The burning issues of Spain’s property market

Here are some of the “burning issues” facing the Spanish property market, according to a new report by PwC, a global professional services company.

More transparency
There is no reliable market data, and the lack of transparency is putting off investors, say PwC. They call for detailed study of the market to help rebuild investor confidence through greater transparency.

Homes people want
In future, Spanish developers will have to research and understand client needs, then build to meet them, as opposed to the ‘build it and it will sell’ attitude in the past.

New planning laws
PwC recommends simplifying planning procedures to make it easier to turn land into new homes, pointing out that it can take seven years to get land urbanised under present laws, as illustrated by the following graphic.

Alternative sources of financing
Banks turbo-charged the boom with easy money, but now they won’t even finance the best projects. Bank credit for land acquisitions will be almost unheard of in future. Developers will have to find other sources of financing, like cash-flow from rentals.

The following chart from PwC illustrates how bank credit to developers exploded between 2002 and 2008, and is now falling.

If developers can’t get financing, there won’t be any new building.

Consolidation
The number of developers exploded during the boom, but now the industry is shrinking and consolidating fast. 2,758 developers have gone to the wall since the bust began, with more to follow. There will be fewer developers in future, focusing on areas and niches, and selling to more demanding clients.

Bank domination
Banks and their repo divisions will dominate the housing market for the next few years. Financial reforms could encourage them to dump their stocks as quickly as possible, and drive down prices even further. Whatever happens, the banks will determine the future composition of the Spanish property market.

As you can see from the following chart, banks have repossessed almost €90 billion in residential property assets. (Suelo = land, promoción terminada = finished new homes, promoción en construcción = new homes under construction, hogares = repossessed homes, resto = other).

+ PwC executive summary (pdf in Spanish)
+ PwC full report (pdf in Spanish)

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6 thoughts on “The burning issues of Spain’s property market”

  1. Campbell D Ferguson, Chartered Surveyor in Spain

    Transparency will only be of value when honest data is entered in the escrituras. Every amount of B money and/or falsely entered floor area reduces the statistics to worse than useless. Worse because investors believe that the market has substantially further to fall compared to ‘honest’ countries. In fact, Spain’s market values have fallen as far or further than most. However, due to the effect of less B because of the money laundering enforcement, the actual price falls are being disguised by the higher % of true price declarations.

  2. Juan

    The great problem as always is the power that be spring into action, they ignore it and pretend it is not happening. Rajoy “I will not ask for a bailout!” Not this week anyway.
    Until builders recognise that their clients have rights and are not just there to be milked the future will remain black. They need to realise that now they are in the real world where sales are driven by the seller not the purchaser.

    So property has risen by 4% over ten years. Over 12 years I predict 0% or a minus figure. A period of 20 years might show some growth.

    Juan

  3. Ed

    Two additional factors that also need to be evaluated and addressed.

    1. Cost of Ownership – Specifically Levels of Taxation and the Inneficient Community Management Intermediaries.

    2. Transaction Cost & Market Inefficiency. Characterised by high entry/exit costs as a result of Legal and Market Intermediary charges and Burocratic Innificiencies in the transaction process.

    Finally I concur fully with the observations of the earlier posters above.

  4. Mike

    The overwhelming majority of buyers in Spain during the “boom” years were foreign buyers – English, Dutch, German, Irish, Scandinavian etc etc.
    In their naivety (& I too was equally as trusting) they believed that they would receive what they would have received in their native Country – ie. a quality of construction that matched the colossal prices they paid: professional, honest & efficient Solictors: reputable selling agents, and some degree of consumer protection.
    Instead, they (at least I did) purchased properties where the prices were wholly exorbitant: where the quality of construction was abysmal: where “modern” standards of construction (damp proof courses, electrical & plumbing installations were more 3rd World than modern) where money-hungry Agents & Solicitors defamed their very profession. Some developments, and even 10 years after they were constructed (& sold), still have no planning permission nor mains water, electricity & sewerage, and the controlling Local Authority do not wish to know, least of all actuakky do anthing to resolve the problems, as it would mean some “work”.
    The whole issue is a total disgrace, and EVERYONE – the banks: the Agents: the Local Authorities: the greedy, grasping self-appointed Spanish administration companies: the developers, the builders – and even the Government are equally to blame.
    They thought that the Golden Goose would never stop laying – but they beat it, robbed it and starved it, and the egg supply has now dried up.

    Now the banks (and inevitably the Government) are faced with hundreds of thousands of these same rubbishy properties that no-one wants to buy (even at 1/5th of the price they were offered for but 5 years ago: faced with now paying the utterly ludicrous urbanisation fees that all the involved parties thought that the foreign buyers would pay without question.

    The golden goose has turned into a chicken, and it has now come home to roost.

    Do these people REALLY think that the “good times” are eventually going to return?
    Too many people have had their fingers very badly burned, and until Spain, and EVERY aspect of it’s property arm drags itself forward into at least the 19th Century, there’s little hope.

    Disagree if you will, but in the process, also disprove my comments.

  5. robert beveridge

    Yes Mike, spot on ,the spanish tolerate the Brit,s and happily take our money in return for no service or sevility after you have parted with your cash, be it house purchase, lap top or anything else for that matter. the law also works for the spanish we are ignored period.

  6. Mike

    Well, Robert
    With the execption of just three Spanish people (greedy, grasping, deceitful, conniving, lying, so-called “professionals”, all), I have personally never met a “bad” Spanish person – as a race, they’re generally lovely. Lazy, disorganised, happy-go-lucky. unpunctual & unreliable, YES, but still a lovely race.

    We must not forget that other nationalities (English, Dutch, German, Irish) involved in the “selling & promotng” aspects were MORE THAN KEEN to blatantly lie through their teeth, to screw the buyers – and some of those buyers were also Spanish.
    It’s inevitable – when there’ a coin on the ground, one has to expect to see the myriad of loathsome parasitcal creatures scurrying out when you pick it up.

    The Spanish people also suffer from the deficiences of Spain’s medieval legal system – but they’ve lived with it for centuries, so are accustomed to expecting that there MAY be “Laws”, but there’s precious little justice. And that’s down to the various governments, who’ve been more than happy to use the sytem to their own financial benefit.
    The bulk of the “gentlemen?” of the legal profession are even worse – they have NO scruples whatsoever, and the utmost prioirty is to close ranks, and protect each other from retribution & responsibility.

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