November 2006 news review

The mother of all construction booms’ is one way to describe the situation in Spain. Construction fever is raging all over the country, but particularly on the Mediterranean coast, the entire length of which seems to be bristling with cranes. Where is this all heading? It is a disturbing question, because the way in which this construction boom ends could have serious consequences for the Spanish economy. The Spanish government is frantically talking up a soft landing, and given Spain’s healthy level of economic growth this is still on the cards. But it seems obvious to me that the property market in many popular coastal areas will struggle to absorb all the new properties being built. It’s no secret that demand is down, and you don’t have to be a Nobel prize winning economist to work out that increasing supply now is unhelpful, to put it mildly. I expect a market shakeout in 2007 (already underway in some places), and some bitter medicine for all the corruption and speculation that has blighted the market. But at the same time I see some powerful, positive forces at work, which will ultimately restore the Spanish property market to rude health. I also have a hypothesis that quality locations and developments will sail through 2007 relatively unscathed, as overseas buyers get better at identifying quality in the market.
More on all this in 2007, in the next bulletin at the beginning of January. In the meantime let me just wish you a Merry Christmas, and happy holidays.

MARK STUCKLIN

SPANISH PROPERTY ALERTS

New European bank transfer regulations

From the 1st of January 2007 you have to provide a full International Bank Account Number (IBAN) and Bank Identifier Code (BIC/SWIFT) along with the beneficiary name for any bank transfers to EU member countries (and Iceland, Liechtenstein, Norway, Switzerland, Bulgaria and Romania). Failure to do so will result in penalty charges, or your transfer being rejected.

To avoid penalty charges, or your transfers being rejected, you can check the validity of your payment information below. To check that you have a valid IBAN number click here (Natwest)

For further information on International Bank Account Numbers click here (Natwest) or here (European banks)

To check your Bank Identifier Code (BIC) click here

Tourist apartment rip off

In parts of Spain, for example Murcia, foreign buyers are being mis-sold properties that have a special ‘tourist apartment’ classification. Tourist apartments cannot be used as residential properties, and should be cheaper than ordinary apartments. Some Spanish developers and agents are selling tourist apartments as ordinary apartments, taking advantage of the fact that English-speaking buyers are not well informed, and can be easily tricked into overpaying for properties that are use-restricted. To be on the safe side, buyers need to ask their lawyers to double-check this issue before proceeding.

SPANISH PROPERTY NEWS

What next for the Spanish property market?

The European Commission (EC) has once again warned of the risks to the Spanish economy of a property bubble. The EC fears that Spanish properties are overvalued after almost a decade of robust price increases, and has repeatedly voiced concerns over the possibility of a ‘hard landing’ for the Spanish property sector. With interest rates rising, a property market crunch could have a large, negative impact on the rest of the Spanish economy.

EC concerns over high Spanish property prices, increasing mortgage life spans, and increasing household debt, were aired during the presentation of the EC’s autumn economic forecasts.

Referring to the Spanish property market as “possibly overvalued”, Joaquín Almunia – Economic and Monetary Affairs Commissioner – worried that, “sustaining the Spanish economy will be increasingly difficult.”

Responding to these concerns on visit to Brussels shortly afterwards, Pedro Solbes – Spain’s Finance Minister – agreed that the rising level of Spanish household debt is a cause for concern, but downplayed the risks to the Spanish economy. According to Solbes, it is unlikely that Spain’s economic growth will be hard hit by any eventual fall in Spanish property prices.

“We know that property prices are cooling, but economic growth remains higher,” said Solbes. “Spanish property prices have never fallen in nominal terms,” he added, whilst also pointing out that Spanish mortgage default rates are close to historic minimums, and that only 3 in 10 Spanish mortgages are affected by recent interest rate increases.

Solbes remarked that comparisons with the past need to allow for the fact that previous periods were characterised by high inflation and high interest rates, compared with the present situation of low inflation and low (but rising) interest rates. Current macro-economic conditions are more stable than in the past.

Solbes highlighted the fact that even the Commission does not expect a sharp fall in Spanish property prices.

Meanwhile, the OECD argues in its latest economic report that property in Spain is overvalued, and that a moderate correction in prices is likely.

Even so, the Spanish economy is not in any great danger from its real estate sector, and although Spanish property prices are “above their equilibrium”, international demand for property in Spain remains strong. “The whole world wants to buy a place in Spain,” joked Jean-philippe Cotis – chief economist of the OECD.

The OECD forecasts a “soft landing” for the Spanish property market, coupled with a slight slowdown in economic growth, from 3.7% in 2006, to 3.3% in 2007, and 3.1% in 2008, all well above the average economic growth rate for the Eurozone.

Real estate corruption damaging Spain’s international standing

The wave of real estate corruption scandals in Spain rolls on, with Andratx, in Mallorca, the latest town hall with a corruption scandal on its hands. The Spanish financial daily ‘Cinco Días’ reports that the number of official investigations into real estate corruption scandals rose by 63% to 2,016 in 2005, up from 3,279 the previous year. Corruption in the real estate sector has damaged Spain’s position in the international corruption rankings published by Transparency International. Spain has fallen from 7 to 6.8 points in the worst result for Spain since 1998. “All the public powers must react immediately,” warns Manuel Villoria – a professor at King Juan Carlos University, and member of the executive commission of Transparency International in Spain. “Corruption is like a cancer, if you don’t stop it when it starts to spread, it ends up infecting all the democratic institutions.” Spain has one of the worst corruption rankings in the EU, though nothing like as bad as Portugal (6.6), Italy (4.9) and Greece (4.4).

