For the last year or more it has been possible to buy new property in Spain for less than it costs to build, thanks to a housing bust that has forced banks to take over thousands of new developments, and repossess hundreds of thousands of new or recently built homes. Such low prices are a once-in-a-cycle situation that will not be repeated again, at least not until the next boom and bust, which could take decades.
When the Spanish housing bubble burst in 2008, banks were forced to take over hundreds of thousands of new homes as countless developers went bust. According to recent research by the Spanish daily El Mundo, bank stocks of new homes for sale now include properties on offer for as little as €20,000, including a parking space.
El Mundo conduct a study of properties offered for sale by banks, searching for the “cheapest new flat for sale in Spain.”
Solvia, Banco Sabadell’s property division, took the prize for the cheapest new flat in Spain. They were offering a 44m2 one-bedroom flat in Mollerussa (Lerida province, Catalonia) with a terrace, double glazing, mains gas, and a storage room for €20,100. This property, never previously occupied, is for sale for just 456 €/m2, which is significantly less than building costs for a cheap property, even if you give the land it’s built on zero value.
Aberis, Barclay’s property division, wasn’t’ far behind a one-bedroom flat with 65 square metres in Yepes, Toledo province, for €20,900. With excellent transport connections, central heating, storage space, private parking, communal areas with a swimming pool and children’s playground, this was one of the most attractive bargains available in Spain. Looking at the price per square metre, at 322 €/m2, it’s even cheaper than the Solvia flat in Mollerussa.
Not only are there thousands of newly-built properties for sale in Spain below their replacement costs, but there is further room for price reductions in negotiations. It depends on the bank and the property, but some will give further discounts of 10 per cent or more to close a sale.
A few weeks ago, Solvia sold a property in Ocaña (Toledo province) for just over €17,000. “In this particular case the price included a further discount if the owner took out a mortgage with our bank,” a Solvia representative told El Mundo.
How much does it cost to build a residential property in Spain that complies with building regulations? You can’t really do it for less than 500 €/m2 at the cheap end. Then you have to add on the cost of land, which in boom times used to account for 50 per cent or more of costs, though now has fallen to between 15 and 30 per cent, depending on where you build. So there are thousands of properties for sale in Spain that can be bought for less than they cost to build, implying that the land they are built on has no value.
Why are banks, in particular, selling homes in Spain for less than they cost to build? Because deep discounts are the only way to sell much of this property, and after seven years of crisis, banks have written off enough to be able to sell below replacement costs. Also, because banks are so bad at selling property, the only way they know to sell is by discounting. Of course, this is terrible new for private vendors, who have to compete with banks for buyers.
You could argue that much of the Spanish housing glut has no market at any price because it’s poor quality in the wrong location. There is some truth to this, especially in the interior of Spain, where a declining population compounds the problem of low demand. But in coastal regions that benefit from international demand it should be possible to sell everything over time, it’s just a question of how long it takes. Recovery would be quicker if the market wasn’t in the hands of banks, who are possibly the least competent property sales organisations on the planet.
Sooner or later most of the stock will have sold, after which we will never again see so much Spanish property for sale at these prices. Once these properties have sold, there will be no new building to replace the supply of new homes on the market until prices more than double to cover building costs, land costs, and a developer’s margin. Nobody is going to build to sell at a loss.
It also means that, whilst the Spanish property market is flooded with these kind of newly-built properties for sale below replacement costs, there will be little or no building of new homes. Now we have an excess of supply, but one day there will be a shortage of new homes, and who knows what price dynamic that will trigger.
When the current stock of distressed Spanish properties is sold I doubt we’ll ever see these prices again.
Arturo says:
Reason they are so cheap is they are not desired and there are too may of the same properties. Spain will also have demographic problems which will lead to more empty property. Having invested myself in Germany I know all to well how low prices can go. And here we talk about a very developed economy. Eventually it will not come down to price of building but down to the price of doing up something that is sold for next to nothing. Germany is full of empty apartment blocks where you can be the owner of 30 apartments for €40,000. It all comes down to cost of renovation, this can be significantly cheaper than new build.
Jb says:
Arturo it’s more complex than simple stats, taxation, rental laws, location, demographics
Arturo says:
Taxation in Germany is more favourable. Demogrphics wise Spain is on the way down is well. However when we look at economic strength it is strange to see German property prices cheaper than Spanish. Whenever I make the economic calculation in favour of buying vs rent I hardly can find a reason to buy in Spain.
