On the Verge of the Slump

This is an English translation of an excellent article by Øystein Krogsrud
recently published in the Norwegian business paper ‘Dagens Næringsliv’. It looks at the discrepancy between official price figures and market realities.

On the Verge of the Slump

By Øystein Krogsrud

Prices are dropping: Spain’s official property price statistics show that property prices continue to rise in Spain. However, everything points towards erroneous statistics and that the fall has begun and the downturn will continue.

The average Spanish house prices rose by 3.8% last year and 0.8% during the last quarter, according to new statistics from the Spanish Department of Housing. However, the evidence shows that the Spanish property price statistics give a false picture of the actual situation. ‘The official property price statistics are based on evaluations given by so-called independent evaluators in connection with the finance or refinance of a property. There is every reason to believe that these figures paint a more positive picture than is called for,’ says Mark Strucklin of spanishpropertyinsight.com

For example, the official Spanish price statistics say that property prices in the town of Fuengirola on the Costa del Sol have experienced a yearly growth of 0.6%. But Erling and Bente Lomsland have not received a single offer on their townhouse in Fuengirola, which was put on the market a year ago for 420,000 euros. The asking price was recently reduced to 390,000 euros but so far this has not helped to generate more interest in the property. ‘There is no doubt that house prices have dropped this past year, and I think that they have to come down still further. The estate agents that we have spoken to have told us that they’re not selling anything, but they are renting a lot of properties,’ says Erling Lomsland who works shifts in the North Sea and wants to sell the townhouse and buy an apartment.

Apparent Price Drop
Holger Vestøl, of the Spanish division of Norsk Megling and also sales director for the Spanish real estate company Blue Sky Properties, sells properties along large parts of the Spanish coast line. His main market is Malaga province, which has seen a property growth of 4.2% since last year according to the official Spanish property price statistics.

‘We get daily phone calls from customers who wish to reduce the price of the properties they have for sale. We are also selling properties that cost less today than when we sold them the last time five years ago. There has to be something wrong with the statistics because it is obvious that prices have dropped,’ says Vestøl.

Despite many price reductions, the majority of those with property for sale in Spain are refusing to lower the prices to a level that will ensure them a sale. The sale of existing homes was down 34% in February compared with the previous year, according to Mark Stucklin of spanishpropertyinsight.com. It would seem that buyers are not willing to pay what vendors demand, and vice versa.

The fall in the number of transactions began in the second quarter of 2006 according to Martin Dell of property portal kyero.com, and it would appear that the turning point for the Spanish property market was actually reached two years ago.

The Right Time Will Come
Stucklin of spanishpropertyinsight.com feels that property prices in Spain have already dropped significantly. ‘We are all trying to peer through the mist as far as Spanish property prices are concerned, because of the lack of reliable statistics. My best information would be that the average prices have already fallen by 5 – 10% and in some places as much as 20%, particularly for properties in less attractive locations. Attractive properties in popular locations are faring the best.’

The Spanish-based estate agent Holger Vestøl believes that the downturn will continue. ‘It will take at least one to two years before all this is over. It will be a good time to buy property in Spain in one to two years, but it will be up to the individual to choose the right time.’

Holger Vestøl believes that it will take another few years before the market turns. ‘But then it will be good to buy property in Spain,’ says the Spanish-based estate agent.
Under the photo of the man by the beach

Dubious Growth in Spanish House Prices
According to official Spanish property price statistics property prices fell in eight out of thirty-six Spanish holiday towns over the last year. The quality of the statistics is, however, negated in that they are based on evaluations carried out in connection with financing properties, and that there is no general standard for the way that properties are measured. *For example, terraces are calculated as part of the plot, according to spanishpropertyinsight, whereas terraces are not counted at all in Norwegian price statistics, which lowers the price per square metre in Spain compared with Norway.

ESTEPONA: The Spanish property company Tembo Group is giving a 35% discount on several apartments in a new development in Estepona on the Costa del Sol. Many developers have begun lowering prices dramatically on new holiday homes. According to Mark Stucklin of spanishpropertyinsight.com over half a million new homes are standing empty in Spain. In addition to this, last year saw a record number of new construction projects, meaning that even more new properties will soon be on the market.

‘But many of these will probably remain uncompleted for several years. The seven publicly quoted Spanish construction companies have seen a 73% drop in sales of new properties during the first quarter, and more building projects are being seized by the credit companies,’ says Stucklin.

Danish Kenn Michelsen in the Spanish Tembo Group is also beginning to get a little worried about the sale of apartments in the hotel project Maritim Beach Resort & Suites Estepona. With a guaranteed rent back to the hotel 11 months a year, plus a guaranteed minimum return of 4%, the project is largely dependant on investors. Sales began a year ago and so far 43 out of 166 units have been sold, six months before the hotel opens. A month ago a 35% discount was introduced on several of the apartments with second-best location. An apartment of 50m2, a stone’s throw from the beach but without sea views, costs around 1.2 million Norwegian kroner, down from 1.8 million just a short while ago. ‘We have to adapt to the market and right now it is a buyer’s market. Many investors have gone on to places like Dubai, Morocco and Cap Verde,’ says Michelsen.

Martin Dell of the property portal kyero.com believes that Norwegians hunting for a holiday home in Spain prefer new properties. ‘In many cases new properties are cheaper than existing ones. Several property developers have lowered prices by 25 – 30%, and some by as much as 40%,’ says Dell.