Will the property market ever recover

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08 May 2012 16:29 by Thewoodbug Star rating. 32 posts Send private message

What will happen to Spain now in view of the new revelations concerning the desperate situation of Bankia – the 3rd largest banking group? It is reported today that a government cash injection of €10 billion is close to being agreed to save the institution, despite all recent assurances from the Spanish government that no bail outs for banks would be considered.

 

There is no doubt that the property market is the cause and will be the first to be affected, despite all the attempts over the last couple of years to hide the issues causing the problems. The biggest problem of all has been the over-valuation of properties on the banks books which conceals the scale of the matter and this in turn distorts the market.

 

So, the property market will not be able to move until banks approach pricing in a sensible manner.  Nobody will admit this is a problem as it would wreak havoc in the present system. It’s a catch 22! The banks high prices artificially underpin the general market and very few sales are generated. Reduce the prices to sell and it will bring down the whole property market. And the question arises – will properties sell at any price in Spain at the moment in view of the parlous state of the Euro and Spain’s well known reputation for corruption, erratic planning and construction laws and most of all the terrible press it has received over the past few years concerning land-grab and sub-standard buildings?

Property values are dictated by the buyers – not the sellers or their unqualified estate agents (apologies to many long established and very helpful individuals and firms – they know who I mean), and many, many properties on the market are so overpriced it would be comical if it were not so serious.

 

In general, the income levels in Spain only allow a small mortgage, and as mortgages are scarce (unless you buy from bank stock) it is very difficult to understand who will buy and WHY these houses are on the market with a snowball in hells chance of selling.

 

Some are predicting a fire sale in the market-place, similar to the situation Ireland was in some time ago, either way it looks like something has got to give soon.  If by way of bail-outs, the toxic debts of some or all the banks are adopted by the state, then it may become likely that Spain would require an EU bail-out but we know that is impossible in view of the weak euro, the size of the Spanish debts and the problems in Greece and now France threatening to upset the apple-cart.

 

An earlier posting on this forum encouraged ex-pats to buy now and one advocated the use of Banks property websites………… several of which are only in Spanish!

 It appears that mainly apartments are advertised on these sites with the odd town house. Does this mean that no villas or fincas ever get repossessed? Surely that horrid, unfair rumor that all villas and country properties are sold to bank staff friends, officials and dealers can’t be true can it? They wouldn’t buy at knock-down prices and then resell through the agents…….would they? They might, as it appears on the internet that every man and his dog in Spain, is ‘authorized’ to sell ‘bank distressed and repossessed property’.

 

Things will get better in Spain, but a massive change in attitude, laws and procedures must be adopted for this to happen and attract the investors back to Spain.

 

Woodbug

 





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08 May 2012 17:02 by oliverson Star rating. 70 posts Send private message

Calm down.

It's a long-term game.  Those in it buying off plan  5 years ago hoping to make a quick profit are going to be disappointed.  So what?  That's business!





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08 May 2012 17:13 by Thewoodbug Star rating. 32 posts Send private message

I agree its long term - but it's hardly a game is it? Do people actually pay money over to buy off plan? You must be in a strange zone if you think 'thats business'.





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08 May 2012 17:56 by oliverson Star rating. 70 posts Send private message

What really annoys me is the 'get rich quick' brigade - mopping up multiple holiday apartments off-plan to sell them on to some other mug for a quick profit.   Same story here in the UK - morons gorging on easy credit discussing their 'buy-to-let PORTFOLIO' at dinner parties, pretending they are middle-class when they are really working class.  Driving around in flashy motors again fueled by cheap credit.  Talk about gullible - fodder for the financial sector.

I'm actually really pleased what has happened has happened if I'm honest.  My only regret is the lack of future for the young folk who will never get on the housing ladder because of the inflated prices of property both here in the UK and of course in Spain.  That hopelessness is already manifesting in many ways!


 


This message was last edited by oliverson on 08/05/2012.



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08 May 2012 18:04 by trowell1 Star rating. 133 posts Send private message

Hi All

I think it would be madness to buy a 2nd property with a mortgage anywhere, never mind Spain.

I have recently returned from Spain and am waiting for ready cash to then go over again and see whats available then.

I saw lots of property available, but what amazed me was that some at 65-70k (2 bed aparts) were on unfinshed golf courses and for an extra 5-10k you couls get one on a completed stunning golf course.