Most of this forums visitors are holiday buyers. Look at this simple calculation. Spain has about 5 million holiday homes. Spain gets about 50 million visitors per year. Let’s say 30% stays in hotels. We have 35 million left. That is an average of 7 weeks rental. Can you make those numbers work?
Bertie H says:
20 years ago there was a similar situation in the UK, and London especially. It lead to what we have now, which is significant amount of foreign investment buying property and pushing the prices up, leading to extortionate rent and inexplicable house prices.
Do you think that will happen in Spain (eventually) – or are the Spanish residents/government more reluctant to allow that to happen?
John Cook says:
Dear Bertie H,
If only your comments were even vaguely correct ‘re London and the UK I would be a very rich man today. I am sorry Bertie but your comments are absolute nonsense, there has not been a property crisis in London and in the majority of the UK.
I have owned property in London and Birmingham for more than forty years and speak from personal experience.
There are absolutely no comparisons of property markets in the UK and Spain.
There is a gross shortage of homes in the UK while the is an enormous surplus in Spain. Precious Green Belt land is by government order is being sacrificed to fill this deficit throughout the UK.
J M Cook
J says:
Dear All
I think you all have a point, but you have got to think location, location, location. Buying a property in the middle of nowhere is not the same as buying a property in the centre of lets say Seville where there is life and businesses.
For the last few years I have kept my eye out on property in Spain and soon Spain will be full of multi-millionaires, you just have to do your homework and find out which are the best places to buy.
There is wealth (not only mone) to be made from property where ever you go, you just have to find the demand and supply peoples needs.
thanks,
J
Marie ahern says:
Mark, love your blog. It is always backed up with great stats. One question re bank sales of repossessions. Where is the best place to find these? On some of the main property websites I see some on offer but would classify these as not being good value as many are being offered around the €1,500 per m2 in Fuengirola where there are many properties being offered for around the €1,000 per m2 mark.
Also, if you are not looking for a mortgage from these banks are they less inclined to negotiate with you?
Regards, Marie
Mark Stücklin says:
Marie, portals like Idealista should have most of the stock, otherwise you have to check the servicers of each bank. I don’t think taking a mortgage makes them more inclined to negotiate, I think they just want to get rid of the property.
Marie ahern says:
Thank you Mark. I stumbled upon the Idealista one last night. Re locating the servicers of each bank, are these individual agents that have an exclusive contract with the bank to sell their properties? what is the best way to locate these individually? I had a few websites saved like bankiahabitat.es and altamirainmuebles.com. are these the kind of things you are talking about? Kind regards
Marie
Mark Stücklin says:
Marie, the services are not exactly agents, they are the real estate sales platforms the banks set up to sell their repossessions. Most of these platforms have now been sold to funds like Cerberus and Apollo. There are the two you mention, also servihabitat.es, Solvia.es, bbvavivienda.com, gesaliseda.es, that’s most of the big ones.
Marie ahern says:
Thank you very much Mark! This is extremely helpful. Kind regards, Marie
Paul says:
Good luck with finding a worthwhile bank repossession property especially if you happen to looking for a property in a decent coastal location in the south. Anything even remotely worth buying has now been sold. What is left is the dross of the dross. There are much better offerings on the regular market and even with the increasing number of new developments coming to the market.
Graham says:
Have to agree with Paul’s comment. The bank repos are usually awful value for money as they are mostly badly located and lacking services and amenities. Neverthesless you can cherry pick bank stuff and offer below their prices and often they will sell. As Mark said the banks are the worst estate agents in the world (Just as they were the worst financial managers) so don’t expect competency soon.
Arturo says:
I feel the Spanish market has not hit roc sk bottom yet. when investing in east germany back in 2005 after a 9 year slump the banks would hardly fund foreigners. 40-5.0% of LTV. Price per sqm was down to 500-600 euros. When I told them that I expected property to rise in-line with inflation (2%) they told me I was too optimistic.
I don’t think we have seen this type of desperation from the banks yet in Spain. The bottom is when markets hit extremes, in this sense an extreme sense of negativity. With 1.4 million homes empty there is a lot more room for that.