MARKET HISTORY: Boom to bust and back again

I’m planning to write a series of articles looking back at the Spanish property boom and bust, as it was one of the most interesting and unedifying periods in the market’s history. What happened in the past may also offer lessons to buyers and sellers today.

The boom years seemed like the best of times, but in many respects they were the worst of times, and led to a long and grinding crisis that we are only just emerging from today, and which created huge distress for millions of families both in and outside Spain. It always amazes me how Spain held it all together despite all the corruption scandals, home repossessions, and 25% unemployment at its peak. In other countries there would have been riots at the very least.

The boom years saw Spain go on a mad building spree fuelled by cheap money, reckless bank lending, a corrupt and dysfunctional town planning system, and lots of naive buyers, both local and foreign, who assumed property was a one way bet. It was a period that bent the economy out of shape by channelling too much investment into real estate, which is not particularly productive, and saw the coastline savaged by mindless development.

When the bubble burst, the Spanish economy went into a deep crisis from which it has not fully recovered even now. Millions of jobs were lost, millions of homes repossessed, tens of thousands of developers went to the wall, leaving behind half finished developments to blight the landscape for a decade or more like rusting hulks (check out this study of broken developments by photographer Loïc Vendrame).

A few people made fortunes in the boom years, some of them crooks, and many people lost a lot of money through no fault of their own. Off-plan buyers, in particular, were caught out when boom turned to bust, and let down by consumer protection laws that turned out to be toothless. Hundreds of thousands of people lost their off-plan stage payments and got nothing in return, many of them foreign investors. But at least they now have a chance of getting their money back after a ruling by the Spanish Supreme Court in 2015 established that, in the event of developer bankruptcy, banks that accepted stage payments on behalf of developers were responsible for protecting those deposits.

In this series of articles I’ll be looking at the following questions:

• What factors stoked the boom?
• How did the boom play out in different regions?
• Why was off-plan investment all the rage?
• What part did foreign investors play?
• What part did corruption and town planning dysfunction play?
• What brought the party to an end?
• What happened in the bust?
• What’s this recovery all about?
• Where are we now?
• What lessons can we learn, and what the implications for the future?
• Who were the winners and losers?

So next month I’ll kick off with a look at how the boom got going, and the factors that stoked it.

This series of articles on the Spanish boom and bust is sponsored by Spanish Legal Reclaims, legal advisors who specialise in helping recover off-plan deposits and stage payments.

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