June 6, 2007 at 8:24 am #52928
I know this website focuses mainly on holiday homes in the coastal areas. But unfotunately this is not an option for me, since my wife is from Madrid and has work there. Therefore we are looking at buying a home in the Madrid area, more specifically in the Sierra Norte de Madrid. We are currently renting an appartment the size of a shoebox in Villalba.
Going through the property on offer I am absolutely shocked. We are not even looking at Madrid capital because the prices are simply beyond our reach, but even here (40 km away) it’s quite shocking.
A 1 bedroom appartment like ours will run about 240.000 euros.
A 3 bedroom appartment/duplex about 350.000 euros.
A house with a small garden from 400.000 euros up.
A villa with some grounds (300-500 m2) from 500.000.
Our initial idea was to move out of our cramped shoebox to a house if possible with a garden. However at 450.000 for a descent place (plus a 1 hour up, 1 hour down commute) is extremely expensive if I think about value for money. People here say that you need to buy, buy, buy! Get on the housing ladder, but I am worried. At 450.000 euros plus the 10% we are looking at a morgage of 2500 euros p/m. Now I have a descent job with an international company, but I cannot figure out how the Spanish pay this kind of money at an average salary of 1200 euros a month.
The whole thing feels like the housing market might implode and we would be stuck with a too expensive house, even though articles on this website say otherwise. Does anybody have any experience with the market in Madrid, maybe in a similar situation as we are. Is it right to buy or better to wait and see a little bit of time.
One other mystery. Our appartment at 50m2 is valued at 240.000 euros. But we rent it for 560 euro p/m. This seems to be an avarage rent. But why so low, when just the interest at current euribor prices would be around 900 euros p/m. Seems to me a good deal to rent for the moment.
Thanks for any help on this issue, the whole housing thing is quite dominating our agenda at the moment.
June 6, 2007 at 5:41 pm #72789
Hi and sorry to hear of your difficulties getting on the housing ladder in Madrid. I can’t help specifically but, if you think about it, it’s exactly the same as people trying to get on the housing ladder in or within commuting distance of London. Virtually impossible. Which is why so many people have to rent, houseshare, take in lodgers or remain living with their parents. Good luck.
June 7, 2007 at 2:10 pm #72807
Well, it might be similar to London in appearance but not really. Let’s say you are a young professional and you want to buy an appartment. Madrid is unaffordable so you go for the outskirts. So far all similar to London.
So you go for the low end of the market, a 1 bedroom appartment going for 240.000 euros. A morgage for that would cost you 1200 euros per month. Ok lets have a look at my salary……hmmm……1300 euros (avarage salary in madrid area). That leaves me with quite a little amount left.
If you actually assume a 40% of salary morgage = 520 euros, you could buy up to 115.000 euros, not even close to the real market.
My point is that while the Spanish were always boosting their fantastic interest rates at 2%, today the game has completely changed and signs are all over this place. Maybe it will just blow over, but if unemployment is going to rise, which is not unlikely, it will be recession, and then a blood bath on the market. Personally I feel that this is a realistic option but nobody knows for sure. You might say that a recession is far away because the economy is surging on at over 4%, but if this is mainly based on the property market, it is a very volatile situation. I see it in many people here, they are up to their necks in debt and looking at another increase of the euribor.
Personally this whole situation scares me. We could end up in a negative spiral the likes of which has not been seen here before. Time will tell….
June 7, 2007 at 4:19 pm #72808
We have recently bought about an hour south of Barcelona and had a very similar problem. We could not afford to buy on the coast as it was too expensive. These propeties were not being built to attract British and European buyers but the Spanish. 300 000 Euro for a one bedroomed flat we thought was just too expensive and we wondered how the Spanish were coping with the prices.
June 12, 2007 at 7:30 am #72889
I was talking to a taxi driver in Madrid last week about the property market. He was adamant that prices are not and will not fall. I’m not so sure. I don’t have a crystal ball, but given the increasing risks of a property correction, when it comes to Madrid I would carry on renting for now, and see what happens. I expect average prices in Madrid to stagnate of fall, and either way you have nothing to loose if you choose to wait and see. You only loose if prices rise strongly, which just doesn’t look very likely. Even the government’s figures show prices in Madrid up by only 6.1% in 2006 (about 3% in real terms), one of the lowest rates in Spain.
Do let us know how you get on, and if you are keeping an eye on the market, how it evolves price and supply wise.
June 12, 2007 at 3:50 pm #72925
Thanks Mark. I will keep you posted on here. I get the feeling the Spanish are clinging on to the idea that they will see their houses increasing in value, partly because that is the foundation of their believe. They invest so much in having their own house, spending up to 65-70% of their incomes on it, that they have to believe that it is worth it. If you think about a couple working from 8 till 8 every day and spending all their money on a flat, it is difficult to tell them that maybe it’s just not worth it. They will simple not have that sort of talk. I do understand their sentiment and hope for them that I am wrong.
In general the feeling is still that buying is good and renting is wasting your money. But at the moment I am thinking that renting is not that bad, because if I would buy my current appartment it would cost me 900 euros in interest every month. Renting costs me 550 euros allowing me to save up 350 euros every month. It appears to me that accumulating those 350 euros every month will give me more value than a rising houseprice will in the current stagnant market. Only when renting prices go up (which could be the next step) or housing prices go down, will I be loosing out.
The truth is that buying is concidered good only on sentimental reasons, no longer is their economical backing to the idea. That is a risky situation I would say.
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