Bubbles in real estate? A Longer-Term Comparative Analysis of Housing Prices in Europe and the US

The Centre for European Policy Studies has published a report in October examining whether the Eurozone can expect a housing market downturn similar to the US. The report argues that the Eurozone is not immune from a downturn, and that certain countries, like Spain are Ireland, are particularly vulnerable. It finds that Spain and Ireland face a massive housing overhang that is likely to lead to a sharp deceleration of construction demand, which will have a negative impact on economic growth. For more detail on this report see my latest Spanish property market report.

Spanish property price inflation continues to slow

Spanish property prices are still rising in many areas but at a much slower rate than before, according to the latest figures from a variety of sources. The official figures from the Spanish Ministry of Housing show that average Spanish real estate prices rose by an annual rate 0.3% in the third quarter of 2007, down from 1.5% in the previous quarter. On an annualised basis they rose by 5.3% in Q3 2007 compared to 5.8% in Q2 2007, and compared to 9.1% at the end of 2006 (and a high of 18.5% in 2003). According to the Spanish real estate portal idealista.com, which publishes quarterly changes in property asking prices in leading Spanish cities, asking prices in Q3 fell  in Barcelona by 0.5%, in Madrid by 0.9%, and Valencia by 0.7%. According to asking prices figures from the Spanish property portal Kyero.com, average national asking prices fell by 0.6% in Q3 (though with wide difference between regions and types of property), whilst figures from the portal Fotocasa show prices falling by 1.6% in Q3. Anecdotal evidence suggests that prices falls are much bigger in some popular coastal areas such as the Costa Blanca and the Costa del Sol. For more information on recent property prices changes in Spain see my latest Spanish property market report.

Developer of Marina d’Or under investigation

The Spanish press reports that Jesus Ger, the promoter of the Marina d’Or development in Castellon province on the Costa Azahar, is under investigation for urban planning corruption and bribery. Also implicated are former members of the Oropesa town council, including Rafael Albert Roca (former mayor of Oropesa), Tomás Fabregat Benages (former councillor for town planning), and various other municipal officials including the municipal architect.

The Marina d’Or development, which the promoter markets as ‘Holiday City’, is at the cheap end of the market, and is targeted towards holiday home buyers and investors in Spain and around Europe. Marina d’Or has sales offices in prestigious locations in Spanish cities like Madrid, Barcelona, not to mention European capitals like London.

Government revenues from Spanish stamp duty fall by 6%

Government revenues from Spanish stamp duty on resale properties (known in Spain as el impuesto de transmisiones patrimoniales, or ITP) fell by 6% in the year to August. This implies that the number of resale property transactions “have probably fallen, both in number and value,” according to a government official quoted in the Spanish press.

Spanish land prices set to fall

Spanish land prices are under pressure, reports the Spanish daily ‘El Pais’.

Big Spanish promoters are selling land because they need cash to meet debt payments and improve their financial results. This is increasing the supply of land on the market at a time when demand is falling, creating a negative feedback loop that puts further pressure on prices. Furthermore the fall in property sales will deprive developers of funds to invest in land banking, according to Professor Gonzalo Bernanrdos, quoted in the article. “The risks are rising and the returns falling for speculators. The rising market will turn into a falling market,” says the Prof.

Spanish council taxes on property owners rising

70% of provincial capitals have raised council taxes on property owners to compensate for falling revenues from building licences and property sales, reports the Spanish financial paper La Gaceta De Los Negocios.

Building licences and other taxes relating to construction are one of the main sources of finance for municipal authorities in Spain, and as the market slows down and housing starts fall town halls are struggling to generate income. As a consequence 35 out of 52 provincial capitals have raised property rates (known in Spain as el impuesto sobre bienes inmuebles, or IBI) this year, so property owners are paying more to make up for the shortfall in revenues from new construction. Town halls can raise your rates by either increasing the taxable value of your property (known in Spain as the valor catastral), or by raising the tax rate. Town halls are using both methods, sometimes both at the same time.

