Spanish Property Market in 2007

[forestfire]

As you may know my views on the spanish property market are bearish. While I'm not saying that the market is going to crash, I think that it is a plausible scenario, and should not be dismissed as scaremongering.
Living on the Costa del Sol I see tens of thousands of empty unsold apartments, and some areas where every other villa is for sale, and has been for the over 2/3 years.
Building continues at a fast rate, and while interest rates remain low, they have been rising and the consensus in the financial community is that they are likely to rise further.
Also, the British public has become more aware of the scandals and corruption that exist in the spanish market and are looking to other cheaper alternatives.
I would be interested to know if there are any reasons to be optimistic about the spanish housing market in 2007/2008 -is there something I'm missing?
Obviously the white whale scandal highlights the reason why Spain is often refered to as the money laundering capital of Europe, and this inflow of money has helped sustain the market. But surely at some point this flow will dry up and then the market will fall harder.
Any thoughts as to how different sectors and areas will behave differently -do any sectors not appear to be suffering from oversupply?
Can anyone give me a good reason to buy now rather than wait for prices to come down?

[shakeel]

While, I agree fully with your analysis. There may be many properties lying empty but one thing remains constant in all kinds of market that is location and the quality built.

If one has a good property in a good area well built/mantained and in the present climate of with all the paper work in order. These properties will allways hold their value.

[PJA]

I think everyone agrees things have slowed significantly but it's so difficult to judge the market here. I know of 2 properties (plus a guesthouse) that have been for sale since at least August 2002 (unless the agent hasn't taken them off their website) and another villa that sold in under 3 months. There's no logic or consistency in prices either.

[Aunty Val]

In so much as the Spanish property market is much like the British property market - it is regional and indeed very local.

What happens in Madrid does not necessarily have any affect on the CDS and vice versa. Equally so with Murcia and CDLuz.

Having worked through the recession of the early 90's in the UK (within the property sector) I see many similarities between then and now.

There is no doubt that the CDS is in for a hard 2 years. Oversupply of property and a lack of buyers will mean many properties unsold, many estate agents going bust as well as a few property developers/builders/promotors.

Many vendors will have to adjust to the fact that property prices do fall (and I would have thought many will have experienced the early 90's) although London and the SE was more severly affected. If you have to sell then get realistic - if you don't need to sell, wait.

That doesn't mean for one moment that you should not consider buying (indeed at some stage the prices will become so attractive that the market will start to revive itself naturally) but you should consider buying on a number of factors (probably very different from the majority of British buyers in recent years), these include:

Don't buy to make money - most people will happily enjoy the next 2/3/10 years living in the sun without needing to see a 20% return on investment.

Buy in the right area, a develoment or type of property that you actually want to live in. Don't buy new. Don't buy on the coast (unless you really want to be there)

If you buy for investment, treat the deal as a long term investment (at least 10 years) and the chances are you will make money.

Don't buy to rent out. It doesn't work unless you have a particularly unusual or attractive property.

The market is still active inland. Indeed, many people from the coast are looking inland to improve their environment, enjoy a more Spanish life and get better value for money.

In answer to the original question I guess it depends totally on what you want from your purchase - investment return or lifestyle change. If you want a better lifestyle than the UK then it is here and you could pick up a bargain over the next 2 years.

If you want an investment I would wait for a while and see what happens - especially on the CDS.

Where do you buy? Well not on the coast. Too much crap has been built (and still is) whereas inland I feel there is still a chance that things will not be destroyed by the development of southern spain.

At the end of the day, you should buy because you want a place to live - property as an investment is fine if you understand property and the market as a whole. I would never put my money in to the Stock Market because I simply done't understand enough about it.

Aunty

[katy]

I agree with most of what you posted Aunty Val..except the point about looking inland. Almost every small pueblo has either started developments or has projects in the pipeline. I think a lot of buy-to-let investors have returned to the stock market as its been a healthy year and confidence is returning.

In theory there should be lots of bargains around, many properties have been on sale for a year or two, subtracting the increases that are supposed to have happened, these should be a snip. What will happen is the ones who really must sell will reduce and the rest will not bother selling until the market is busier.

[ashtondav]

Property, no matter where, only declines where 3 conditions are met out of the 4 below:

1. A recession, forcing lower wages (or increases in wages) AND large increases in unemployment, causing very poor consumer confidence.

2. Property bought with very high proportion of mortgage debt. (95% - 100%+)

3. In tandem with the above rapidly rising interest rates to very high levels

4. Massive oversupply of property.


In the USA at the moment (where property is declining) 2, 3 and 4 are in place.

In the UK (slow, stable growth) 2 is in place.

In Spain only 4 is in place. For a dramatic decline to take place I reckon interest rates would have to hit 7%, AND a recession would have to emerge across most of europe.

For prices to fall a certain proportion of owners have to be 'forced' to sell because of unemployment and/or unaffordability of the mortgage.

