Foreign investment in Spanish property has doubled in five years, against a still depressed market background showing small signs of patchy improvement, concludes an analysis by DBK, an industry research outfit.

“The principal indicators of the Spanish property market have behaved less negatively so far this year than in previous years, and in some cases show a slight improvement, anticipating a coming reactivation of development activity,” say DBK.

DBK may be right, but the overall situation is still far from positive. The Spanish housing market remains depressed by a weak local economy, low demand, high unemployment, lack of financing, and chronic oversupply of property for sale.

DBK forecast that residential construction sector output will fall another 5% this year, with further declines in the number of new homes started and finished.

It’s not much better in the commercial property market, say DBK. Demand is slightly up, but prices are still depressed, whilst construction of new commercial space fell 14% last year, and even more in the first half of this year. They forecast a 4% fall in output for the commercial building sector this year.

So Where’s The Good News?

There’s a glimmer of promise for the future of the home building industry in the fact that new home sales rose by 15% in the first half, after falling 52% last year (full year).

But the best news came from what you could call Spain’s ‘property export sector’, namely sales of Spanish real estate to foreign investors.

“In recent years the acquisition of real estate assets by foreigners has progressed very dynamically,” say DBK.

They forecast that ongoing over-indebtedness of Spanish developers, and the lack of cash available to Spanish buyers, will keep many locals out of the market, whilst low property prices continue attracting foreign investors, predominantly funds buying portfolios of distressed assets, and perhaps more large deals like the purchase of Sotogrande (pictured above) by US fund Cerberus.

Foreign investment has gone from around €3.5 billion in 2009, to €6.5 billion last year, and they forecast it will top €7 billion this year, up 16% on last year and double the level of 2009.

This supports the view that foreign investors are taking better advantage of the Spanish property crash than local buyers.

Finally, BKB also forecast continued fragmentation for the Spanish building sector, as many of the big beast from the boom years struggle to survive, leaving the field to small players.