I feel there is more to come off these properties and will play the waiting game as my property will be for life.

I found the agents to be quite genuine as they know we all what trouble Spain is in

Regards





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08 May 2012 19:18 by acer Star rating. 448 posts Send private message

Good afternoon Woodbug,

IMHO it's just short term over capacity and the market will revert to normal in a few years. 

A while ago the natural annual consumption of properties in Spain was said to be approx 500,000 units pa.  But in the last few years they've built some 800,000 units pa and kept up this building rate regardless.  So there's something like a 1,000,000 properties in various stages of completion currently, as we know many owned by the banks.   But sooner or later these will be sold and when that happens we'll get back to normal.

A bank might say be selling a property for €50,000 that was on the market at €100,000 a year or two back.  But when it's sold the cost of replacent will surely be €100,000 plus.  The cost of building the property will have not reduced - the component parts, the land, materials and labour will probably be more.  So IMHO when the banks have off loaded their properties prices can only go one way. 





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08 May 2012 20:08 by ojosazul88 Star rating. 171 posts Send private message

Acer,  Depends what you mean by the term "revert to normal". Was it normal for banks colluding with valuers to falsely hike the value of properties between 2003-2007?, Was it normal for most property prices during this period to rise at a rate that had no relation to true values?, Was it normal for "teaser loans" to be dished out to pretty much anybody applying?

So i believe NO, the market will not revert to normal. Again Acer i have to disagree with your view that the builder will build replacement houses for 100,000 euros once hes sold his cheap exisiting stock for say 50,000 euros. Reason, because the cost of the build and land is much,much cheaper than you can imagine and he was only selling at 100,000 euros for reasons stated above!!, 

Example, 3 bed corner house, Costa Blanca South, year 2000 c.€55000, by 2004, "bank valuation" c.€125,000 and by 2006 €150kplus!!!. Everyone wanted to believe they were equity rich but the banks new the truth!. Of course there were genuine property prices during this period but not at 30-50% per year! 

So until prices reduce to their natural growth rate based on real land values and build costs etc, growth can then return at perhaps 5-10% per annum.

 

 

 


This message was last edited by ojosazul88 on 08/05/2012.


This message was last edited by ojosazul88 on 08/05/2012.


This message was last edited by ojosazul88 on 08/05/2012.



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08 May 2012 20:26 by trowell1 Star rating. 133 posts Send private message

Hi All

I have to agree with ojosazul88, the unemplopment levels are 20-25% in the cities but 30-35% on the coast.

The spanish need to be able to buy property in their own country

Just because a "few" brits are buying some cheap properties isn't enough to say builders will start up again.

I feel prices will stop dropping in 4-5 yrs if we're lucky then very slow growth after a time of none, as is the same in most parts of the UK, except Spain is about 3 years behind us in austerity measures.

Just my humble opinion

 





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09 May 2012 09:17 by D_B_S Star rating. 179 posts Send private message

Some good posts here.

Agree that there has been a drastic over supply of property that is really only useful for holiday lets on the Costas. Suggest that many developments might end up being bulldozed to make way for more livable accomodation in the distant future.

I have pointed out in other posts my shock at the levels of unemployment in Barcalona and Mallorca observed during my recent visit after being away from Spain for a year.

I see it's not only the mainland but The Canaries are also posting 30+% unemployment and it's difficult to see how the non-industrial parts of Spain will recover soon with a low wage economy using low skilledlow wage  labour supported by an aging expat community.

I note that 2011 was the first year since 1991 that there has been a net emigration from the Costas.

Hope the new government get a grip soon as Spain has great potential.

Its interesting having moved back to Oz after 40-years in Europe how far away you all are not only in miles but in Government attitude. Here we have 5% unemployment (could be lower but welfare funds a lifestyle for the work shy), jobs for qualified professionals, 6% on Bank deposits and growth at 3%. Maybe the key is that the government runs on a neutral budget  so great interest being paid to Soverign funds.

David



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09 May 2012 09:57 by acer Star rating. 448 posts Send private message

I can understand your viewpoint ojosazul88, but what's to say that the upward manipulation of prices will not return as soon as the bank's have sold off their current holding ?  After all in their interests to do so.  That could be said to be a return to the norm. 

The mistake the banks made this time was to allow too much funding and for contractors to be greedy, but surely they, or the government, will learn from their mistake and control supply next time.

