November 2005 news review

Readers of the Spanish Property Insight forums could be forgiven for thinking that buying property in Spain is a bit like playing Russian Roulette. A significant number of threads are cautionary tales of broken dreams, though there is also great advice from many knowledgeable contributors on how to solve the challenges of buying and owning property in Spain.

It is important to realise, however, that the funk in the forum is not representative of the majority of foreign buyers. Based on my experience running a popular Spanish property information website, I can confidently say that things turn out fine for the vast majority of foreign buyers. It’s just that happy buyers don’t end up venting their anger in a forum. They are off somewhere enjoying their properties.

Nevertheless the horror stories in the forum serve a valuable purpose for everyone thinking of buying property in Spain. They identify the risks, and how to avoid them, which helps future buyers to steer clear of problems. The forum is a great learning resource, but shouldn’t put anyone off buying in Spain.

MARK STUCKLIN

IN DEPTH

3rd quarter 2005 property market review
Average Spanish property prices are still rising strongly, at least according to the figures provided by the Spanish Ministry of Housing. However there are signs that the wind might be leaving the market’s sail.

SPANISH PROPERTY MARKET NEWS

Leading Spanish bank says real estate boom is over
Spain’s real estate boom, which began in 1997, is drawing to a close, at least according to the latest property market report from BBVA – one of Spain’s biggest banks.

The report finds that growth in the Spanish property market is slowly decelerating, with price increases falling from 17.4% in 2004 to 12% this year, and 5% to 6% in 2006.

The slow down in the property market is most apparent in big cities like Madrid, and in coastal areas exposed to demand from foreign buyers.

Despite the apparent slowdown the bank believes that there is very little chance that average property prices in Spain will fall. The only circumstances in which the bank can envisage prices falls is in the event of a big increase in interest rates and falling employment rates, which at present seem highly unlikely.

Marbella real estate clean up to cost 6.5 billion Euros
An urban planning official has recently estimated the cost of indemnifying innocent 3rd parties caught up in Marbella’s illegal building scandal at 6.5 billion Euros. The Spanish newspaper ‘El Pais’ reports that approximately 30,000 out of Marbella’s 80,000 properties have been illegally built.

Yet another forecast from a Spanish appraisal company predicting further property price increases
Inmueble Magazine reports that the Spanish appraisal company ‘Sociedad de Tasación Cohispania’ has forecasted average Spanish property price increases of 12.3% this year, and 8.6% in 2006.

Brits will buy 150,000 more properties in Spain over next 3 years
The newspaper Sur in English (based on the Costa del Sol) has reported comments made by Ignacio Vasallo – director of the Spanish Tourist Office in London – forecasting that Brits will buy 150,000 properties in Spain over the next 3 years. According to the report Vasallo also suggested that Brits will buy 10,000 properties per year on the Costa del Sol, a total of 30,000 properties and 6 billion Euros of expected investment by Brits over 3 years on the Sunshine Coast.

In the article Vasallo is quoted as saying that Spanish housing market is “currently experiencing a momentary lull” in anticipation of the new UK regulations governing self-invested personal pensions (SIPPs), which come into effect next spring. Many professionals expect the new regulations to boost British demand for Spanish property.

Almost half of property purchases will be on the coast from the Valencian Region to Andalusia, where the British reportedly already own 90,000 homes. The average purchase price is expected to be 200,000 Euros.

Vasallo, who was speaking at a fair for British Travel Agents in Torrequebrada hotel (Costa del Sol) in early November, based his comments on a study carried out by Turespaña (Spanish Institute of Tourism). The study has not yet been officially released, and according to the Spanish tourist office in London the results are still provisional.

Brits set to buy 2.2 million properties abroad, 660,000 in Spain
The number of Brits who own property abroad is set to double in the coming years, according to a new study by Barclays Bank.

The study finds that 2.2 million Brits already own property abroad, whilst 2.2 million are certain of buying abroad in the future. Another 16.3 million Brits are ‘considering’ buying abroad.

These conclusions are based on a survey in which 5% of the sample claims to already own property abroad, 5% state they intend to buy, and 37% state they are considering buying.

The study reveals that British buyers prefer Spain by a wide margin. 30% of respondents, the equivalent of 660,000 potential buyers, rank Spain as their first choice, followed by the USA with 15%, France with 14%, and Italy with 10%. The full ranking or British preferences is as follows:

1. Spain – 30%
2. United States – 15%
3. France – 14%
4. Italy – 10%
5. South Africa – 6%
6. Dubai – 5%
7. Portugal – 5%
8. Bulgaria – 3%
9. Croatia – 2%
10. Morocco – 1%
11. Other – 9%

The study also finds that:

  • 58% of Brits who are planning to / considering buying abroad are worried by the taxes associated with the purchase.
  • 17% are worried about leaving a property abroad empty for long periods of time.
  • 14% are worried about language barriers.
  • Only 8% are concerned about property prices abroad, and the distance from home.

