August 2006 news review

Foreign investment in Spanish property hasn’t lived up to the optimistic forecasts of just a few years ago, when ‘experts’ predicted that Britons and other Europeans would increase spending every year. In reality, foreign investment in Spanish real estate has fallen since 2003, and by the end of May was some 33% below the level for the same period in 2003 (see news below). Nevertheless, I still think there are good grounds for optimism about the future of the Spanish property market, at least in those areas popular with foreign buyers. European baby boomers officially start to retire this year, and will continue to do so over the next 20 years. With the right financial advice millions of them will be able to afford a place in Spain, and I’m confident that many of them will end up buying into Spain’s higher quality of life and lower cost of living, where pensions go that bit further. Though I see plenty of evidence that today’s buyers are more cautious then they used to be, I see little evidence of demand for Spain’s lifestyle evaporating. I still expect significant problems in short term, and I think a few agents and developers might go out of business before the smoke clears. But it’s still early days for Spain as the California of Europe, and looking 10 years ahead, I can only see it becoming more popular..
MARK STUCKLIN

IN DEPTH

Review of the Spanish property market’s performance in the second quarter of 2006
Buyers and sellers need an independent yet informed viewpoint of the current state of the Spanish property market.

SPANISH PROPERTY NEWS

Foreign investment in Spanish property continues falling
Foreigners spent 1.962 billion Euros on Spanish property in the first 5 months of the year, 13.2% less than a year ago.

Foreign investment in Spanish property has been falling consistently since a peak of 7 billion Euros was spent in 2003.

After growing by 22% in 2001, 28% in 2002, and 17% in 2003 (to 0.91% of GDP), foreign investment in Spanish real estate fell by 6% in 2004 (to 0.79% of GDP) and 17% in 2005 (0.61% of GDP). The total amount spent is on course to fall again this year.

Spanish real estate analysts blame high property prices and rising interest rates for the drop in spending by foreigners, along with increasing competition from other destinations such as Bulgaria and Turkey.

10m want to quit ‘over-taxed’ UK
ONE in five Britons — nearly 10m adults — is considering leaving the country amid growing disillusionment over the failure of political parties to deliver tax cuts, according to a new poll.

Viva Estates drops commissions to 2%
Viva Estates – one of the largest estate agents on the Costa del Sol – has dropped the commission it charges on resale properties to 2%, partly in order to stimulate a sluggish market. Chris McCarthy – MD of Viva – has explained the reasoning behind Viva’s decision in Spanish Property Insight’s forum. Viva’s move is not without its critics.

Euro base rates and Euribor continue to rise
The European Central Bank (ECB) raised base rates from 2.75% to 3% at the beginning of August, citing concerns over inflation. Consequently Euribor – the rate used to calculate interest payments for most mortgages in Spain – also rose in August to 3.615%, the 11th consecutive monthly increase, and the highest rate since July 2002. In percentage change terms Euribor has increased by 63% in the last year, pushing up mortgage repayments on all variable rate Spanish mortgages to the same extent. The ECB chose not to raise base rates at the end of August, but markets expect the bank to raise them again at the beginning of October. Despite the latest increase, real interest rates are still negative in Spain.

13.4% of property sales in first quarter to foreign buyers
The latest figures from the Spanish government show that foreigners bought 31,342 Spanish properties during the first quarter of the year (January – March 2006), which amounts to 13.4% of the total number of Spanish properties sold in the period (233,670).

The Valencian community, where foreigners bought 8,879 properties during the period, was the most popular region, accounting for some 24% of all sales to foreigners. Catalonia was next (5,778), followed by Andalusia (4,028), Madrid (3,899), Murcia (2,219), Canaries (2,170), Balearics (993), Castilla La Mancha (887), Aragon (650), and Castilla y León (585).

The least popular autonomous regions with foreign buyers were La Rioja (279), Navarra (231), Galicia (190), Asturias (173), The Basque Country (168), Cantabria (134), Extremadura (62), and Ceuta and Melilla (17).

