The signals coming from the Spanish property market are mixed. On the one hand the latest government figures show big price rises in most areas implying robust demand whilst on the other hand estate agents polled by Spanish Property Insight talk of lengthening sales times and falling sales activity compared to 2003. Meanwhile both the European Central Bank and the Bank of Spain have expressed concern over Spanish property prices leading me to wonder where we are in the price cycle. It could be that the market has already peaked and is on its way down; the official figures might not yet reflect this whilst estate agents on the front line would certainly be feeling the pinch. Or perhaps there has been some sort of ‘paradigm shift’ in the Spanish property market due to structural changes (demographics, mortgage innovations, interest rates, expanding European market, etc.) that justifies much higher property values than we have today (akin to the new economy shift in the late 1990’s, which of course turned out to be no shift at all). Most ‘experts’ are forecasting price increases this year and next year, though at a reduced rate of growth. For what it is worth I expect prices in some areas to hit the wall and then slither down, which in a way is what the industry needs to smoke out the cowboys and teach investors once again that there is no such thing as a risk-free investment.

MARK STUCKLIN

European Central Bank warnings over house price inflation in Spain

In its September news bulletin the European Central Bank has expressed concern over the level of residential property price inflation in Spain, pointing out that Spanish property prices rose at a rate of two and a half times the Euro Zone average in 2003. Whilst Euro Zone average residential property prices increased by 7.2% in 2003, average Spanish property prices rose by over 17% in the same period – the largest increase of any country in the Euro Zone. Spain also delivered the highest price rises in the Euro Zone over a 5-year period from 1999, followed by Ireland, Luxembourg, The Netherlands and Greece. However whilst figures for 2003 show a slowdown in price increases for The Netherlands, Greece and Ireland, in Spain prices continued to grow strongly. The ECB news bulletin concludes that: “The rapid pace of residential price increases in some Euro area countries warrants a close monitoring of housing market developments in these countries, given the potential implications for these economies and for the Euro area as a whole.” The latest available 2004 quarterly data for Spanish property prices show strong increases continuing.

Bank of Spain claims property to be 20% over valued

The Banks of Spain’s director of research, Sr. José Luis Malo de Molina, has claimed that property in Spain could be as much as 20% overvalued, a situation that creates risks for Spanish households. The solution in his opinion is to address the lack of land classified for property development and reduce perverse fiscal incentives that undermine the rental market. At the same time Moody’s – an international ratings agency – has claimed that the level of mortgage lending in Spain is unsustainable.

Average prices up by 17.42% over 12 months according to Ministry of housing

A new press release by the Spanish Ministry of Housing reveals that the average price per square metre of residential property in Spain (both new build and resale) increased to 1, 614.63 Euros at the end of June, a 17.42% increase on 2002. Nevertheless this represents a lower growth rate compared to the 18.7% increase in property prices between June 2001 and June 2002. The regions with the highest price rises in the 12 months to the end of June 2004 were Murcia (+25.71%), Andalusia (+21.46%) and Madrid (+19.12%). The cities with the highest price rises were Málaga (+27.48%), Valencia (+23.14%) and Sevilla (+21.17%). On average prices of new properties (less than 1 year old) only increased by 16.73% showing that older properties were the best performers.

Experts believe property prices will continue to increase until 2006

According to the Spanish Property Market Statistical Yearbook property prices in Spain will continue to increase until 2006, albeit at a lower rate than recent years. The yearbook forecasts that price increases will stall after 2006 and that the average time it takes to sell a property will increase by 33%.

240,000 new households a year expected in the future

New research commissioned by the Spanish Association of Developers and Constructers (APCE) expects 240,000 new households to be created every year in Spain. Of these 197,000 are expected to be Spanish families and 45,000 immigrant families. The study also forecasts that 200,000 second homes will be sold in Spain each year.

Experts say no cause for alarm even when property prices decline.

Spanish property experts consulted by the trade magazine ‘Inmueble’ believe that property prices in Spain are unlikely to decline significantly, even in difficult market conditions. The reason being that low interest rates and long mortgage terms in Spain mean that financial distress of owners is far from likely, even in difficult market conditions. High interest rates and financial distress of property owners are some of the biggest causes of property market crashes.

