Costa del Azahar property market


June 2007

The property market in Castellón has been booming for 10 years, just like the rest of Mediterranean Spain. According to government figures, average property prices in Castellón have more than tripled in the last decade, doubling in the last 5 years alone. By the end of 2006, the average cost of property in the province had risen to 162,893 Euros, and the price per square meter to 1,689 Euros.

Unlike other Mediterranean provinces, Castellon’s property boom has taken place largely without any help from British holiday home buyers, who have played a key role in driving demand and property prices in other Mediterranean holiday home hotspots such as Malaga (Costa del Sol), and Alicante (Costa Blanca).

Without an international airport in the province, Castellón has struggled compete with well-established destinations such as Malaga and Alicante for tourists and holiday homebuyers. According to government figures, just 3,000 foreigners bought property in Castellon province in 2006, compared to 9,000 in Malaga, and 23,000 in Alicante.

Fortunately, there is strong local demand for holiday homes amongst Spanish buyers from cities like Castellón de la Plana, Valencia, Zaragoza, and Madrid. And mercifully, this means that the Costa del Azahar has not lost its Spanish character, unlike large parts of the Costa del Sol and Costa Blanca.

Demand for housing in the province is not just limited to holiday homes. Largely due to the ceramics business and domestic tourism, Castellón province has a strong local economy, and one of the lowest levels of unemployment in Spain. Robust economic growth, and a tight labour market that has been sucking in immigrants, have increased demand for main homes in the province. Increasing prosperity, in turn, creates local demand for holiday homes on the coast.

Nevertheless, a lack of foreign buyers in the past might explain why Castellon’s property market never overheated to the same extent as other coastal regions, despite a strong local economy. Official figures show that property prices increased by 236% in Castellón over the 10 years to the end of 2006, somewhat less than Malaga (322%), The Balearics (263%), and Murcia (245%). This means that, relative to other ‘costas’, property on the Costa Azahar has become more affordable, and better value.

For example, in 1996, the average property in Castellón cost 94% of the average property in Malaga. By 2006, average property prices in Castellón had fallen to just 75% of the average price in Malaga, despite building standards and materials that are, if anything, of a higher quality in Castellon. This means that the average property price differential between the Costa del Sol and the Costa del Azahar has increased by 19% in favour of the Costa del Azahar.

In line with the rest of Spain, the property market in Castellón now appears to be cooling down. On a national level, annual property prices inflation has fallen from a high of 18.5% in 2003 to 9% at the end of 2006. In Castellon, price increases have slowed from 18.5% in 2005 to just under 8% in 2006.

But the official figures have to be taken with a pinch of salt. The reality is that local property markets in many coastal areas are not as healthy as the official figures suggest. Property professional working on the Costa del Sol and the Costa Blanca report that prices for many types of property are stagnant or falling, in response to lower foreign demand, and an increase in the supply of new properties.

On the Costa del Azahar, however, the property market faces the ‘post-boom’ future in a stronger position. There is no doubt that the market is cooling down, as it needs to after 10 years of growth, but prices are still firm. The robust local economy is still creating demand for housing, and the number of foreign buyers coming to the region looks set to increase, rather than decrease.

“Property prices are still rising, though not as much as before,” explains Jose Luis de Miguel, MD of Valencian developers Onofre Miguel, and President of Urbe Desarrollo – one of the largest property fairs in Europe. “Moderate price increases are good news, because they encourage buyers, but don’t encourage speculation.”

Off-plan speculators who distorted demand are one of the reasons why places like the Costa del Sol are struggling today. Up to 50% of more of sales in areas popular with British buyers during 2003 and 2004 involved foreign investors buying one or more properties off-plan to sell on before completion. This caused developers to over-estimate demand, and over build in many areas. This has not happened to the same extent in Castellón.

“The amount of new construction in this area is relatively modest,” says de Miguel. “The countryside on the coast, with the hills coming down to the sea, also discourages too much building back from the coast.”

According to Spain’s professional association of architects, there has been a total of 88,420 planning approvals in Castellon over the last 5 years, compared to 224,500 in the province of Alicante, and 228,000 in Malaga province. Driving along the coast to the north of the city of Castellon there are still long stretches of the coast that have not been developed. There are also pockets of misguided development that are clearly visible, but they are relatively modest compared to the norm in coastal areas further south.

There are plans afoot to increase the number of golf developments in the area, but with the market now cooling down it is unlikely that all the planned developments will begin at the same time, and risk flooding the market, as has happened in Murcia.

On the demand side, a new international airport under construction at Vilanova d’Alcolea, in the heart of the Costa del Azahar, is expected to give demand a major boost.

With a strong local economy, and the region opening up to house hunters from abroad, the future for the Costa Azahar’s property market looks good.

© Mark Stucklin (Spanish Property Insight)