Correcting the Spanish Property Market

Published on 21/05/2007 in Investing in Spanish Property

Should we be nervous?

Recent accounts of the Spanish property market have sent alarm bells ringing through the European Investor Community.  Scare mongering stories could actually trigger off a self-fulfilling prophecy whereby anticipation of events will only cause the predicted events to occur.

During the last decade, the Spanish Property Market has seen exceptional growth. However over the last three years the rate of increase has dropped from a 20% increase in property prices per year to around 10% per annum. In any economy there are peaks and troughs.  In reality what we seem to be seeing is a market correction and leveling off rather than a drastic fall.

Realistic or Unrealistic?

The price increases that we have seen as of late have been seller-led and have in many cases not reflected ‘true market value’. Numerous private sellers have a preconceived idea of the ‘market price’ for their homes. Unfortunately, many a time these prices are reached through a combination of subjective (eg what their neighbour is selling for) and objective factors rather than sound factual indicators. 

Market valuations should be objective, based on a simple rule of thumb as that applied by banks (price per square metre in a given area multiplied by registered square metres). In practice however sellers often ignore this rule of thumb and let external factors play a large part in their price setting.  Similarly, many developers have jumped on the band wagon of escalating prices and there are thousands of mediocre apartments being sold off-plan at extortionate rates.

Is Correction a good/bad thing for the Spanish Economy?

The correction that we are seeing is not a bad thing.  The property market as of late has been growing due to seller expectations rather than real factors.  However the increased supply of housing on the Costa del Sol coupled with recent interest rate hikes are forcing developers and sellers to price their properties at more competitive rates. 

Despite current market sentiment, Spain is still one of the most attractive destinations in Europe due to its climate, culture and location. There is still a buoyant demand out here, and whilst the demographics of the average buyer has shifted, from speculators wishing to make short term gain, to consumers wishing to live and build a business in the area, the latter is creating a more solid foundation for long-term economic growth. 

Much of what we are seeing is a mismatch between supply and demand.  Whilst some developers have been building box-like apartments, many of our clients are looking for qualities they would expect to find in a full-time home: storage space, decent sized rooms and parking facilities. 

A Buyers Market

Today’s clients are doing a lot more research and are still able to find quality developments and well priced re-sales.  If you are buying on the Costa del Sol, now is the time where you can find a real value for money property.

Written by: Shanalle Bacarese-Hamilton

About the author:Hamilton Homes

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Mr Fish said:
21 May 2009 @ 13:58

Hey Norman, Nobody can see the future. Not even you...

normansands said:
23 May 2007 @ 11:45

Dress it up how you like, but the facts are that no one is interested in your standard box, unless it is very special and prices are very heavily discounted. Valuations per square metre are not achievable, developers 3 year old prices are not achievable. There is a market slump and the market will take many years to recover. By which time there will be a whole new market with many more proven destinations.

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