Developers concede that prices will continue falling after annus horribilis

Last year was the worst year ever on record for the Spanish property sector, and this year doesn’t look like it’s going to be any better, reports the Spanish daily ‘El Pais’. Residential property sales collapsed, as did housing starts, and now there is hard evidence of unprecedented price falls, with new build prices falling 6.6%, according to Sociedad de Tasación, one of Spain’s leading appraisal companies.

The price falls recorded by Sociedad de Tasación are the biggest in the two decades that the company has been publishing price statistics. And according to Pedro Pérez, general secretary of the G-14 group of Spain’s biggest developers, prices are going to continue falling.

This is a novel development, as developer associations like the G-14 have taken a hard line against price falls ever since the Spanish property market started to wobble. At first they insisted that new build property prices would never go down, then, from one day to the next, that prices had already fallen by 15% to 20%, and so did not need to fall further.

It is easy to see why developers are loath to admit that prices might fall in future. If potential buyers expect prices to fall they delay their purchase, which helps force down prices. The expectations become self fulfilling, which is why developers always try to stamp them out.

Now developers have thrown in the towel and concede that new build property prices will continue falling.

“New build property is now between 15% and 20% cheaper,” says Pedro Pérez, quoted in El Pais. “This is the biggest fall we have ever seen. Furthermore, 2008 has been the worst year since property statistics began. Despite all this, I don’t see any light at the end of the tunnel. And if there is no change, prices will continue falling.”

El Pais points out that some experts have spent months calling for big price falls to bring the Spanish property market back to life. According to economics professor José García Montalvo, quoted in El Pais, “At the moment the housing affordability ratio stands at 7 times average annual disposable income. We will return to equilibrium when this figure falls to 4, which is where it was in the year 2000, before the property bubble began to inflate.”

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  1. GuyMarrison

    Finally the G14 are beginning to talk some sense. However they are still blinkered to the reality of the situation. There are about 600,000 unsold new build properties, this is about 18 months supply (in normal times when prices are affordable)

    To put this in perspective, in the US there are 500,000 unsold single family homes and another 500,000 others. When the population differences are taken into account the size of the problem comes into sharp focus.

    The only way to stabilise prices is for them to fall to an affordable level. That means very large price discounts that are not happening. there is huge demand that could soak up this supply from young couples and families that have been priced out of the market.

    The holiday resorts are a case apart because they depend on different factors. What we have to see here is a correction that prices the good properties in good areas over those that are of less quality.

    Now is a great time to buy quality property in excelent locations such as Marbella and Sotogrande. Be guided by quality not prices. When prices fall your bargaining position becomes much better in securing discounts.

    One more tip – developers are not the vendors to go to now, choose established areas with quality properties and deal with agents that have a understanding of values in the local area.

    Guy Marrison
    Marrison Properties
    http://www.marrisonproperties.com

  2. ppfandler

    Guy,

    I have read that there are 1.6m new viviendas in inventory in Spain. This housing bubble is the mother of all bubbles. It is so obvious to an outsider but apparently the Spanish authorities and most importantly the developers are oblivious to the ramifications to society and their shaky economy.

    This overhang of unsold inventory will last for years if not a decade. The days of buying a property to turn a quick buck are long gone. When sanity returns to the market, buyers will follow. Prices need to fall at least 50% to return to the mean and affordability measures.

    Buyers need to be patient and wait for the market to come to them. The market overshot to the upside tremendously and now there is no reason why it can not overshoot to the downside.

    Best regards

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