Leading Spanish real estate agent Don Piso downsizes

Don Piso, one of Spain’s largest real estate agents, is closing offices and shedding staff in response to a difficult market, reports the Spanish financial paper El Economista. Don Piso has closed 26 offices, laid of staff, and reduced its marketing budget in an attempt to cut costs. Demand for property has fallen 75% says company spokesman Emiliano Bermudez, who blames the fall on banks that “now don’t give 100% mortgages plus costs, only 80% mortgages,” which has “excluded many immigrants who need a house from the market.”

Property valuations 30% too high

The Spanish property boom has lead to inflated property valuations that are some 20% to 30% above true market values in the case of resale properties, reports the Spanish financial paper Cinco Dias. “The false prophets of real estate appraisal” are to blame for inflating property prices.

Spain still top overseas destination for British property buyers

A recent survey by Yorkshire Bank reveals that Spain is still the number one destination for Britons looking to buy a home or property investment abroad, with 45% of respondents choosing Spain. This shows that, despite all the negative publicity in recent years, Spain is the perennial favourite for British buyers.

In the poll of 1,000 people:

• 43% were thinking of buying property abroad
• 55% said the dream of a more relaxed lifestyle was their main motivation
• 31% said they would buy as part of a retirement plan, and 32% as a long term investment
• 15% said they would buy abroad to get on the property ladder
• 44% said they feared being ripped off, and 34% were concerned about negotiating in a foreign language

Large developers warn of giddy increase in property prices

Fernando Martin, president of G14 – a lobby group representing the largest developers in Spain – says that new properties will not fall in price, and that interest rates will not rise any further, reports the Spanish daily ‘El Pais’. “Two years from now property prices will rise dramatically if urban planning procedures are not streamlined,” says Martin, who goes on to say that “For every property that is not built between 2 and 2.4 jobs are lost. The first to lose their jobs will be the immigrants, which will generate serious social conflict”.

45.4% of household income spent on putting a roof over head

Spanish households now spend 45.4% of gross disposable income on putting a roof over their heads, according to new figures from the Bank of Spain. This is the highest amount on record, and compares with 35% in 2004.

Consumer group stresses need for off-plan buyers to get bank guarantees

The Spanish Consumer Union (UCE) has warned that the majority of Spanish constructors and developers do not provide a bank guarantee or insurance policy for stage payments received from off-plan buyers, despite a legal requirement to do so.

With the Spanish property market deteriorating, and developers like Urbancasa and Llanera going bust, UCE points out that bank guarantees are now more important than ever, and recommends that property buyers insist on bank guarantees for their stage payments.

“The cases of bankruptcies are especially worrying as affected buyers might not be able to recover their money if they don’t have a bank guarantee of insurance policy,” says the organisation.

87% of Spaniards prefer buying over renting

A new survey by market research firm TNS-Demoscopia for RTVE confirms that the majority of Spaniards, 87% to be precise, prefer to buy rather than rent a property. 80% of the survey do not expect Spanish property prices to fall, and more than half of those who own a second home prefer to keep it empty rather than rent it

Sound proofing required in new buildings from 2009

The Spanish government has introduced new regulations to increase the sound insulation of all new buildings in Spain. Developers now have a 12 month grace period in which adopting the new standards is voluntary. When this period runs out the new standards will be mandatory, and are expected to increase build costs by between 0.33% and 0.75%.

Sound proofing required in new buildings from 2009

Blevins Franks update on Spanish succession tax + read more

Spanish mortgage news

Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – dropped last month to 4.647%, the first monthly fall since September 2005. This is due to the recent decision of the European Central Bank not to raise interest rates in the aftermath of the summer credit crunch, and will mean slightly lower monthly mortgage payments for borrowers whose mortgages reset in the next few months. Euribor is still 22% higher than it was a year ago, and 121% higher than in June 2004.

© Mark Stucklin (Spanish Property Insight)