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New report forecasts rising glut and falling prices

Rising supply coupled with weak demand will continue to drive down Spanish property prices says a new report on the Spanish property sector by DBK, a business consultancy.

A growing glut of new properties lies at the heart of the market’s malaise. Though housing starts are falling dramatically, down 45% so far this year, and forecast to reach just 200,000 at year end (compared to 360,000 last year, and 760,000 in 2006), the supply of new properties coming onto the market still outstrips demand. DBK forecast there will be 350,000 new home completions this year, and 200,000 in 2010. A far cry from the 600,000 plus homes finished in 2006 and 2007, but still too much for the market to digest.

Needless to say, developers are taking a pounding from falling sales and falling prices. The report forecasts that a big decline in the number of developers, a process that is already well underway. “A big fall in the number of registered companies will be apparent, as a consequence of the present crisis in the sector,” says the report.

Where does all this lead, in the opinion of DBK? To a “prolongation of the present situation of very low activity in the residential sector, with more price falls for newly built homes, and an increase in the inventory of unsold property.” So more of the same, basically.

In response, developers are expected to continue marketing like hell with discounts and special offers, whilst coming under pressure from increasing competition from banks.

Banks, for their part, are expected to increase their presence in the market, taking over more developers and mortgage repossessions. Banks can offer better financing terms than developers, giving them a competitive advantage about which developers are up in arms.

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