“Property prices must fall further”

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    • #55982

      Sent to me by email. Not sure where it was published.

      By Katell Abiven (AFP)

      MADRID – Knock-down home prices, idle cranes and builders forced to retrain
      for new jobs: despite sliding prices the spectre of a Spanish property
      bubble is hurting a fragile economic recovery.

      The new labour minister, Valeriano Gomez, summed it up when he took over at
      the end of October: “Three out of four jobs lost in the crisis are in
      construction and related sectors.”

      Spain has the euro zone’s highest jobless rate at about 20 percent.

      All-out building in suburbs, the country and especially on the coast was the
      engine of the economy in the past decade.

      “In the last eight years, two thirds of the homes built in Europe were in
      Spain,” said Christian Palau, director of the online real estate advertising
      site Fotocasa.

      From 2000, Spain built about 700,000 homes a year, as many as in France,
      Germany and Britain combined, until the 2008 glut pricked the bubble, with a
      price slump and a slew of property developer bankruptcies.

      Recently, the market appeared to regain some health. Sales leapt 30 percent
      in August and prices in the third quarter of this year only dropped 3.4
      percent from a year earlier, according to official data.

      Many buyers are taking the plunge to take advantage of a home purchase tax
      deduction, which expires December 31.

      But the frenetic activity should not hide an accumulated stock of housing,
      with about 1.5 million new and older homes unsold. It is estimated that 16
      percent of Spanish homes are vacant, a record for Europe.

      No surprise then that Banesto bank launched in mid-October an unprecedented
      program slashing the cost of 600 homes across Spain to 50 percent of the
      market price.

      Because the real problem is that property prices, even after dropping 25
      percent since 2007, must fall further.

      The British weekly The Economist calculated recently that Spanish properties
      remained 46.7 percent overpriced. The European Commission estimates they are
      overpriced by 17 percent.

      “We are no longer in a bubble,” said Jose Luis Suarez, professor at Madrid’s
      IESE Business School de Madrid. “But that does not mean that prices cannot
      decline further.”

      The building and public works sector is on pause waiting for the market to
      take off again. “You only have to look at the number of homes in
      construction, about 100,000 this year. You could almost say there is no
      building activity this year,” said Suarez.

      “This slump to record lows has consequences for employment,” he stressed,
      since the sector has been a huge employer over the years.

      The result is that construction industry workers, most without formal
      qualifications, are out of work, and it will cost a lot to replace them,
      said Fotocasa’s Palau.

      Meanwhile the country, whose economy stalled with zero growth in the third
      quarter according to preliminary figures, has to decide “what to do” and in
      which area to stake its future, Palau said.

      Besides idle building sites, many finished homes lie empty in “ghost
      districts”: “They promised (buyers) that there would be shops, public
      transport, schools, but with the crisis the property developers left.”

      The solution, he said, could be greater support to the rental market, a poor
      cousin in a country where home-ownership is the common dream. Relying only
      on purchases, it could take 10-15 years to absorb existing stock, he said.

    • #101588

      @mark wrote:

      Sent to me by email. Not sure where it was published.

      By Katell Abiven (AFP)

      MADRID – Knock-down home prices, idle cranes and builders forced to retrain
      for new jobs: despite sliding prices the spectre of a Spanish property
      bubble is hurting a fragile economic recovery..

      Lets look at this from a purely common sense perspective for a second.

      [*] Average salary is less than 30k
      [*] Its well know that mortgage NPL’s (non-performing loan) increase rapidly from about 80% LTV upwards.
      [*] Spanish banks have massive debts and huge portfolios of empty properties and NPL’s.
      [*] Bond and cash markets dont relish lending Spanish banks more money.
      [*] Spanish savings banks (Caja’s) are in a desperate state and need to merge to survive.
      [*] There’s around 20% of workforce unemployed (or working on the black market) in Spain
      [*] National average price for a 100m2 property comes in at €192k
      [*] Average family needs 40k deposit and to borrow at 6x salary to afford (when including taxes, etc…)
      [*] There are ~1.6m for sale and empty properties in Spain
      [*] Sales transactions have more than halved since the peak, and probably only propped up by Banks moving properties to subsidiaries.
      [*] The rest of the world is about to explode with debt bombs.
      [*] Property prices from peak are only around 10-25% down when in Ireland and US where similar bubbles occurred they have dropped 50%

      So, in reply to the above article – Spanish houses still too high…. No sh*t Sherlock !!!

    • #101589

      An interesting op-ed from Warren Buffet in the NYT


      “You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess — most prominently, for not battling the rot building up in the housing market. But then few of your critics saw matters clearly either. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly.

      That was a mass delusion, reinforced by rapidly rising prices that discredited the few skeptics who warned of trouble. Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble that hit shores far from their origin. This bubble was a doozy and its pop was felt around the world. “

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