The speculation behind Spain’s property boom

A recent article in the Spanish daily ‘El Pais’ illustrates the excesses of Spain’s recent property boom.

Using the example of Seseña, a massive new urbanisation of 13,500 apartments in the province of Toledo (Castilla-La Mancha) south of Madrid, the article shows that much of Spain’s recent property boom has been driven by speculation.

The developer of Seseña, Francisco Hernando (also known as El Pocero, or Mr. Drains), is now struggling to sell in competition with his previous investor clients, many of whom are offering big discounts to dump their investments. So far only 2,500 of the properties at Seseña have a first occupation licence, and only 750 people live on the urbanisation.

But Seseña is just the tip of the iceberg. In the Castilla-La Mancha region as a whole, 123,000 new properties have been built in the last 3 years, of which only 39,000 have been sold, implying an overhang of around 84,000 surplus new properties. That is 2 out of 3 of all new properties built in Castilla-La Mancha since 2005.

The number of housing starts in the region has risen dramatically in recent years: 31,000 in 2005, 37,500 in 2006, and 47,500 last year. But during that time, demand kept stable, at around 12,000 sales a year.

According to Gonzalo Bernardos, a professor and property sector specialist at the University of Barcelona, speculative developers were banking on rising property prices in Madrid driving buyers further and further away from the capital. “They thought that rising prices in the capital would drive out buyers,” the article quotes Bernardos as saying. “They bought land on the cheap planning to sell expensive flats, thinking that demand would be infinite. Now the excess of supply is enormous.”

It’s a similar story on the Spanish coast, where hundreds of thousands of holiday homes have been built for a supposedly bottomless supply of northern European buyers. But this article shows that the problem is not limited to the coast.



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