September 6, 2012 at 8:26 am #57046
For a while now I have been predicting a 90% peak to trough fall in house prices in Spain but quite a few people have questioned this figure and say that it can never happen. I will now give an explanation why a 90% fall in house prices will occur.
Take for instance a property that cost €100,000 euros at the peak of the boom. That property will have lost 60% of its value by now because of the bursting of the property bubble and the economic crisis which means that the property is now worth €40,000 euros. When Spain finally leaves the Euro and adopts the Peseta there will be an instant devaluation of the Peseta of at least 50% which means that the €40,000 euro property will end up being worth €20,000 euros. So far the fall in the value of the €100,000 euro property to €20,000 euros is just the warm-up, now prepare for the main event. The consequence of the devaluation of the Peseta upon Spain dropping out of the Euro will be a sharp rise in inflation followed by a steep rise in interest rates that will be needed to control the rise in inflation. The rise in inflation together with the rise in interest rates will result in more bankruptcies and higher unemployment that will lead to more forced sellers who cannot keep up their mortgage payments resulting in more properties coming onto the market causing house prices to fall further. This will result in a further 50% fall in house prices and so the €20,000 euro property will now become worth €10,000 euros. Therefore, the property that was valued at €100,000 euros at the peak in now worth €10,000 euros, which is a 90% reduction.
To recap, the property that was valued at €100,000 euros at the peak dropped by 60% following the bursting of the property bubble and economic crisis of 2008 to stand at €40,000 today and when Spain exits from the Euro and adopts the Peseta house prices will fall by 50% resulting in the €40,000 property being worth €20,000 euros and the severe economic consequences that will result from the devaluation of the Peseta will result in another 50% drop in property prices which means that the €20,000 euros property will end up being worth just €10,000 euros.
In summary, a property that experiences a 60% reduction in price followed by an additional 50% fall followed by yet another 50% fall will result in that property being reduced in price by 90%.
This means that a property worth €300,000 euros at the peak will end up being worth €30,000 euros, a property worth €200,000 euros at the peak will be worth €20,000 euros and a property worth €100,000 euros at the peak will end up being worth just €10,000 euros.
The big question is would an expat who paid €300,000 euros for a property at the peak be prepared to sell it for just €30,000 euros incurring a loss of €270,000 euros, which is one Hell of a loss to take or would the expat just hold onto it? People who retired to Spain and bought a property for €300,000 euros can’t have used a mortgage to buy the property because no bank would give a mortgage to anybody in their 60’s and so the property must have been paid for in cash without requiring a mortgage perhaps using the proceeds of the sale of their home in the UK. My guess is that things in Spain will get so bad that some expats would get fed up with the relentless doom and gloom and will be prepared to sell their property at whatever price they can get for it, regardless of how ridiculously low the sale price turns out to be because the house has been paid for without a mortgage, and they will be pleased to just take the money and run.
September 6, 2012 at 10:34 am #112061
We all know this…those of us with Spanish property really know this!!
Flat bought for 95k in 2005, a disaster of a remortgage in 2006 where the bank manager stole 30k
We now have a 108,000 euro mortgage on a 3 bedroom flat which is alongside others which are up for 23,000 euros.
We can’t sell can we…..we know that Spanish property has fallen in value. Many of our friends have houses/cortijos where they paid 200k and they can’t now sell for 100k.
It would be like winning the lottery for someone to come along and take over the mortgage. We’d forget about the near 50k we’ve spent on the place over 7 years just to be rid of the mortgage.
Those who just want to close a page will sell for whatever they can get, just to get out (as long as they don’t have a mortgage). Everyone else is sitting tight just hoping that maybe things will get better. There are those who are just living in their properties glad that they have a roof over their heads. It might not now be their dream home but?
I still worry when looking at other websites/forums that people are buying….blindly it seems by some of their questions. Spain is a lure for so many people but buyers must be more careful not to be blinded just by ‘cheap’ !
September 6, 2012 at 11:43 am #112066
still don’t see that happening no matter how much you recap and sum up if you have a good property in a good location you have something that is desirable and people pay for that.
This might happen in-land or crappy developments but not in nice locations.
September 6, 2012 at 4:43 pm #112070
I would guess that even in ‘nice’ locations the values put on properties over the boom years were way over the top. Too many people were told by their banks that the property was worth over a million etc. just to let them borrow more on the mortgage?
Who also knows what is a nice location if they aren’t local? There are some lovely seaside locations I know of where there are lots of nice villas…..being used by Russian prostitutes. They probably wouldn’t be my number one choice as neighbours for my young family. Would an estate agent point this out, no, would you notice them when on a view? probably not.
Also it depends on personal choice. I love old reformed cortijos but others would prefer an ultra modern apartment with sea views. I don’t really like the sea so I like the countryside. Desirable is different for everyone. There are just too many boring flats or townhouses with no character, badly built and in little towns where there aren’t enough things to do apart from sit around drinking coffee with the locals. ?
September 6, 2012 at 5:11 pm #112071
It’s said that the average house price in the UK should revert to 3-4 times the average salary. With the exception of London where foreign buyers provide extra money.
Given that, how do you calculate the value of a place on the Spanish costas? Hard to link it to the average Spanish wage, if a good proportion of the buyers come from abroad.