100,000 illegal Spanish properties could be demolished

The threat of demolition hangs over 100,000 Spanish properties built without planning permission, or with an invalid building license, according to a recent article in the Spanish daily ‘El Mundo’. Calls for a tougher line to be taken with illegally built homes in Spain are increasing, and Antonio Vercher – the head official in charge of real estate and environmental investigations – is quoted as saying that, “we need to rethink this issue, and find effective new solutions.”

This topic is discussed in the forum: + more

“Zero growth” forecast for Spanish property prices

According to Miguel Sebastián – director of the economic affairs in the office of the President – the rising spiral of Spanish property prices has burnt out, and Spanish property inflation will soon hit zero.

Speaking at the presentation of a new report entitled ‘Immigration and the Spanish Economy: 1996-2006’, Sebastián also claims that Spanish property inflation, which seems to be falling gradually, is developing “reasonably well”. He pointed out that immigrants are an important new source of demand for housing in Spain, and already buy 25% of all properties sold in Spain, and take out 20% of all new mortgages. Sebastián expects the Spanish property sector to remain in good health for many years to come.

Glut of investment properties for sale on the Costa del Sol

The Andalucian daily ‘Sur’ reports that locals who invested in off-plan properties in the hope of juicy profits overnight are now struggling to sell before completion. Investors who fail to sell on before completion either lose some or all of their deposits, or complete and pay high transaction costs and mortgage expenses. The number of investors rushing to dump their investments before completion has lead to a glut of properties for sale in Malaga province, home to the most popular stretch of the Costa del Sol.

The party is over

The Catalan Daily ‘El Períodico de Catalunya’ reports that Spain’s construction boom is over. “The party is over, and we are entering a new phase,” a real estate professional visiting the Barcelona Meeting Point is quoted as saying.

Foreign residents buy 11.7% of Spanish properties in 2nd quarter

Figures from the Spanish Ministry of Housing show that immigrants (foreigners now resident in Spain) bought 28,404 properties in the 2nd quarter of 2006, the equivalent of 11.7% of all Spanish properties sold in the period.

A total of 242,639 Spanish properties were sold during the period, up by 3.8% on the previous quarter, whilst sales to immigrants were up by 5.7% on the previous quarter. Sales to foreign residents are growing faster than the overall market.

By region, the Valencian Community attracted the most immigrant buyers, with 7,470, or 26.3% of the region’s total property sales in the period, followed by Catalonia (5,768), Madrid (3,834), Andalusia (3,203), Murcia (2,108), The Canaries (1,535), The Balearics (1,030), Castile La Mancha (948), Aragon (634), and Castile and Leon (585).

Construction boom creates 100,000 new firms

Figures from Spain’s department of employment reveal that there are now around 223,000 firms operating in Spain’s construction sector, up from 124,000 in 1998, when the construction boom started. There are now more firms in construction than in manufacturing, which shows how important construction has become to the Spanish economy.

Madrid now 3rd most expensive city in the world for property

A new report from Seb Asset Management – a large fund – finds that Madrid is the 3rd most expensive city in the world for property, cheaper than only London and New York. The report argues that low rental yields make property in Spain an unattractive investment compared to other places that offer better yields, for instance China, South Korea, Japan and Singapore.

Spanish investors have high expectations

A new study published in the Spanish magazine ‘Papeles de la Economía Española’, and edited by the Foundation of Savings Banks (FUNCAS), reveals that Spaniards expect their properties to appreciate in value by over 20% every year, for the next 10 years. The study also reveals a contradictory belief among Spaniards that property in Spain is overvalued.

Almost half of all Spaniards unhappy with their home

A new study from BPB Iberplaco – a construction materials company – reveals that 42% of Spaniards live in a home that they can afford, rather than a home they would like to live in, and 9% are completely dissatisfied with their home. The study also reveals that spacious kitchens and bedrooms are priority features for Spanish homebuyers, although 69% of Spaniards prefer to live in city centres, even if it means living in smaller apartments.

Spanish properties taking 3 months longer to sell than last year

Newly-built Spanish properties are taking 3 months longer to sell than last year, according to a new study by real estate consultants CB Richard Ellis (as reported in Spanish financial daily ‘Cinco Días’). Juan Antonio León – company vice-president – is quoted as saying that, “whereas new developments used to sell in 4 to 6 months, this year it is taking between 7 and 9 months, especially in suburbs, or coastal areas with holiday homes.” The profitability of residential property is falling, and developers are switching to commercial property in search of higher returns.

Spanish property market lacks transparency says Bank of Spain

José Luis Malo de Molina – direct of research at the Bank of Spain – has warned that the property, construction, and land markets in Spain lack accurate and timely information.

Euribor still rising, mortgages costs follow

Euribor – the rate used to calculate interest payments for most mortgages in Spain – rose to 3.799% in October (confirmed by the Bank of Spain), and 3.864% in November (not yet confirmed by the BoS), the highest level since June 2002. November’s rise was, however, the smallest monthly increase in Euribor this year, suggesting a slowdown in the rate at which Euribor is increasing. Even so, many analysts expect Euribor rates of 4% by the end of the year.

According to the Spanish Mortgage Association, in the short term the latest rise only affects the 3.2% of mortgage holders who have their mortgage payments revised in December. Spanish mortgage holders on variable rates (8 out of 10 Spanish mortgages) who are affected will see mortgage repayments rise by more than 1,250 Euros a year for an average mortgage (143,604 Euros at 26 years).

The European Central Bank is expected to raise base rates again in December.

80% of Spanish households skint at end of month

A new report from the Foundation of Savings Banks (FUNCAS) reveals that 80% of Spanish households end the month without any savings after paying the mortgage. Spanish household indebtedness has increased in 2006, and is now one of the highest in the Eurozone. Andalusia’s 8 provinces have the smallest savings, with only 9.26% of income saved. At the other end of the scale is La Rioja, with a savings rate of 19.14%.

© 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.