Nothing is selling, despite price falls of 30%, says one promoter. Housing glut will take 15 years to clear in some areas, claims expert.

A housing overhang of more than 1 million new homes is dragging down the Spanish property market and delaying an economic recovery, says an article in yesterday’s La Vanguardia, Catalonia’s leading newspaper.

Pointing out that nobody knows for sure how many surplus new properties are on the market, the article compares the Ministry of Housing’s estimates, of between 650,000 and 930,000 excess new homes at the end of the year, with those of Tinsa – one of Spain’s biggest appraisal companies – forecasting a surplus inventory of 930,000 new homes by year end. Tinsa expect the new homes inventory to keep growing well into 2009.

La Vanguardia asks how many resale properties might on the market, including those being sold by speculative investors who have had their fingers burnt, but provides no answer.

Regardless of how many resale properties are currently languishing on the market in search of a buyer, the article points out that the glut of 1 million new homes is alone enough to delay an economic recovery in Spain. There will be no new developments until the surplus stock is sold, which means rising unemployment in the construction sector for some time to come.

In terms of an excess inventory of new homes, the situations is more serious in Spain than in the US. Spain’s housing inventory will take the market 5 years to absorb, says Professor José María Montalvo, of Pompeu Fabra University, compared to just 11.5 months in the US.

Developers are at a loss as to how to sell their stocks. “Nothing sells, despite the fact that we have reduced real prices by 30% over the last 2 years, and by more on the coast,” Félix Abánades, president of the promoter Afirma, told La Vanguardia. Afirma have an unsold inventory of 450 homes, with 300 more under construction.

A lack of credit is one of the main reasons behind the lack of sales. “Banks are refusing to subrogate the developer’s mortgage for 40% of buyers. Buyers are being forced to back out of their purchase contracts because they can’t get a mortgage,” said Abánades.

All experts agree that the market won’t recover without government intervention, reports the article. CiU, the right-of-centre Catalan nationalist party, propose that the government buy 40,000 unsold homes for renting as social housing, forcing developers who benefit from the intervention to build another 40,000 properties, also for renting as social housing. This would create some jobs, but would also just exacerbate the glut of new homes.

According to one expert quoted in the article, Professor Gonzalo Bernados of the University of Barcelona, the property glut in some parts of Catalonia, like Les Borges Blanques, Alcarras and Figueres, will take more than 15 years to clear. “These areas will be good for making films,” joked Bernados, who explained that “Potential buyers are returning to urban centres with good existing infrastructure.”