Spanish property market report Q2 2006

This is an interim report intended to give potential buyers and sellers of Spanish property a snapshot of the current state of the Spanish property market, from an independent (non-sales) point of view. To this end it reviews the Spanish government’s latest figures on the performance of the real estate market, and contrasts these with observations from Spanish property professionals and other individuals currently involved in the market.


Official figures show average Spanish property prices still rising by just over 10% per year in nominal terms (6.7% in real terms), whilst the Spanish property inflation rate slows.

Property professionals working in areas popular with foreign buyers – principally the costas – report a different picture. They report that that market is very slow or stagnant, with an excess of supply over demand in many areas, and stable or falling prices. Properties are taking time to sell, and cash buyers in a position to complete quickly can negotiate significant discounts from asking prices.

The Spanish government’s latest figures

Average Spanish property prices increased by 2.9% in the 2nd quarter of the year, and by 10.8% in nominal terms over 12 months to the end of June 2006, according to the latest figures from the Spanish Ministry of Housing. This raises the average cost of property in Spain to 1,942 Euros/m2, up from 1,753 Euros/m2 at the end of June 2005. With inflation in Spain running at 4.1%, the real increase in Spanish property prices over the latest 12-month period was 6.7%. After the latest increases, Spanish property is now 102% more expensive than it was 5 years ago.

Despite the latest double-digit price increase, the underlying trend is towards a slowdown in Spanish property price inflation. Spanish property inflation rates have fallen for 6 consecutive quarters, from 17.2% at the end of 2004, to 10.8% at the end of June 2006. If this trend towards a ‘soft landing’ for the property market continues, as the government expects it to, then real property price increases in Spain (after adjusting for inflation) will be close to zero in a year or so.

As always, there was a considerable difference in performance between autonomous regions. Having been one of Spain’s star performers between 2001 and 2004, with price increases of over 20% per year, Madrid spluttered to a feeble 7.5% – well below the average of 10.8% and only just above the consumer inflation rate. At the other end of the scale was Galicia, with property price up by 19.3% over the last 12 months, the highest 12-month gain in Galicia on record. It appears that Madrid and Galicia have switched places.

Ä summary of 12-month property price increases for selected regions is as follows:

Average property price increases over 12 months in % terms:

Andalusia 11.1%
Murcia 8.7%
Valencian Region 10%
Catalonia 13.2%
Balearics 11.3%
Canaries 8%
Galicia 19.3%
Asturias 12.3%
Cantabria 11.7%
Madrid 7.5%
Extremadura 9.1%

By province, the best performer was Lugo in Galicia, with price increases of 37.6% over 12 months, and the worst performer was Tenerife in the Canaries, with just 5.6%. Prices actually fell by 0.2% in Tenerife in the 2nd quarter of 2006.

Market feedback

Whilst the government’s figures show property prices increasing by around 10% on the popular Costas, property professionals in these areas report that prices are stagnant or even falling for most types of property. According to professionals working in the business, the price expectations of vendors are now unrealistic, and until these come down the market will stay flat. There are now signs that vendors are starting to accept substantial discounts in order to make sales, and we can expect this trend to continue in the short term. So despite the government’s figures it appears we are in a buyer’s market. Buyers can shop around, take their time, and make aggressive offers.

The buyer’s market, however, only applies to properties in second or third tier locations. For the small number of properties in the very best locations, for instance beachfront walking distance to shops and restaurants, the market is still hot. Properties in top locations appear to be still selling fast, and prices for these properties are firm. Sales of super-luxury properties costing millions of Euros in exclusive areas of the Balearics and the Costa del Sol are also going well, as Europe’s growing number of multi-millionaires still choose Spain as the place to buy their holiday homes.

Other factors

Interest rates. Base rates in the Euro-zone have now risen to 3%, a rise of almost 50% in just 8 months. Mortgage repayments on variable-rate mortgages will also have risen by 50%, and this is bound to cool demand for property in Spain by increasing the total cost of buying property.

Housing starts. Although the number of housing starts in the first quarter of the year fell by 3.6% to 155,311 compared to the first quarter of 2005, the rate at which new properties are being built in Spain is clearly unsustainable. It does not help that so many new properties are being built at a time when demand is clearly cooling. The number of new properties coming on to the market is likely to put downward pressure on prices.


For the bulk of the market prices are too high and there are too many properties chasing to few buyers. This situation will continue at least for the remainder of the year, if not longer. Cash buyers in a position to complete quickly are starting to find that vendors are prepared to accept figures that are substantially lower than their asking prices. Prices may yet go lower, at least in real terms (as inflation erodes the real value of stagnant prices), but it is already possible to pick up attractive properties in reasonable locations for less then they cost a year ago.

© Mark Stucklin (Spanish Property Insight)

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