Factors that will kill off demand for Spanish property

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      The factors that will kill off demand for property in Spain are:

      (1) Why would anybody buy a property when property prices are falling? Why buy now when you can buy more cheaply in the future? It doesn’t make sense to buy property in a falling market.

      (2) Buyers of second homes in Spain are alarmed at the deteriorating state of the Spanish economy.

      (3) The global financial crisis is ongoing and is badly affecting the economies of Europe, many of which are in recession, and this is causing demand for holiday homes in Spain to drop from people in northern Europe who used to traditionally buy places in Spain – countries like Britain, Ireland, Norway, Sweden, Germany, Netherlands, Belgium.

      (4) Sentiment about property is negative. The property market is driven by sentiment and during the boom sentiment was positive but that has all changed and with the economic problems of Spain and of Europe sentiment towards property is very negative.

      (5) It is very likely in the next three to four years that Spain will drop out of the Euro and adopt the Peseta which will result in an instant devaluation of the Peseta of 50% and this will mean that property in Spain will be priced in worthless Pesetas.

      (6) Spanish banks are reluctant to lend money for property purchases because they are burdened by so much toxic mortgage debt and have many repossessed properties on their books and are applying much greater borrowing requirements when giving mortgages to property buyers. Banks are now only willing to offer mortgages to people if they provide a deposit of at least 20% of the mortgage loan and many home buyers will struggle to find such a large deposit and this will have the effect of discouraging people from buying a property in Spain. Retired UK expats that buy a property in Spain tend to buy it in cash obtained by selling their home in the UK and do not take out mortgages to buy property in Spain since no bank will give a person in their 60’s a mortgage. The majority of people who buy property in Spain are young and will need to take out a mortgage in order to buy property and are unlikely to be cash buyers.

      (7) The poor exchange rate of the pound sterling against the euro is detering people in the UK from buying property in Spain. The Pound was once at 1.50 to the Euro but after the financial crisis of 2008 the Pound plunged to 1.10 to the Euro, a devaluation of almost 30% making property in Spain 30% more expensive. The Pound has been going up recently and now stands at 1.25 to the Euro but the Pound still remains very weak.

      (8) Probably the single biggest factor that is killing off demand for property in Spain is that sellers of property insist on demanding boom level high prices for their properties even though there has been a crash and officially prices have fallen by 30% from the peak. This reluctance of vendors to face reality and refusal to reduce their asking prices is one of the biggest factors that is putting people off from buying property in Spain. Home buyers were hoping to pick up some bargains by now given the poor state of the Spanish economy but home prices are still obstinately over-priced. At present it is low interest rates that is preventing a sharper fall in house prices by enabling vendors to hang on to their properties and demand a high price for their properties but when Spain finally adopts the Peseta inflation will rise dramatically and interest rates will have to rise steeply to control inflation and this rise in interest rates will create more forced sellers who cannot keep up the mortgage payments and this will restore some sense to the asking prices of the belligerent and cocky vendors.

      In summary, the biggest factors that are killing off demand for property in Spain are the weak Pound against the Euro, the reluctance of banks to give out mortgages by tightening their lending criteria and the low interest rates that is helping property vendors to hang onto their properties and demand unrealistically high prices for their properties even though Spain is falling apart at the seams.

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