This report aims to provide a snapshot of the current state of the Spanish property market, from an independent, and non-sales perspective. To this end it reviews the Spanish government’s latest figures on the performance of the Spanish real estate market, and contrasts these with observations and anecdotal evidence from Spanish property professionals.
Overview of the Spanish real estate market
Whichever way you look at it the Spanish property market is slowing down. What is not clear, however, is how serious the slowdown is. The lack of reliable, timely data makes judging the market difficult, though it is safe to say that the boom has given way to a buyer’s market. Beyond that, it might be just a soft landing, or it might be the start of something more severe, at least in some parts of the country. It will probably take at least another 12 months before we know for sure, so in the meantime we will just have to keep reading the tealeaves.
However, it is clear that local factors such as supply and the profile of local demand are playing a greater role than during the boom, when all boats tended to rise with the tide. An analysis of the overall market helps to identify broad trends, but buyers and sellers also need to do local research to understand the increasing importance of local market dynamics.
Latest figures on the Spanish property market
The most widely used housing market statistics in Spain are the quarterly figures released by the Spanish government’s Ministry of Housing.
According to the latest government figures, released in July, average national Spanish property prices rose by 5.8% to 2,054.5 Euros/m2 over 12 months to the end of June 2007. On a quarterly basis, average national property prices rose by 1.5%.
Average national property price inflation peaked at 18.5% in the fourth quarter of 2003, and has been declining ever since, with the exception of a small uptick at the end of 2004. National average property inflation rates have now been in single figures for the last 4 quarter, which hasn’t happened since the second quarter of 2001. So the government’s figures, which probably understate the situation, show property prices cooling fast. Cooling prices reflect the fact that sellers are losing negotiating power to buyers.
National figures never tell the whole story, as they disguise significant difference between regional property markets.
On a provincial basis, results spread between an increase of 11.2% in the province of Badajoz (Extremadura), to a fall of 0.2% in the province of Alava (Basque Country).
The following table gives average property inflation rates, and average property prices in €/m2 for a selection of regions and province popular with foreign buyers.
|REGION / PROVINCE||PRICE €/M2||ANNUAL % CHANGE|
According to the government’s figures, ‘emerging’ regions such as Granada, Extremadura and Murcia are still growing robustly at close to 10%, whilst traditional destinations such as Malaga and Alicante have fallen to the bottom of the table. This is a reversal of the situation in 2003, when Malaga and Alicante were two of the strongest regions, with price increases of over 20%. High prices and over development in traditional areas have pushed buyers to new regions.
Taking the government’s figures at face value, it appears that property prices are still increasing at between 5% and 10% in most popular areas, with the exception of Malaga and Alicante. Note that the general consumer inflation rate in Spain is 2.4%, so real price increases are reduced by this amount. After adjusting for inflation, real property prices are falling slightly in Alicante, and only increasing by 1.5% in Malaga.
Looking at other housing market statistics, the Spanish property portal Kyero.com publish a house price index based on the asking prices of some 80,000 properties in its database. According to Kyero’s house price index average national asking prices for 1 and 2 bedroom properties fell by 2.9% and 3% respectively over 12 months to the end of June, but rose for other types of property. Compared to the end of March, asking prices for all types of property rose, as shown in the following table:
|TYPE OF PROPERTY||AV. PRICE JUNE 07||ANNUAL % CHANGE|
|1 bed||€ 146,742||-2,9%|
|2 bed||€ 205,125||-3,0%|
|3 bed||€ 273,333||3,3%|
|4 bed||€ 366,000||10,4%|
|5 bed||€ 450,626||12,7%|
These figures suggest that the glut of flats, most of which are 1 and 2 bedrooms, is putting prices for these types of properties under the most pressure, whilst bigger properties, especially detached villas, are doing better.
The Spanish property portal idealista.com publishes a quarterly report on the asking prices of property in the cities of Barcelona, Madrid and Valencia. Property asking price movements in Spain’s 3 largest cities are an important indicator of market sentiments, and a barometer for the overall market. According to Idealista’s figures, property prices in the last quarter rose by just 0.1% in Madrid, fell by 1.3% in Barcelona, and rose by 1.2% in Valencia, where prices still rising due to the America’s Cup, and the Formula 1 announcement. These figures are the worst on record from Idealista for Barcelona and Madrid, and provide further evidence of a substantial slowdown in the Spanish property market.
Anecdotal evidence suggests that the downturn in Barcelona is worse than these figures suggest. Buyers and vendors report that price are down between 5% and 10%, and sales at one of the largest estate agents in the city are said to have collapsed by around 90%.
With interest rates still rising, it is unlikely that property prices will rise in Barcelona and Madrid until incomes catch up with property prices, which could be years off.
An interesting insight into the market comes from Spain’s property registry, in its recently published report on the Spanish property market in 2006. According to this report, there were 916,130 property transactions (deeds signed in front of a notary and inscribed in the property register) in Spain last year, down 7.23% compared to 2005, with new build transactions falling by 10.11% (to 389,594), compared to 4.97% for resale property transactions (to 526,509). Fewer transactions show that the property market is shrinking in response to rising interest rates and higher prices, and that new build sales are suffering the most in the present market.
Another interesting statistic to emerge from the Property Registry’s report is that Britons purchased some 22,628 Spanish properties in 2006, by far the biggest group of buyers after the Spain. British purchases represent almost double all other European purchases put together. The next biggest national group were the Germans, who bought 12 properties in Spain for every 100 bought by the British.
The statistics available paint a picture of a soft landing in progress, in which Spanish property price rises are converging slowly on the general inflation rate. However, anecdotal evidence from property professionals suggests that the market is much weaker than the figures suggest, at least in some areas, and for some types of property. Areas with a glut of new apartments appear to be struggling the most
Meanwhile, mortgage interest rates are still rising, and planning approvals, at around 200,000 per quarter this year, are still far too high. This is likely to put further pressure on the market, and increase the risk of more serious problems in the next 1 or 2 years. On the other hand, the Spanish economy is still growing strongly, with unemployment falling, and against this background it is unlikely that the Spanish property market will crash. The big question, however, is what will happen to Spanish economic growth when construction activity falls, as it must (some 18% of Spanish GDP is housing related, compared to an average of around 9% of the EU). If Spain goes into a construction-lead recession in the next 2 years, which cannot be ruled out, then property prices in the most over developed areas could fall by 20% or more.
Despite the high level of construction activity in Spain, the supply of quality property is scarce, especially in popular coastal areas. A combination of poor urban planning and unimaginative developers churning out identikit apartments has blighted vast swathes of the Spanish coast, which now looks like a wall of cement in many areas. Price differentials between the pockets of quality and the rest are likely to increase, with quality property rising in value, whilst the rest of the market stagnates at best. Under the circumstances, the present buyer’s market might be a good time to find quality property for a reasonable price. Having said that, buyers need to be aware that there are still many overprice properties on the market, so detailed local research is key to identifying value.
© Mark Stucklin (Spanish Property Insight)