Contractors will not be in a hurry to build again.  Credit is likely to remain difficult to obtain and expensive.  Prices of materials will have increased with inflation.  When they do start building they'll only be looking to do so when there's some money to be made. 

Spain remains a marvellous country for holidays and retirement.   The present economic woes are horrific, but for many in a few years time, it'll just be a thing of the past.   I'm unsure that the current "exodus" is being honestly reported - it's likely that the number has increased, but this will be for personal economic reasons - many people who need to earn money to continue to live in Spain cannot do so.  But the majority of pensioners and holidaymakers will not be unduly affected and the number of these will surely increase when the economies of the rest of Europe improves.

So I stick with my speculation that prices will increase substantially as soon as the current glut disappears, due to lack of supply.





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09 May 2012 10:31 by Thewoodbug Star rating. 32 posts Send private message

I wish I could share Acers optimistic view, but the question has to be asked - where are the buyers going to come from to mop up the property currently on the market? 

Nobody knows what level or types of property the banks are holding and I suspect it will come as a shock when the figures are known. Different property portals, informed or not, indicate that there is already between 800,000 and 1m units unsold in spain,with one particular 'expert' claiming that there are a further 1m uninhabited units NOT on the market and this is before the banks start dumping an unknown quantity of extra stock. I think everyone can agree that the banks are holding 'a lot'. I think its fair to say that we just don't know the extent of the problem but I believe that it will not be resolved quickly.

Investors are needed to begin the soak up which will go some way to kick-starting the dead property market, but most properties are still overpriced compared to other countries. Unfortunately investors won't come near Spain for obvious reasons and until the act is cleaned up considerably - it will stay that way.

Unemployment in Spain along with and the low wages paid, limit the mortgage levels and the number of prospective buyers, Would you want to secure a large mortgage (if such a thing were available) knowning that your job may  disappear at any time?

Expats are now few and far between as a result of European constrictions and have been badly affected by the bad press reports over the past couple of years. I just don't know where the buyers are going to come from. Please don't accuse me of being a harbinger of doom - I believe that I am a realist and if I could help Spain out of this hole, I certainly would.

Woodbug





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09 May 2012 12:03 by D_B_S Star rating. 179 posts Send private message

Thewoobug,

agree with your posts. Properties the Banks hold are probably overpriced, one of the reasons they cant shift them and are unwilling to discount too far as it will expose the Spanish system to the problems of over prices assets and lack of cash. Problems which are difficult to solve without big bail outs and at the current interest rates Spain is paying in the Bond market impossible to see where the cash will come from.

Tourists and pensioners will not solve the prsent structural problems.

Maybe the new government might do something but planned strikes next week shows the Country is not yet on board.

 

David



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09 May 2012 12:05 by oliverson Star rating. 70 posts Send private message

Many of the 'place in the sun' brigade bought properties with deposits freed up from their cash machine homes in the UK.  But now that bubble has burst and the ability to free up equity (if there is any) held in UK property pretty much non-existent and not likely to be for the forseeable future (if ever) I can't see that major source of buyer returning no matter what quality of life can be enjoyed in the Costas. 

Thank god it's sunny though or we'd be really miserable!  ;-)





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09 May 2012 12:13 by Thewoodbug Star rating. 32 posts Send private message

Do you remember the old saying  a few years ago?  'If you have a pulse and a passport - you can have a mortgage!

I haven't seen those decent people around for quite a while, who would provide P60's and Copy wage slips 'only for legal purposes and definately not to give to banks to obtain a dodgy mortgage'.

How times have changed.

 

Woodbug

 





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09 May 2012 13:41 by D_B_S Star rating. 179 posts Send private message

Bond auction didn't go too well - over 6% not sustainable.

Looks like borrowing to fund a house purchase will be as rare as rocking horse droppings.

So looks like The Banks and developers will be property owners for a while yest.

 

David



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09 May 2012 14:09 by georgia Star rating in Algorfa (As seen on .... 1918 posts Send private message

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georgia´s avatar
it always does........when is the bigger question?????

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09 May 2012 14:22 by acer Star rating. 448 posts Send private message

To my way of thinking the 2 issues are not linked.  

A €uro collapse is an increasing concern - some fireworks in the next few months seems inevitable.  But I don't see that this necessarily means the slump in Spanish property prices will continue after the banks have disposed of their holding.

