation (FMAIM) finds that residential rental prices in London are the highest in Europe by a wide margin, followed by Rome, Paris, Geneva and Madrid.

1st quarter residential rental prices in London were 35 Euros per square metre per month (m2/month), before taxes and other costs. In the next most expensive European city – Rome – rents were 21.7 Euros / m2 / month, just 62% of London’s prices, followed by Paris (19.8 Euros / m2 / month), Geneva (19.4 Euros / m2 / month) and Madrid (16 Euros / m2 / month). This means that rents in Madrid – Spain’s most expensive city – were just 46% of the price of rents in London.

Spain’s biggest developers report robust sales
According to an article in the Spanish newspaper El Mundo, the sales results achieved by some of Spain’s biggest developers in the 1st half of the year are similar to the excellent results achieved during the same period of 2004, defying the pessimistic forecasts made by many commentators at the start of the year.

© 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