I would say the conditions are nowhere near bad enough to cause a decline. After all, all those cranes are there because people have paid deposits and stage payments.

CDS should expect changes in prices of between -10% and +10% over the next year or so. Some of the cr@ppy places may fall by 20%. Some of the lovely places may rise by 20%.
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Sometimes I sits and thinks - and sometimes I just sits...

[jiminspain]

The decline in demand for overseas property is not unique to Spain, using the Google trends link attached http://www.google.com/trends?q=spanish+property it can be seen that the lack of searches is not just a Spanish phenomenon. You can compare different counties by separating each search by a “comma” e.g. Spanish property,Bulgaria property,Cyprus property the results clearly show that the search trends are almost identical.

I accept that Spain’s reputation and in particular the CDS has been damaged by corruption and over development and would expect this to take 1-2 years before some equilibrium is restored.

The area of the market that will continue to suffer is off plan as potential investors realise there is not a quick buck to be made, for this reason we see that attention is now focusing on sensibly priced, well presented resale’s in good locations, with buyers whose prime interest is not ROI and yields.

Jim
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"Fill what's empty, empty what's full, and scratch where it itches."

[jvmills]

I work as an IT consultant for an estate agent on the CDS and have definitely seen a "cooling off" in the market here. We have also seen a lot of investors turning to emerging markets such as Bulgaria, Turkey and Brazil. As have many of the bigger estate agents (some quicker than others) - as their Spanish property sales are clearly not paying the bills.

On a personal note: I myself am looking to buy on the CDS in 2007, but am looking to buy to live rather as an investment or to earn rental income.

If I thought that over a period of time my property would not increase in value then I would not buy and would instead continue to rent. But I am confident that a) I can find a bargain since it is definitely a buyers' market and b) over the medium to long term it will still prove a sound investment, because despite everything, people still on the whole like Spain.

Just my two penn'orth!

[Melosine]

Following this thread I decided to look at a few resale properties
in my area
Over priced ? Extortionately overpriced would be closer the mark.
All British vendors.

Top of the range fixtures and fittings...whose range? Have seen better in Wickes. Most of these properties need an expert makeover.
Just because the properties are larger than people had in England ,in a sunnier clime, and in many cases has more land , albeit landscaped by using tons of gravel ,why do folk think they can double to price.
No wonder they don't sell.
Estate agents must help the market to become more realistic .
_________________
Always look on the bright side.

[katy]

Ashtondav, point 3 could be in place. According to Diario sur, mortgage interest rates are at their highest since 2002 with another rise in Jan. For every 6000 euros borrowed people are having to pay app. 3.40 euros more per month.

[Aunty Val]

I agree with Ashtondav to a point. I was trying to simplify the reasons (and indeed my argument) for a falling market although there are many and varied underlying factors which affect any property market. The macro economic background together with the micro climate all have an affect on the ability anddesire to purchase or move.

The main issue is that there are less buyers buying (for a variety of reasons) and therefore more properties available (with more being built).

This means that the market will (and has already) fall. End of story.

Until such time as there are less properties available (or more buyers buying) the market will struggle.

As I mentioned in my first post - this is completely localised - if you have a rare property in a popular location you still stand a very good chance of selling (and having to fight off competition is that is what you want to buy).

As with most things in life, it is best not to generalise because there are always examples of "bucking the market" however it is a difficult market and those looking to buy should ensure that they are paying the right price for their new property.

In response to Melosine's post - quite often agents don't set the price of a property, the vendor does. (IMHO this is quite wrong). It may be that those extortiantate prices are fixed by the vendors. (personally I wouldn't take a property on that was so much higher than the market).

No doubt they will become more realistic in the future if they suddenly NEED to sell.

As for JVMills post - I totally agree. Buy because you want to live there. If it makes money in the future then so much the better. But don't bank on it. Enjoy it for what it is - a home.

Aunty

[Melosine]

Aunty
Unfortunately I realise that is true .The vendor does stipulate the price.
That was my reason for stating that EA's should help the market become more realistic not just in price but sales pitch and presentation of properties.
_________________
Always look on the bright side.

[Aunty Val]

I totally agree that agents can play their part.

Sadly many agents in Spain have no basic understanding of property in general, let alone a property market that is in for the toughest conditions in the last 10 years!

Lets hope there are 50% less agents in the coming years but those that survive are the ones that actually do a decent job.

[Rawlins]

Spain is a large country with many areas and cities that contain very few foreign buyers. These areas follow an economic rhythm not seen from the boom-and-bust coast.

To speak of the Costa del Sol as the Spanish property market is like referring to Devon and Cornwall as the British property market.

[Aunty Val]

I completely agree Rawlins - whence my many comments about being a localised business.

I only refer to the CDS becuase it is the closest market to my inland market that has any relevance.