Spanish mortgage base rate rises to 2.684% in November
Euribor at one year – the rate used to calculate mortgage repayments on Spanish mortgages – rose to 2.684% in November, up from 2.413% in October and the highest level since January 2003.

The latest increase will push up monthly mortgage repayments on the average 20-year, 120,000 Euro mortgage by 21 Euros per month.

Euribor’s increase reflects market expectations that the European Central Bank will today (01/12/2005) raise the Euro-zone base rate by 25 basis points, from 2% to 2.25%. Euribor is now 15% higher than it was one year ago, and 28% higher than 2005’s low of 2.1%.

Despite the upward trend in Euribor, Jean Claude Trichet – President of the ECB – has ruled out a series of rate hikes.

For his part, in an interview with the Spanish magazine ‘Capital’, Pedro Solbes – Spain’s Minister of Finance – has said that a modest increase in Euribor will help bring about a “soft landing” for the property market. Engineering such an outcome is one of the Spanish government’s top priorities.

20% of Spanish population unable to afford a property purchase
The Housing Monitor (Observatorio de la Vivienda) run by the Association of Notaries has drawn attention to the fact that rising Spanish property values are pricing the poorest 20% of the population, and in particularly young adults, out of the property market. According to the organisation recent property price increases have meant a “massive transfer of income and wealth from younger to older generations.”

800,000 housing starts in 2005 to blast all previous records
The Architects Association of Spain (Colegio de Arquitectos) forecasts 800,000 housing starts during 2005, and new all-time record and 15% more than 2004. At this level of annual housing starts Spain is building the same number of properties as the UK, France and Germany combined.

The Architects Association points out that demand for new housing in Spain stands at around 300,000 to 350,000 properties annually, whilst new housing starts have been running at over 600,000 units since 2001. Many experts believe that amateur property investors taking advantage of ridiculously low interest rates (and negative real interest rates) have been soaking up the excess construction.

Arsenal FC promoting apartments on the Costa del Sol
British football clubs promoting apartments on the Costa del Sol? Strange as it seems that is exactly what is starting to happen, as clubs look for new ways to turn their brands and databases into revenues.

First of the block are Arsenal FC, promoting the Pueblo Real Golf development in Casares, Andalusia. The project website claims that “Arsenal has identified a project of unique quality built and financed by one of Spain’s most reputable and well established developers”. The development comprises of 2-bedroom, fully furnished apartments set within a “4 star hotel environment”. Prices start at around 300,000 Euros, well above the average British buyer’s budget of around 200,000 Euros. But the price hasn’t stopped Arsenal’s Spanish star Jose Antonio Reyes from buying one of the apartments. As the press release says, “Jose Antonio Reyes was so impressed, he secured the first property.” + more

Mini-apartments more expensive per square metre than bigger apartments
Inmueble Magazine reports that small apartments (less than 50m2) are significantly more expensive per square metre than apartments of 70m2 or more, due to the fact that they are easier to rent out. Small apartments are 48.6% more expensive in Barcelona and 36% more expensive in Madrid.

Spanish Tax Authorities suspect tax code of encouraging real estate speculation
Inmueble Magazine reports that officials from the Spanish treasury believe that improving the way that property transactions are taxed could help reduce speculative investments that contribute “artificial” demand to Spain’s “property boom”, where much of the black economy has found a profitable refuge.

Some contemporary facts about the Spanish property market

  • The value of Spain’s real estate and construction sector has grown from 11.8% to 15.4% of GDP in the last 6 years.
  • There is a total of 21 million properties in Spain, growing at between 600,000 and 800,000 new properties per year in recent years. This means that the new build to housing stock ratio is around 3%, more than double the EU average.
  • Spanish households spend 50% of household income on financing the purchase of a property.
  • More than 5 million Spanish households have a mortgage.
  • Spanish land prices have increased by 200% since 1996.
  • In 1982 the average price was 210 Euros per square. By 2001 the price was 1,052 Euros per square meter.
  • The cost of apartments in Spain rose by 17.2% in 2003, compared to an EU average of 7.2%.

Inmuble Magazine also reports that Spain’s Housing Monitor Group run by the Notaries’ Association has said that Spanish property inflation is out of all proportion to other relevant factors such as average salaries and construction costs.

Source: Inmueble Magazine, Housing Monitor run by the Association of Spanish Notaries, Spanish Ministry of Housing.

© 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.