The government’s figures for foreign buyers include economic migrants who have become residents and bought homes in Spain. As such they do not exactly reflect the buying patterns of holiday home and relocation homebuyers from Northern European countries like the UK. For a better picture of where Brits and other Europeans are buying Spanish homes and holiday homes, it helps to focus on the number of non-resident buyers, rather than foreign buyers resident in Spain.

The government’s figures show that non-residents bought 4,491 Spanish properties – mainly holiday homes – in the first quarter of 2006, just 2% of the total number of properties sold. Though Andalusia (1,471) was the most popular autonomous region, followed by the Valencian Region (1,389), Alicante, in the Valencian community, was the most popular holiday home province, with 1,330 sales, followed by Malaga (860), Santa Cruz de Tenerife in the Canaries (499), Murcia (475), and Almeria (447). Non-residents bought only 8 holiday-homes in the autonomous region of Extremadura in the period, and none whatsoever in the province of Teruel.

Tighter regulations on the way for estate agents in Spain
The Spanish press reports that María Antonia Trujillo – Spain’s Minister for Housing – hopes to introduce new regulations for estate agents by the end of the year. Trujillo wants to tackle the speculation and abusive practises plaguing the sector, and increases legal protections for consumers. “It’s not right that in Spain someone can earn more with one phone call than other workers can earn in a whole year”, says Trujillo.

Trujillo is being lobbied by professional associations, including Pedro Enrique López – president of the Association of Property Experts (ETI) – who is critical of the ‘excessive liberalisation’ of the sector, and is pushing for regulations to require training, registration, and professional indemnity (of 1.2 million Euros) for anyone who wishes to make a living selling property in Spain.

200,000 new properties planned for Mar Menor area of Murcia
The Spanish daily ‘ABC’ reports that 200,000 new properties are planned for the Mar Menor area of Murcia, to add to the 60,000 presently under construction, and the 70,000 already built. If realised, these plans will take a heavy toll on the environment and more than double the population in the summer high season to over 1 million. 33 large resorts are included in the plans already approved by Murcia’s government.

Spain highly exposed to variable rate mortgages
93.2% of mortgages in Spain are variable rate, according to a new report from the European Mortgage Federation. This makes Spain second only to Portugal (95.4%) for mortgage exposure to increasing Euro-zone interest rates. Spain is followed by Greece (90%), Luxembourg (87%), Italy (86.9%), Hungary (73.6%), and Ireland (64.4%). In Belgium, Denmark, Germany, France, The Netherlands, and Sweden, the majority of mortgages are fixed rate, which give borrowers more protection from movements in interest rates. Spanish mortgage borrowers are highly exposed to changes in interest rates, which increases the chances that rising interest rates will hurt the Spanish economy. Spanish mortgage borrowing in May was 23% higher at 514,7 billion Euros than a year before.

Divorces pushing up demand for Spanish property
A recent bulletin from the Bank of Spain reveals that Spanish property prices have risen by 130% in real terms (adjusted for inflation) over the last 9 years, in some degree due to the increasing number of divorces in Spain, which fuel demand for property. More than 130,000 marriages in Spain ended in divorce in 2004, 43% more than in 1998.

85% occupancy for tourist apartments in Barcelona
Barcelona’s Association of Tourist Apartments (Apartur) claims that it’s members achieved an occupancy ratio of 85% in July, 5% higher than a year ago. The British are the biggest users of Barcelona’s tourist apartments, followed by the French and the Italians.

Average Spanish mortgage values increase by 17% to 140,000 Euros
New figures from the National Institute of Statistics show that recent increases in Euro-zone interest rates have not dented Spain’s appetite for mortgage borrowing. Mortgage lending rose again in May, with the average Spanish mortgage rising in value by 17% to 140,000 Euros.

Record number of 500 Euro notes in circulation in Spain
The number of 500 Euro notes in circulation in Spain rose to a record 106 million in July, according to the Bank of Spain. 500 Euro notes are rarely used in day-to-day transactions, but are the favourite denomination for real estate transactions involving ‘B’ or undeclared money, and for money-laundering operations.

© 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.