Bleak report suggest Spanish property crash still far from over

Murcia construction no green shoots in Spain
No green shoots?

The latest report on the property market by RR Acuña & Associates forecasts that Spanish house prices will fall another 30pc on average.

The Spanish real estate consultants RR Acuña & Asociados have published their Annual report on Spain’s Property Market predicting that property prices in Spain will continue to fall for another 3-4 years, and will drop as much as 30% in this period.

The supply and demand of housing in Spain are still badly out of sync, they argue, with too many homes on the market, and not enough demand.

Factors worsening the problem are new developments coming onto the market (although in decreasing numbers), as well as growing levels of emigration decreasing demand. They claim that Spain lost 16,500 households over 12 months to the end of March.

Their conclusions will be supported by the news today that Spain’s population declined by 114,000 people last year, the first time Spain has suffered population decline since records began in 1971.

No shortage of empty homes

RR Acuña & Asociados believe that the unsold stock of housing will take at least 6 years to be absorbed. They estimate the total unsold stock at 2.2 million homes.

This is made up of 787,000 new builds (635,000 owned by developers and 152,000 owned by other real estate companies) and 1,136,000 resales (928,000 owned by individuals and 208,000 by banks). There are a further 400,000 homes under construction and 150,000 awaiting foreclosure.

Spain now has 1.5 homes for every resident household – the highest ratio in the world – and a land bank for the construction of another 4 million homes, which the President of the consultancy, Fernando Rodríguez y Rodríguez de Acuña, describes as enough to “make you want to commit suicide.” The stock of empty homes could rise as high as 6.2 million in the next few years, they suggest.

Foreign buyers to the rescue?

RR Acuña & Asociados do not expect foreign buyers to help dig the market out of its hole. They claim that 92pc of foreigners who bought property in Spain last year were residents, and therefore part of the declining pool of demand, rather than a source of fresh demand. I am not sure how they arrived at that figures and I am sure they are mistaken. Based on my research talking to agents, more than 50pc of foreigners buying property in Spain today are non-residents buying holiday homes.

Turning Japanese

RR Acuña & Asociados warn that Spain is going the way of Japan where house prices have not stopped falling since 1990, and are now back to where they were in 1968. Like Spain, Japan also went through a spectacular housing bust and now struggles with a declining population.

The death knell for developers

The report reveals that the expiry of tax breaks earlier this year equated to a 27% rise in prices which will have to be made up for in lower asking prices. Furthermore, at current prices developers cannot earn any profit building new homes, and are being pushed out of the market.

36pc of Spanish developers have closed, and another 46pc are basically bankrupt, they reveal. That means 82pc of the sector has been taken out of action. RR Acuña & Asociados make the extraordinary claim that “the structure of developers is doomed to extinction, in three or four years the property development sector could potentially disappear.”

Banks continue to shoulder losses

Banks will have no option but to continue writing down their property portfolios, as they take on another 600,000 new homes plus repossessions.

This is a bleak report with no good news for anyone. “There are no green shoot in the sector, nor will there be any until perhaps 2018,” they conclude.

Different markets

This report focuses on the primary housing sector and local demand, which has been hammered by all the factors that RR Acuña & Asociados identify. The situation is not quite so bleak in the most popular areas of the Spanish coast and islands, where a growing number of international buyers now dominate the market, and where demand is more diversified than ever before.

It is fair to assume that the best areas of the coast and islands, which are attracting increasing numbers of buyers from all over Europe and beyond, will recover much quicker than the domestic Spanish property market addressed in this bleak report. There are signs that house prices in these areas are already bottoming out.

SPI Member Comments

Thoughts on “Bleak report suggest Spanish property crash still far from over

  • Fela Hughes says:

    “Spain has 1.5 homes for every resident”. Is that right? 75M homes? Or Is it every resident household? Or every resident looking for a home?

    • Mark Stücklin says:

      Well spotted Fela. They must mean per household. Mind you, El Mundo reported it as “for every inhabitant”, which is the same as resident. Verbatim as follows: “Así, España, que ya cuenta con una ratio de 1,5 viviendas por habitante, la más alta del mundo, según el estudio, podría contar en unos años con al menos 6,2 millones de viviendas a ocupar, que incluso podrían ir a más, puesto que continuará la promoción de viviendas, se seguirán produciendo desahucios y seguirán emigrando españoles mientras no se recupere el empleo.”

  • Fela Hughes says:

    This is only bleak if you are a property developer or someone who needs to sell their (second) home. For everyone who wants to buy, especially Spanish residents this is great news. Right now the prices of property in Spain is ludicrously high particularly when you measure it relative to incomes. In Barcelona where I live people spend 50% or more of their disposable income on housing which is just absurd. A massive drop in prices will allow people to instead spend on other things to the benefit of the wider economy. It will also force people to take a more mature and considered attitude to investing and saving.

  • all the corrupt govt has to do is abolish all taxes relating to the purchase and sale of property and all associated property taxes for foreigners to kick start the housing market and recover some confidence instead of taxing everyone to high heaven when already nobody has money to pay

  • Señor Rodriguez de Acuña may be thought of as bearish in his outlook, but he´s been right for the last seven years….and counting. The figures in very general terms, they may bnot be entirely accurate, state the reality, certainly of the all important domestic market. That the population is both declining and ageing, that unemployment is sky high and salaries are plummeting. That new households are being formed in ever smaller numbers and many of the increasingly impoverished population cannot afford mortgages even if they were lucky enough to get a job that might qualify them for one. He rightly points out that new builds in the few areas of high demand (basically the big cities) together with bank repossessions and inherited properties that people simply want to sell off quickly together go a long way towards meeting the current annual demand of around a third of a million. That the stock of around 2 million properties will only go down by single figure percentages in the foreseeable future. So, apart from a few local hot spots supply will continue to massively exceed demand and prices will continue to fall.

    Personally, I would go even further than Sr Acuña as there are some negative dynamics that he doesn´t seem to have considered. There are substantial numbers of second hand homes that are sold privately so although they form part of the annual sales of homes statistics they probably do not form part of the calculation of available stock. Additionally the increasing financial pressures are forcing greater numbers of Spaniards to start thinking about selling the second home and these could come onto the market in increasing numbers. Finally, on the political front, there is a very real possibility that a left leaning new national government could change the rules regarding ‘dación en pago’ (giving the keys back if you can´t pay your mortgage) thus provoking an avalanche of available bank-owned stock and a further downward pressure on prices. Already the new local governments are pressuring the banks not to hold empty property and the only real solution to this is to sell at reduced prices.

    So, the good news? Well, the sun keeps on shining…..

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