The economic downturn in Europe will slow the purchase of "holiday homes" but many still view Spain as the best option for retirement. 

I purchased my first property in Spain 12 years ago thinking that the effect of the baby boomers reaching retirement would push up prices.  It did - although the subsequent crash was a surprise.  But this was brought about by external factors which are unlikely to be repeated and for many Brits (and no doubt many others in Northern Europe) the dream of selling up and moving to Spain still remains.  It just might be delayed a few years whilst pensions are boosted.

It's hardly stopped raining in the UK for the past month - that alone is enough to guarantee the continuing attraction of holidaying and living in Spain.





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09 May 2012 19:12 by ojosazul88 Star rating. 171 posts Send private message

 "So I stick with my speculation that prices will increase substantially as soon as the current glut disappears, due to lack of supply."

Acer, prices over the previous 16 years from year 2000 collectively rose at the same rate as the 4 years after 2000. All property markets go through cycles but un sustained growth produces crashes. 

Most of the overpriced ,poorly  built property on the banks stocklist is unsellable even at a 60% reduction. You are assuming there will be an endless supply of foreign purchasers willing to buy anything at any price. Yes, there will always be buyers from overseas but not at the frenzied rates seen from 2000-2008 , the cheap credit will not be available, even in 10 years time, foreign buyers will demand value for their money. Also, unless you actually sold your property in the few years of the boom, you havent achieved much as prices are reverting back to year 2000 prices therefore steady growth is far better than your wish of "substantial growth" Acer.

Nicholas Snelling sums it up quite well below in his article he wrote below.

Just like the late 1980’s in the UK, you simply cannot have a sustainable situation when property prices are massively outpacing salaries.  And in Spain, as we all know, the purchasing power of the Spanish salary has hardly changed since 1997.  Spanish property prices, however, have risen enormously.  Certainly, up until a few years ago, Spanish property growth was around 20% per year – not reflecting Spanish earning power in any way at all.

 

And, to make matters much worse, the Spanish have ‘suckered’ themselves into thinking that North Europeans will keep flocking to Spain to buy just about any rubbish that exists - irrespective of its legality or suitability for retiring North Europeans.  In this regard, I gasp at the Spanish belief that North Europeans (the driving force behind the property boom) will come to Spain to buy ill-designed adosados or, for that matter, flats.  Some will, of course, but what most Europeans want is an affordable, well built, character villa with 3 bedrooms, 2 bathrooms, a pool, and a decent flat plot close to the coast – preferably fully legal.Needless to say, very few properties in Spain meet this criteria.

 

In fact, for years the authorities in Spain have allowed rampant, often illegal and poorly designed construction to take place across the country.  There has clearly been no strategy at any level – whether regarding design precepts or the future social impact of new developments.  Furthermore, (amazingly!) absolutely no regard whatsoever has been paid to the appalling (often justified) publicity in Northern Europe about  ‘Land Grab’ and other associated property problems.  These concerns have produced a perception of real concern amongst potential buyers.

 

In short, Spain has carelessly and greedily squeezed the goose so hard for endless golden eggs that the poor old bird has, very predictably, keeled over.  Unfortunately, the consequences are likely to be as hard as they were for the UK in the early 1990’s...





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09 May 2012 19:48 by trowell1 Star rating. 133 posts Send private message

Hi All

simply put -loads of property in Spain with no Spanish people with money. Even the agents can't deny prices may go down.

with a tough winter coming for a lot of eurozone countries, hang on to your buck and wait .

prices will come down





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09 May 2012 20:10 by acer Star rating. 448 posts Send private message

Well, time will tell ojosazul88. 

But I do very much recall the crash in the early 1990's in the UK as mentioned in your post.  I had moved to the SE England in May 1987 and in doing so was obliged to take on a large mortgage, the price dipped dramatically shortly afterwards and I was probably in negative equity for a while, but now 25 years later...this has somewhat changed.

There were other similarities early 1990's also - mortgages available based on 5 times joint income and if that didn't suit you could have a self certification of income mortgage for pretty well whatever you wanted.  That was a speciality of the "Peckham Building Society" - Dell Boy County, which probably says it all.  It's surprising the banks and lenders don't learn.

Any way - my glass is half full, my property is indeed well built plus on a lovely urbanisation, we use it regularly and as I'm not intending to sell for quite a few years I'm happy.





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