If you are familiar with these bulletins will know that I take a bearish view of certain segments of the Spanish property market.

I expect choppy waters in those areas where there is a high level of both new-build and amateur off-plan speculation, though of course I could be wrong. I also think that a down turn, if it happens, will be temporary as in the medium to long-term I see Spain as the destination of choice for millions of Northern Europeans looking for a better quality of life. But I’m not the only voice in town. In this bulletin’s 2004 review and forecasts for 2005 I summarise the opinions of several leading Spanish commentators on the property market. Whilst they all expect price increases to moderate they also expect 2005 to be another year of respectable growth. So it seems that in comparison to the consensus I am on the lunatic fringe. Let’s hope the consensus forecast is right.

MARK STUCKLIN

Barcelona property up 18.3% and Madrid 7.5% according to Idealista

According to the latest report from Idealista, resale property prices rose by 18.3% in Barcelona and 7.5% in Madrid during 2004. At the end of 2004 the average asking price per square metre for resale property in Barcelona was 3,905 Euros compared to 3,787 Euros in Madrid. This is the first time in 4 years that resale property prices have risen by less than 10% in Madrid (2001: 26.2%, 2002: 28.7%, 2003: 17.3) and property prices actually fell in 7 of the Spanish capital’s districts during 2004. Barcelona has now overtaken Madrid as Spain’s most expensive city in which to buy resale property.

Idealista’s figures are based on asking prices rather than transaction prices but do offer a reasonable proxy for the market.

Home rents in Spain rose 4.1% in 2004, rental yields down

According to the latest figures from Spain’s National Statistics Office (INE) rental prices rose on average by 4.1% in 2004. With inflation of around 3.2% this means that real rental prices increased by 1% in the year.

The largest increases in rents were as follows: Extremadura (5.8%), Madrid (5.1%), Andalusia (4.7%), The Balearics (4.6%), Catalonia (4.4%), Murcia (4.3%) and Navarre (4.2%).

Regions with rental increases below the national average were as follows: Aragon (4%), Galicia (3.7%), Autonomous Region of Valencia (3.6%), The Basque Country (3.4%), Castilla y León, Castilla-La Mancha and Asturias (2,7%), Cantabria (2,2%), La Rioja (1,9%) The Canaries (1,7%).

Given that Spanish property prices almost certainly increased by over 10% during 2004, 6% above rents, it’s clear to see that rental yields are heading South.

Spanish stock market more profitable than Spanish Property

According to the Spanish daily El Mundo the Spanish stock market has outperformed Spanish property for the second year running. Whilst Spanish property values increased on average by 12.5% (a figure obtained from one of Spain’s leading appraisal companies based on property prices in provincial capitals) the IBEX 35 – Spain’s leading stock Index – increased by 17.4%. This despite the fact that in Spain property (bricks) is generally viewed as a better investment than shares (paper).

Since 1988 gross returns on both types of asset have been broadly similar. Whilst Spanish property has increased in value by a factor of 3.35, rising from 682 Euros/m2 to 2,286 Euros/m2, the IBEX 35 has increased by a factor of 3.32, from 2,272 points to 9,080 points.

The article quotes Rupert Lea of the real estate consultancy Cushman & Wakefield Healey & Baker as saying that Spanish small investors continue to prefer property despite similar gross returns from shares: “Investment returns in property are safer and profits are higher” he says. This, it should be said, is a moot point.

The article goes on to explain that Spanish property has not experienced the kinds of shocks know to affect the stock market, pointing out that whilst stocks increased by 54.2% in 1993 they declined by 28.1% in 2002. Declines in property prices over the same period were modest by comparison (-1.5% in 1992 and -0.2% in 1993). Lea is also quoted as saying: “Investors in property are more conservative than investors in the stock market. They are more risk-averse and tend to be people taking refuge in property after bad experiences in the stock market”. However he also says that the Spanish property market needs greater transparency to arrive at a more accurate picture of property values.

Spanish property buyers under-declare prices by 20%

The Spanish financial daily ‘Cinco Días’ reports that Spanish property buyers and sellers under-declare the transaction price in the public deeds by around 20%. According to Ignacio Navas – national coordinator of a body that monitors the property market on behalf of the General Council of Notaries (Observatorio de la Vivienda / Consejo General del Notariado) and the firm of solicitors Garrigues – “people under-declare the price paid in the deeds for fiscal reasons”. This claim, though correct, is bound to irritate the Spanish real estate sector.

Ignacio Navas goes on to say that “there are no reliable statistics for the property market in Spain. The figures provide by the appraisal companies can’t be trusted because these companies overstate property prices to justify larger mortgages not only for buying houses but also to finance general consumption”. Spanish Property Insight made precisely this point in its December 2004 news bulletin.

Euribor falls in December to 2.301%

Euribor – the base rate used in Spain to calculate mortgage repayments fell in December to 2.298%, down from 2.328% in November 2004. Mortgage interest rates remain near their historical low in Spain and the real cost of money, after adjusting for inflation, remains close to zero or negative. Good news for anyone with a variable-rate mortgage in Spain. However experts expect Euribor to rise during 2005, though not to an extent that will cause financial distress for Spanish families, according to the Association of Spanish Mortgage Lenders (AHE).

Euribor table
Month	2003	2004
January	2.705%	2.216%
February	2.504%	2.163%
March	2.505%	2.055%
April	2.411%	2.163%
May	2.252%	2.297%
June	2.014%	2.404%
July	2.076%	2.361%
August	2.276%	2.302%
September	2.258%	2.377%
October	2.303%	2.316%
November	2.410%	2.328%
December	2.381%	2.298%

Spanish Mortgage lending rises 18.7% in October to 16 billion Euros

According to new figures from the National Institute of Statistics, Spanish mortgage lending rose to 16 billion Euros in October 2004, 18.7% more than the same period in 2003. The value of the average mortgage granted in October was 123,975 Euros, an 18.4% rise on October 2003. Over the course of October 128,940 Spanish mortgages were granted, a small increase (0,28%) on the year before but 8,75% less than in September 2004.

On the other side of town the Spanish Mortgage Association (AHE) has announced that mortgage lending increased by 24.5% for the whole of 2004, the largest annual increase since 1996. The Association expects mortgage-lending growth to drop to 17% in 2005.

1 million Spanish properties stand empty claims Minister of Housing

According to Maria Antonia Trujillo – The Spanish Minister for Housing – there are around 1 million unoccupied properties in Spain, a fact that makes housing expensive by limiting supply. She has presented her ideas for making housing more affordable through stimulating the rental market with a government rental agency and tax deductions for renters. She expects her housing plans to be approved by March or April and have the public rental agency operative in the 1st quarter of this year. Her objectives are to make housing more accessible to poorer sections of society such as young couples and to reduce the rate of property inflation to sustainable levels over the long term.

Spanish Business Leaders’ Club rejects government housing plans

Plans announced by the Minister for Housing – María Antonia Trujillo – to make housing more affordable met with general derision from Spanish business leaders (El Círculo de Empresarios). Her ideas include a state-run rental agency to ensure that more property is available for rent, which the club believes will just increase bureaucracy and waste. Claudio Boada, the Club’s President says, “it’s unnecessary and will create distortions in asset allocation which the market does more efficiently”. The Club believes that the only way to make housing more affordable in Spain is to tackle the shortage of land (with building permits) and encourage landlords to rent out their properties by increasing their legal protections.