October 2005 news review

I’ve often heard people working in the Spanish property business say that you can’t trust anyone on the ‘costas’. Give someone half a chance to do a runner with your money and they’ll take it, seems to be the suspicion. Even though the reality isn’t half that bad, and it’s just something people say but don’t really mean, sometimes the suspicion does seem justified. Take, for instance, the ‘100%’ mortgage conmen that have sprung up on the Costa del Sol. They hawk mortgage terms that your average non-resident has no hope of getting, and of course charge a hefty, up-front administrative fee for their services. Buyers who are struggling to raise capital are easy prey, and gladly pay the non-refundable fee. Of course they never get the mortgage, at least not on the terms promised, but they loose the fee anyway. Anyone can set up as a mortgage broker in Spain and unscrupulous practises can be highly rewarding. So be careful whom you deal with and avoid brokers charging hefty up-front fees and promising the earth.

MARK STUCKLIN

IN DEPTH

Building surveys in Spain
Whatever type of property you buy in Spain a building survey carried out by a professional such as a chartered surveyor can provide you with considerable peace of mind.

SPANISH PROPERTY MARKET NEWS

Spanish property inflation slows to 13.4% says Ministry of Housing
Spanish property inflation slowed to 13.4% in the 12 months leading up to the end of the September, down from 13.9% in 12 months to the end of June, and 15.7% to the end of March. For comparison, Spanish property prices increased by 17.45%. In 2004, so Spanish property inflation appears to be cooling. After the latest price increases Spanish property costs 1,781.5 Euros per square metre. Meanwhile the Spanish property portal ‘Idealista’ reveals that average resale property asking prices rose in the 2nd quarter by 3.5% in Barcelona (to 4,362 Euros/m2) and 2.3% in Madrid (to 3,981 Euros/m2). A full review of the 3rd quarter property market performance will be published in the next bulletin.

Spanish developers worried by threat from emerging markets
The Spanish daily ‘El Mundo’ reports that Spanish developers are starting to take the threat from emerging destinations such as Bulgaria seriously. Spanish developers attending UK property exhibitions have been alarmed by the shift in interest towards stands offering Bulgarian property.

Construction licences up by 7.1% to new record
A new study by IPE (Insituto de Práctica Empresarial) forecasts that 800,000 building licences will be granted in Spain during 2005, an increase of 7.1% over 2004 and a new record. The same study forecasts that construction will begin on 576,374 new properties during 2005, 6.72% more than last year, whilst approximately 500,000 new homes will be finished during the year. Andalusia, Catalonia, Valencia and Madrid are the regions with the highest number of new construction licences.

Spanish parliament rejects leftwing proposal to increase local rates on empty properties
The Spanish lower house (Deputies) has rejected a proposal by the United Left Party (IU-ICV) to increase local taxes levied on empty properties by between 50% and 150%. The proposal’s objective was to stimulate the rental market and discourage speculative property purchases.

Property sales fall in regions where foreigners buy
According to the latest quarterly report on the Spanish property market by Metrovacesa – one of Spain’s biggest developers – Spanish property sales in Q1 2005 (compared to Q1 2004) fell in Andalusia (-4.4%), the Autonomous Region of Valencia (-3.3%), and Murcia (-12.8%). On the other hand sales activity rose in the Balearics (13.2%), Galicia (17%), Aragon (22.2%), Catalonia (23.9%), Cantabria (32.2%), and Rioja (40%). These figures show that, in general terms, sales activity is declining in those regions that have enjoyed a high level of sales driven by foreign buyers in recent years.

The report also points out that foreign investment in Spanish real estate dropped by 16.5% in the year to April compared to the same period in 2004, resulting in the lowest level of foreign investment for this period in the last 3 years.

Turning to building activity the report finds that housing starts increased by 8.9% in Q1 2005 compared to Q1 2004, which if extrapolated to the whole year will result in 752,700 housing starts in Spain this year. In the period January to April housing starts in Andalusia increased by 51.9%, followed by 16.4% in Catalonia and 8.2% in Madrid. Commenting on the spectacular growth in housing starts in Andalusia, likely to exceed 200,000 housing starts in 2005 if the trend is maintained all year, the report talks of ‘a possible oversupply of property in certain areas’.

On a national level some 300,000 more properties will be built in 2005 than new households created, so the excess of new properties will join the already inflated number of empty or second homes in Spain. On this point the report concludes that 33% of new properties are purchased purely as an investment.

Water shortages in Murcia threaten plans to build 35,000 new properties
The Spanish daily ‘El Pais’ reports that water shortages in the region of Murcia threaten plans to build 35,000 new properties in the region. The local water board (Confederación Hidrográfica del Segura ) has informed 7 municipalities in the region that water supplies are insufficient to meet planed residential developments. Plans by the developer Polaris World to build 25,000 new properties in Alhama are affected by this. Polaris World intends to build a desalinisation plant at a cost of 40 million Euros to guarantee supply for its Alhama development.

Governor of the European Central Bank hints at interest rate hike
Jean Claude Trichet – Governor of the European Central Bank (ECB) – has hinted that Euro-zone interest rates may have to rise, due to inflationary pressures related to increasing energy costs. For the time being Euro-zone base rates remain at 2% (UK 4.5%, US 4%). Euribor, the rate used to calculate mortgage repayments in the Euros-zone, rose to 2.223% in August.

Resale apartments now take 3 months to sell, 15 days longer than a year ago
According to a new study by the real estate network Tecnocasa and the University of Pompeu Fabra it now takes 83 days to sell a resale apartment in Spain, 15 days longer than a year ago. The study also finds that resale properties sell for 95% of the asking price.

Corruption in real estate sector tarnishes Spain’s reputation
Transparency International’s latest corruption ranking identifies Spain as the 4th most corrupt country in the Euro-zone (above Italy, Portugal and Greece), largely due to corrupt practises in the real estate sector.

Construction sector generates 16.2% of Spanish GDP
The construction sector now generates 16.2% of Spanish GDP and 33% of all new employment in Spain. If that doesn’t mean much to you lets just say that the Spanish economy is now alarmingly dependent upon the real estate sector. On present trends there will soon be more jobs in the construction sector in Spain than in manufacturing. 15 years ago, in 1990, there were twice as many manufacturing jobs (2.6 million) as construction jobs (1.3 million).

© 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.