British buy 40% of all newly built Spanish coastal properties in 2003

According to a recent report by Barclays bank 40% of all newly built Spanish coastal properties sold in 2003 were bought by the British. The report argues that greater wealth from rising UK property prices coupled with low interest rates in Europe and new low cost airline routes that drive down access barriers have increased demand amongst British buyers for European second homes. The average cost of a property in Spain in popular tourist destinations was 130,000 Euros whilst in France it was 120,000 Euros.

Property the 3rd biggest concern for Spaniards after unemployment and terrorism

A study by the Spanish Centre for Sociological Research based on interviews with 2,479 Spaniards reveals that property prices and access to housing concern Spaniards more than any other issue bar unemployment and terrorism. However it should be noted that the level of concern was down compared to previous studies.

Sales value of property on Spanish golf courses reaches 5.9 billion Euros

According to a report by the consultants DBK the number of properties offered for sale on Spanish golf courses rose to 25,000 units in 2003, up from 14, 000 in 2001 – A 79% increase in 2 years. By region Andalusia and Murcia offer the greatest number of golf course properties with 7,800 and 7,650 units respectively. The Autonomous Region of Valenica comes 3rd with 3,350 units.

Spanish interest rates 1.2 points lower than rest of Euro Zone

Mortgage interest rates in Spain have been between 0.6 and 1.2 points lower than the Euro Zone average since 1996, according to statistics released by the European Central Bank. The president of the Spanish Association of Mortgage Lenders, Sr. Gregorio Mayayo, points out that lower mortgage interest rates mean that mortgage borrowers in Spain have paid 3.8 billion Euros less in mortgage payments over this period as a group then borrowers in the rest of the Euro Zone.

Euribor declined in July and August after 3 months of increases

Euribor (Euro interbank offered rate) – the most common reference rate for calculating mortgages in Spain – declined to 2,361% in July and 2.302% in August after 3 previous months of steady increases. Euribor touched a historic low of 2.014% in June of 2003.

Only 1 in 4 Spanish households have an outstanding mortgage

A recent report by the Bank of Spain shows that only 25% of Spanish households have an outstanding mortgage implying that most Spanish property owners are unaffected by changes in mortgage rates and can only benefit from rising property prices. Of the owners that do have a mortgage 10% of them have to pay 40% of their earnings to financing their mortgage, whilst another 10% only spend 10% of their earnings on financing a mortgage.

Young Spaniards need 30 years to pay off mortgages

The latest report on social indicators by the Spanish National Institute of Statistics (INE) reveals that average property prices in Spain rose by 80.25% between 1999 and 2003, meaning that first time property buyers need an average of 30 years to pay off their mortgages, double the time needed 20 years ago.

Promoters failing in their obligation to provide buyers with information

According to a new study by the Spanish Organisation of Consumers and Users (OCU) based on a sample of promoters (63 developments in 10 Spanish cities) many developers in Spain are failing to meet legal requirements that govern the type of information and documentation they have to provide to buyers. For instance several developers failed to provide buyers with a copy of the sales contract (contrato de compraventa) in advance of signing a reserve contract. Furthermore only 24% of developers provided buyers with commitments in writing on delivery dates, whilst 70% of developers used terms such as ‘approximate delivery date’ and other wording that allow them to over run delivery dates without penalty.

Puerto Banús has most expensive commercial property in Europe

With a reputation for luxury tourism, 4 million visitors in 2003 and only 600 commercial properties, Puerto Banús has the highest commercial property prices of any marina in Europe (between 18,000 and 60,000 Euros / m2 depending upon location), beating comparable locations in ports such as Cannes, Mónaco and Saint Tropez as well as Spain’s most expensive streets in Barcelona and Madrid.

Construction industry contributes 15% of Spanish GDP in 2003

The Spanish construction sector contributed 15% of Spanish GDP in 2003 with a value of 131 billion Euros – the highest level in recent years. Of total construction activity in 2003 22% was public works and 78% private sector construction projects. It is estimated that the building industry accounts for 1,855,000 jobs, the equivalent of just under 11% of total employment in Spain. These figures demonstrate just how dependent the Spanish economy is on the construction sector, along with tourism.

2003 record year for foreign investment in Spanish property

In 2003 foreigners invested over 7 billion Euros in Spanish property, the equivalent of 0.95% of Spanish GDP. This is the highest annual foreign investment on record and represents a 16.7% increase on 2002, which in turn was 27.7% more than 2001. In the last 4 years foreign investments in Spanish property by value have more than doubled, rising 135% from the 3 billion Euros invested in 1999.

© Mark Stucklin (Spanish Property Insight)