Rising property prices – cause for celebration or concern?

The latest press releases indicate that prices in Spain have risen by more than 10% in a year for the first time since 2007. Is this a time for celebration or concern, both at the statistic and how it was calculated?

Lined lined street in Cordoba2007 was the start of the crash in prices that continued until 2014 and have only gradually stabilised for the average property, but recently soared for the most popular. And who is buying the most popular? Well, investors are the ones with the unlimited money and the result is seen in the increasing rents that are needed to give them the required return. This results in a price increase ripple down the market, essential workers can’t find places to live and the authorities have started to consider legislation to prevent it. Legislating rarely corrects a market and, whilst aimed at one sector, can compound and make another worse.

How were the stats prepared? 

At Survey Spain, when obtaining comparisons for our valuations, we are consistently finding that the resale market has risen very gradually, but that the bulk of the buyer demand is going into off-plan sales? Why, when the prices of these are much higher than existing, ready to walk into properties? It’s the power of marketing with mortgage incentives, higher commission to selling agents, fully furnished and promises of ‘guaranteed income’ for an initial period. Little do the buyers consider that the day they buy the property, the price they can get for it if they want to sell, will be in competition with the developers marketing without the incentives and so they achieve instant loss and probable negative equity.

So how do the prices appear to be rising? 

In addition to the prime spots where occupier and investor demand overlaps, the developers will sell the first phase of a development at a reasonable price, but then offer the 2nd Phase at a price above that, whether justifiable in the wider market or not, so that they can show the ‘growth’ in value of the property. “Quick, come onboard to buy before prices have to rise again”. But remember, ‘when you see the bandwagon coming, it’s already too late to get on board’. That’s a major contributor to rising prices, but when a few people have to start reselling and make substantial losses back down to the normal resale level, it will appear that the market is tumbling and could start a general fall in prices and ‘Pop’, goes the bubble.

Always look at the wider market

If you are buying as occupier or investor, always look at the wider market to see how the development’s prices relate to the similar resale properties nearby. You’ll often be shocked at the difference, which ‘improvements’ in quality and specification just can’t justify. It’s not just Survey Spain as RICS Valuers that are saying this, in July the Spanish economic newspaper ‘Cinco Dias’ also carried the headline (translated), ‘The new houses that are sold are 26% more expensive than the ones used’. And also remember that all these extra facilities, which only a few owners may ever use, have to be managed, maintained, repaired and replaced, all of which can make the annual ownership costs substantially higher than elsewhere.

* This article has been written by a third party not owned or controlled by Spanish Property Insight (SPI).
SPI disclaims any responsibility or liability related to your access to or use of any third party content.