Last year was the worst year ever on record for the Spanish property sector, and this year doesn’t look like it’s going to be any better, reports the Spanish daily ‘El Pais’. Residential property sales collapsed, as did housing starts, and now there is hard evidence of unprecedented price falls, with new build prices falling 6.6%, according to Sociedad de Tasación, one of Spain’s leading appraisal companies.
The price falls recorded by Sociedad de Tasación are the biggest in the two decades that the company has been publishing price statistics. And according to Pedro Pérez, general secretary of the G-14 group of Spain’s biggest developers, prices are going to continue falling.
This is a novel development, as developer associations like the G-14 have taken a hard line against price falls ever since the Spanish property market started to wobble. At first they insisted that new build property prices would never go down, then, from one day to the next, that prices had already fallen by 15% to 20%, and so did not need to fall further.
It is easy to see why developers are loath to admit that prices might fall in future. If potential buyers expect prices to fall they delay their purchase, which helps force down prices. The expectations become self fulfilling, which is why developers always try to stamp them out.
Now developers have thrown in the towel and concede that new build property prices will continue falling.
“New build property is now between 15% and 20% cheaper,” says Pedro Pérez, quoted in El Pais. “This is the biggest fall we have ever seen. Furthermore, 2008 has been the worst year since property statistics began. Despite all this, I don’t see any light at the end of the tunnel. And if there is no change, prices will continue falling.”
El Pais points out that some experts have spent months calling for big price falls to bring the Spanish property market back to life. According to economics professor José García Montalvo, quoted in El Pais, “At the moment the housing affordability ratio stands at 7 times average annual disposable income. We will return to equilibrium when this figure falls to 4, which is where it was in the year 2000, before the property bubble began to inflate.”