This is probably why the biggest prices falls (resulting in far more reasonable prices) are now to be found in cities like Valencia and Granada. The proportion of foreign buyers is far lower in than in places like Marbella or Calpe. Consequently buyers get more bang for their buck – unless of course they are looking for that holiday home with a sea view.
September 6, 2012 at 6:19 pm #112072
True, properties in Spain should be around 60k as that is manageable on the usual wages, especially in the south (well, those lucky enough to have a job…)
The problem started didn’t it when ‘A Place in the Sun’ had agents saying ‘and how much do you think that this 3 bedroom townhouse is worth?’ and a couple from Birmingham or wherever would say ‘ooh, I would guess around £180,000?’ as they were thinking of the value of a 3 bedroom where they lived in the UK (where you can buy safely, have good school, a job etc.). The reality was that the townhouse should have never been more than 50k because it was on the outskirts of a little town where only 6000 people lived and probably worked in agriculture earning on average 15,000 euros per year. The Brum couple paid top price so encouraged other agents/developers/banks to continue with higher than acceptable prices.
I’m sure that holiday resort type urbanisations are more popular and keep their value as holiday homes if they are very strictly controlled, as who wants dodgy neighbours, unkempt gardens because no one pays the community fees etc and no swimming pool for 11 months of the year?. Would it be against the law to be restrictive as to who can buy somewhere? Check out the community forums on some sites and it’s full of complaints about people letting places to stag parties or families with tearaway children.
Why would someone want a holiday home which they don’t enjoy when they are there? Just because it’s cheap it might not be a great buy but at 90% reductions maybe you just set your mindset to not care as it was cheap? What can you really expect?
September 6, 2012 at 10:22 pm #112078
still don’t see that happening no matter how much you
Itsme has already shown how he has a 80% fall, so its possible.
September 6, 2012 at 10:31 pm #112079
still don’t see that happening no matter how much you
Itsme has already shown how he has a 80% fall, so its possible.
and where is itsme’s property is it a villa in nice sea front location that is highly sort after or on a development in a nice well developed little coastal resort that hasn’t been spoilt
September 6, 2012 at 10:45 pm #112080
This is probably why the biggest prices falls (resulting in far more reasonable prices) are now to be found in cities like Valencia and Granada. The proportion of foreign buyers is far lower in than in places like Marbella or Calpe. .
Calpe is an over developed area my in laws had a place there and sold it in the late 90’s when they saw what was happening to the area they fell in love with.The flats with flamingo’s are all gone and if they still had their place the view of the rock they had would be gone aswell,parking is a nightmare and dog crap is a big problem.We holiday just up the road in moraira and love it as its still a good area with a good feel to it with a wide spread of nationalities.
September 7, 2012 at 10:14 am #112086
No ours is a flat on the best street in town, alongside all the ex Franco supporters large houses, the Mayor and his sisters, the bank managers etc. Yes it’s a flat but it shows that in the boom places in the block were selling for 150k, they are now advertised for 25k.
BUT, I also know of many people who own lovely villas with land, a pool, etc. which were valued at over a million in the boom and they can’t now sell for 200k.
There are just too many ‘nice’ villas which then turn out in reality to be not so nice. What is a sort after location now? Marbella isn’t my cup of tea but it is to others, Benidorm and the like are my idea of hell but I bet as an investment they are better deal than many places as it would be easier to rent them out for holidays?
There is a big difference from those who watch from the sidelines (or only speak to estate agents/read Brit newspapers) than those who actually have been living in Spain and know what is really going on. The banks are desperate to sell but more desperate to try to sell mortgages to those who they can tie in to pay them!
There are more people who gain from talking up the prices in Spain than those who tell the real story. My view is that people should be safe to buy at a decent price then they’ll enjoy Spain and they will encourage others to buy there as well. Pushing for people to pay over the odds will just enforce the corrupt lot that they can keep doing the dodge on people. As i’ve said before nearly all my friends in Spain have had a problem somewhere along the line. Those who haven’t live in their own little bubble world thinking that everyone is ever so nice because they haven’t a clue that they’re being ripped off most of the time (by Brits as well as Spanish!)
Now is the time to buy a cheap villa in Spain, but who can say that it will be a good buy??? Unless you buy the whole street you can’t guarantee nice neighbours etc.
September 7, 2012 at 11:04 am #112087
Itsme, maybe all those naughty people who are still trying to talk up the market in Spain should all live in the same town in Spain where they can talk their own properties up which will boom on paper but just there, most of us here know how dire things are in reality 😆
The so called ‘bargain properties of today’ may not be that in another year, and even if the market picks up a little, by the time you add all transaction costs in, you will need best part of a 20% increase just to break even, and 20% increases are not around the corner 🙄
Irish property was recently being talked up again so your move might well turn out to be very prudent and long before Spanish pigs start flying again 8) There’s a lot more interest in Irish property and less of it to get rid of than in Spain, so more demand for fewer properties. I think Logan was interested recently 😉
September 7, 2012 at 11:28 am #112088
A lovely character home here for 125,000€ in Ireland
A tempting do-upper. Sunny weather isn’t everything
September 7, 2012 at 1:32 pm #112093
or this one which is in a nice little village, http://www.myhome.ie/residential/brochure/templemore-rd-cloughjordan-co-tipperary/2059683
(maybe we should all become agents to sell Irish property to those wanting to leave Spain, ha ha…..)
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