There is still no real sign of the expected slowdown in the Spanish property market, at least as far as the official figures provided by the Spanish government are concerned. Figures from the Spanish ministry of housing for the 2nd quarter of 2005 show that property prices increased by 4% in the quarter, which on an annualised basis translates into an increase of 13.9%, down only slightly from the 15.7% in the 1st quarter of the year. Indeed in its most recent bulletin the Bank of Spain has argued that it is premature to talk of a sustained trend towards lower levels of Spanish property price increases, despite the fall in the annualised rate of property inflation from 15.7% in the 1st quarter to 13.9% in the 2nd.
Although the rate of property price increases has slowed in recent months the Banks states that “Given the recent introduction of the new series of price statistics now being used by the Ministry of Housing – in principle more volatile than the old series – it is still too early to talk of a definite change in price trends”. Nevertheless the Bank continues to warn of the risks resulting from the high levels of household debt. In the 1st quarter of the year household debt increased by close to 20%, mainly as a result of increased mortgage borrowing, which increased by 24%. The Bank identifies the increasing financial burden of debt and inflated property prices as the main threats to household spending in the medium and long term.
Though average Spanish property prices increased in the last quarter, there were significant variations in performance by region. The best performance over the last 12 months to the end of June came from Castilla La Mancha- a landlocked region to the west of Valencia and Murcia that attracts very little attention from Overseas investors. Foreign investors would almost certainly have missed out on Spain’s star performer over the last 12 months, – the province of Albacete – where prices increased by 36.4%. It is not yet clear what is driving price increases in Albacete, though it is likely to be temporary factors, so foreign investors should not rush to find it on the map as the boom is likely to have passed before they get there.
Of the regions better know with British investors Valencia delivered the best results with overall increases of 5.8% in the last quarter and 20% over 12 months. Within the region of Valencia the best performers were the province around the city of Valencia – no doubt influenced by the America’s cup – and the northern province of Castellon, where major development and infrastructure projects are underway. Investors in Spanish property looking to get ahead of the pack would do well to consider this comparatively unknown coast to the north of Valencia. Water is relatively abundant, compared to other regions at least, and planned golf course developments and a new airport will add value to an area that has been traditionally overlooked and left to Spanish buyers from inland areas of Aragon, Catalonia and Valencia.
Andalusia delivered another respectable quarter of increases, with prices up 16% over 12 months to the end of the quarter. However, for the first time in years the province of Malaga – home to the Costa del Sol – delivered the region’s weakest performance, with prices increases of 12.4%. Cordoba and Cadiz were the best performers, both enjoying increases of over 20%, followed by Jaén with 18.4% and Almeria with 17.7%.
Overall annualised price increases in other well known regions popular with investors were 18.9% in Murcia, 15.1% in The Balearics, 14.3% in Galicia, 14.1% in The Canaries, and 11.4% in Catalonia, though within Catalonia the province of Girona, where the Costa Brava is located, clocked up an 18.4% increase over the year.
It should be pointed out that other sources of market information, such as interviews with estate agents, paint a very different picture from the Government’s statistics. Estate agents working in many popular coastal areas report a flat or falling market, with a noticeable drop off in interest from British buyers. There is no doubt that this reflects the weakness in the UK housing market, and increased concern amongst buyers regarding over-development and unprofessional practises of estate agents and developers in Spain. Areas that are not over-dependent upon foreign buyers, such as Catalonia and Spain’s interior, are the least affected and are continuing to perform well.
© Mark Stucklin (Spanish Property Insight)