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Spanish property market report 2004

After 4 consecutive years of double-digit price growth the Spanish property market is beginning to act like it’s on steroids.

According to end-of-year figures from the Government, average Spanish property prices rose by 17.45% in the course of 2004, with price rising by over 4% in every quarter bar the third. After rising by 15.9% in 2001, 18.1% in 2002 and 17.6% in 2003, Spanish property is now 89% more expensive than it was 4 years ago. On the supply side 2004 was another record year with 761,000 housing starts, thrashing last years record of 680,000.

The following table shows how average Spanish property prices have increased over the last 4 years, using 2000 as the base year.

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As this table shows real property prices in Spain (after adjusting for inflation) have increased by double didgits during each of the last 4 years.

Looking further back Spanish property prices have increased in nominal terms every year starting in 1993 – that means 12 consecutive years of nominal property price increases. In real terms Spanish property prices have increased every year starting in 1997. Spanish property prices have only fallen in nominal terms in one year since 1987, and that was in 1992 when prices fell by 7.4%.

The following table shows how Spanish property prices have changed over the last 4 years according to a selection of regions:

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As is to be expected in a country as diverse as Spain prices did not increase at a uniform rate across the country. Murcia was undoubtedly 2004’s hotspot with property price inflation of 27% during the year, well ahead of all other regions. Over a 4-year period property prices in Murcia have more than doubled and are up by 126%, the highest level in all of Spain and well above the national average. After several years of stellar growth the price differential between Murcia and other more consolidated areas like the Costa del Sol and the Costa Blanca has largely disappeared. This fact, combined with a big expansion in the number of properties being built in Murcia, leads me to expect that prices growth in Murcia will slow substantially over the next 2 years.

In second place came Andalusia with prices up by 21% in 2004, its third year on the trot with price increases above 20%. Andalusia was closely followed by the Valencian region with 20.5% and Catalonia with 19.8%. In the middle of the pack were the Balearics with a respectable 16.6%, leaving the region’s title of most expensive coastal area in Spain intact. The Canaries increased by 12.5%, their best performance in the last 4 years. With the virtues of the Canaries being rediscovered I expect them to rise in the rankings this year and next.

In the north Galicia put in another good year with 12% whilst Asturias fell to single digit growth for the first time in 4 years with only 7.8%. On the other hand Cantabria, right beside Asturias, delivered an impressive 18.5% in 2004. There are different factors driving the markets in these neighbouring regions but I have no doubt that Asturias is now good value and will benefit from Easyjet’s arrival on the scene this year.

The following graph helps to illustrate how regional average Spanish property prices compare.

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Spanish property market in 2004 by cities

The following table shows how Spanish property prices in some of Spain’s most important cities have changed over the last 4 years:

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Valencia was way ahead of the pack on 30.5%, with the impact of the America’s Cup being clearly felt as investors pile into the city’s property market. Seville – an increasingly popular destination for overseas property buyers – was second with 24.5%, followed by Malaga with 21%. Madrid was the year’s big loser in the rankings, dropping almost 10% of its growth rate to 15.5%, below the national average and just below Barcelona on 17%.

Spanish Property Market in 2004 – Conclusions

The Government figures only deal in averages and don’t reflect a more nuanced picture emerging from the property market. Estate agents working in areas where foreigners tend to buy report that that 2004, though good, was a more subdued year than the figures suggest, with buyers showing greater caution and more people returning home without buying. Meanwhile the Spanish government is desperately trying to bring about a ‘soft landing’ in the property market and jumped on the fractional drop in property inflation (17.45% compared to 17.6% in 2003) as evidence that its policies are working. Most experts predict that Spanish property prices will stabilise and grow by between 5 and 10% during 2005. The biggest risks to prices lie in interest rate rises, which don’t look imminent, and an oversupply of property, which I believe is more likely to have a local rather than a national impact. I can’t help feeling that the market in some of Spain’s coastal areas will suffer from an over-supply that could put pressure on prices in the short-term.


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