It's one of the most asked questions in the overseas property market at present, and one which seems to evoke the greatest range of answers. From talks of a new and sustainable growth already being underway, through to stagnation until early 2012, it seems little consensus is emerging about what is in store for Spain's economy and property market in 2011.
In order to try and ascertain what is likely to happen over the next twelve months, it's important to understand the various factors which contributed to one of the most spectacular property crashes of recent times. Without doubt we are in relatively uncharted territory, and whilst it cannot be disputed that challenges do remain, there are likely to opportunities emerging as the Spanish property market seeks to redefine itself with the next generation of overseas investors.
The much heralded Spanish 'economic miracle' of the past twenty years was seen by many as becoming a blueprint for many emerging economies seeking sustained growth through direct overseas investment. However with economic growth so intrinsically linked to a real estate sector built on unsure foundations, it was understandable that the Spanish economic falls of 2008 coincided with one of the world's largest property market crashes.
The real estate bubble in Spain predominantly focused around two key factors, which contributed to its considerable growth over past twenty years. Firstly, with tourist driven demand for property in Spain being at an all time high in the early 1990's, property developers began to react by undertaking one of the largest construction booms of recent times. Large numbers of new properties were being built in Spain at an unprecedented rate, and with developers understandably keen to shift stock, prices became very attractive to overseas purchasers.
The second ingredient to this toxic financial cocktail was the tidal wave of cheap credit which suddenly became available to purchasers of property in Spain. This cheap credit saw demand increase to unprecedented levels, as people saw an opportunity to purchase their very own slice of the Mediterranean dream.
When the correction came in 2008, it manifested itself in the most spectacular fashion, and the impacts of the Spanish property bubble bursting where felt throughout the economy as a whole. A recent Bank of Spain report showed that the correction resulted in around 2 million jobs being lost in Spain, which had become highly dependent on the property market for employment and growth. Indeed the bank estimated that by the end of the crash, the reduction will have reduced the Spanish economy by 5.4% in comparison with 2007 figures.
By Summer 2010, the Spanish property market seemed characterised by oversupply and lack of available credit, and understandably, many people are now asking what's next, and when will the recovery begin to emerge?
2010 has been seen by many as a period of consolidation, as many people chose to take stock of the new situation. Arguably this period of transactional calm is likely to prove beneficial in the long term as investors and holiday home owners move away from the negative sentiment which was all consuming just a few months ago.
Talk is now of the oversupply gradually being squeezed out of the market, with many major developers having held off on the majority of new construction in recent times. Indeed, there are already suggestions that some more tourist orientated destinations such as Mallorca are now seeing increased demand once again. Without doubt, oversupply is still a factor, but this does now seem to be focused in commuter belt pockets surrounding major commercial centres such as Madrid, Valencia and Seville.
Away from the more tourist focused areas, the correction has resulted in a more realistic pricing structure being applied, which is gradually bringing overseas purchasers out of the woodwork. Indeed many of these more recent purchases do seem to reflect exceptional value for money in comparison to the prices of three years ago.
Of all the factors to be considered when evaluating the future direction of the Spanish property market, without doubt the most important factor is demand. Over the course of the past twenty years, Spain has been the most popular overseas property purchase destination for people from the UK and Germany. Today, Spain shares this accolade with France, however demand for property in Spain is still substantial and is likely to remain so for the foreseeable future. What is more positive for the Spanish property market, is the rapidly increasing demand from the newer overseas markets such as Italy and Scandinavia reducing the dependence on the economies of just a couple of its European neighbours.
Overall, there does seem to be a consensus that the worst period is now over for the Spanish property market, and whilst the market will not return to the artificially inflated highs seen previously, a sense of direction and momentum will be harnessed during 2011.
Without doubt, the problems of the Spanish property market epitomised the global credit crunch, and on the back of this overall demand for property in Spain fell back as people became increasingly wary. These factors however are gradually easing their way out, and it is highly likely that once again Spain will become the heart of the European overseas property market.