Developers will have to drop prices and sell at a loss says new report

The glut is still a problem in 2011

Developers over-paid for land during the boom and now must pay for their mistake, argues a new report on Spain’s property market from Sociedad de Tasación (ST), a leading appraisal company.

Developers will have to lower their prices and sell at a loss in 2011 if they want to liquidate their stocks and get back to the business of building homes, argue ST in a report on the outlook for the Spanish real estate sector in 2011.

Selling at a loss is the price they will have to pay for over-paying for building-land during the boom, when land prices came to represent more than 50% of the cost of building new homes, up from around 30% before the boom.

ST estimate the stock of unsold new-homes at 724,000 units (between 30pc to 40pc of which I suspect might be classified as holiday-homes on the coast).

Speaking to the Spanish press, José Luis Estevas-Guilmain, President of ST, said developers will “have to recognise their losses” and that “the situation will not be resolved” until they do. ST also recommend measures to boost the rental market from 13pc of households to 50pc, in line with the European average.

Just 15.5pc?????

According to figures from ST, new house prices have only fallen 15.5pc since the peak, but most experts would agree that significantly understates real price falls.

The fact is that many developers have already dropped their prices more than ST might give them credit for. In Sotogrande, for example, one of the best developments in the world, prices for luxury new flats in the Marina have been reduced by up to 30pc.

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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.