The following article is taken from Eye on Spain, www.eyeonspain.com

Spanish Property Market Values - What Is The Truth?

Property in Spain, according to a recent article in The Economist, is currently over valued by 50.4%! This shocking figure is enough to make anyone in Spain despair. How, you have to ask, could a reputable magazine like The Economist be so wrong about the Spanish property market?

Euro houseThe answer, unfortunately, is that The Economist ( I suspect rather lazily) have clearly relied upon Spanish goverment figures. These are notoriously unreliable when it comes to property in Spain. Indeed, almost every authoritative commentator in Spain finds what the Ministry of Housing has to say as risible. This is shown by their figures stating that the average drop in value of Spanish property since the boom has been only 12%. This is utter rubbish and has come straight out of the Alice In Wonderland execution of government.

The truth is that actually no-one knows for sure how much Spanish property has dropped in value since 2007. Indeed, it would be virtually impossible to give a precise percentage given the complexity of the marketplace – not helped by years of Spanish properties being bought partly for ‘black’ (undeclared cash) money. The latter means that many prices on Escrituras (property deeds) are, and always have been, nothing if not inaccurate.

So, what is the truth?

My own feeling, backed by day to day involvement in the Spanish property market, is that prices have already fallen (on average) by between 30% – 45%. This is certainly true of many Spanish properties that I know of personally and is echoed by the comments of other agents.

Certainly, if The Economist had said that Spanish property since the boom had dropped by 50.4% then they may not have been too far off. However, to claim that property in Spain is still 50% overpriced is just utter rubbish and simply does not take into account reality or the facts. If this sounds like me being defensive then look at what I have written over the past 4/ 5 years – during which I have expressed a consistently pessimisstic view of the Spanish property market. Indeed, I was warning of a potential property crash as far back as 2005!

As to the future? Well, property transactions over the course of this year have been pretty stable at some 30,000 – 35,000 sales per month, albeit that these represent about half the volume occurring during the boom. So, there is reasonable market activity.

The main problem remains the vast amount of housing stock still for sale. Again no-one knows quite how much but there is probably around 1 million new builds and probably the same number of resales. This fact alone will keep prices depressed for the forseeable future with the domestic market unlikely to recover until the Spanish economy picks up. This is unlikely to happen for some time given the 20% + unemployment rate, the (very late!) austerity measures and the lack of an alternative to replace the ruined Spanish construction industry – capable of providing mass, wealth creating employment.

Regarding Spanish property prices – if I had to make a ‘call’ – I would predict a further gentle slide downwards in average Spanish property values over the next twelve months. However, as I have said before, there is a huge difference between average prices for a cross section of properties in Spain (many really awful and not suitable to North Europeans) and particular properties.

‘Particular’ properties are fully legal, quality Spanish properties and these will now, I believe, start to hold their values and are certainly well worth buying. You just need to know the difference between an ‘average’ property and one that, for objective reasons, will hold its value and prove to be a sound investment. Given the nature of the Spanish property market, this is something of a science…

 


Comments:

CommentDateUser
Sadly the shocking truth is that until property problems are sorted out in Spain, Spanish property has no place for any investor. With high profile cases on the world news with no resolution by the Spanish authorities this problem will worsen. See BHtheTRUTH on you tube, or look up Marta Andreasen in the EU parliament telling the Spanish president that all EU funds will stop. Anyone not aware of these problems must simply be on another planet, yes the value must be at least 50% down, if you could get anyone with half a brain to look into parting with cash at all in Spain at the moment.20/07/2010 21:47:00billinspain@msn.com
All I can say is that we looked at houses three years ago in the Denia/Javea area. These same houses are still for sale but now 40% cheaper, and you know what? they still are not selling.At the end of the day, a house is only worth what some one will pay for it and I am afraid people just are too nervous of the Spanish housing market. I see a very depressed market for some time to come!20/07/2010 22:39:00Jamie Krick
Thanks for an interesting article. We moved here 18 months ago and are currently renting, but thinking of buying early next year. This would be to live in, not as an investment, but what worries me is the possibility of the property losing value and thus trapping us in Spain. It's not impossible that we might want to return to the UK one day, although we are happy here at the moment. It's hard to see how anyone can make any kind of prediction about the future in this crazily unsettled financial world though. *sigh*21/07/2010 00:12:00Finisterre
Spanish property still 50% overvalued? What utter ill-informed rubbish! Maybe somewhere there are new unsold units in locations that no one wants with zero local amenities and no chance of ever appealing to Northern European buyers - then Yes, this sort of unappealing property is 50% overvalued, but who would be so misguided by some unscrupulous agent to even consider such a disaster? People like me who have been involved with Spanish property since the late 1980's have managed to survive by never promoting such properties as previously described here, others have been tempted by "mega" commissions, (where are they now?) Today we are mainly concerned with resales, and any vendor truly wanting to sell is very accurately briefed on current market conditions. I do not put myself up as any kind of market expert, nor do I have access to a crystal ball, but I can assure you that we sell property each week, every week. How? Very simple, we only accept properties in sought after locations, we do not accept "over priced" or "fanciful" valuations, we only deal with vendors wanting to sell, not "market testers”. Importantly, prospective buyers are given factual information about our properties (not estate agent speak). Furthermore, we try to arrange any borrowing requirement prior to viewings, thus avoiding any disappointment due to mortgage refusal. Finally we work for a modest commission which reflects the market conditions. This is not rocket science, this is back-to-basics. The Economist article has absolutely no credence whatever; clearly a poorly researched piece. Why don’t these reporters/researchers speak to people like me if they really want to know what is going on in the market place? Probably because a disaster report is more exciting to read than the real world situation that I and my colleagues inhabit.21/07/2010 12:07:00John Scott
My advice to you, Finisterre, is not to buy. Rent. We were thinking of buying (again) in Spain but a recent 6-month stay in the inland Costa Blanca region where there are thousands of empty, badly-built properties, changed our minds. This, and the fact that there are STILL estate agents in Spain that are following the same trends that helped to bring about the crash. Where's my evidence? Well, we sold our property in Miravet, Catalunya, at the height of the market for 150,000 euros and we have just seen it advertised for sale at 200,000!!! There have been no changes to the property since we sold it and we find it incredible that the agent has put this price on it; a) because property in Catalunya has dropped at a greater percentage than other areas in Spain b) the house was sold to a British couple who will be getting a better exchange rate on their money when they convert euros back to sterling, a factor that should enable a reduced price..and, most sad of all c) this house will stay unsold at this price for many years. By the way, Bill in Spain knows what he is talking about. Look at BHtheTRUTH on Utube if you are at all interested in finding out what can really happen to innocent people in Spain. We love Spain and will always spend time there but we'll never buy again. Why buy when there will be cheap rents for years to come? Will house prices continue to fall in Spain? Yes. When many surveyors in the UK are predicting another crash here in the UK...where has Spain got to go? Has anyone noticed...times are hard and they're going to get harder.21/07/2010 12:27:00Meggie
Thank you, a well constructed article offering, in my opinion, considerably better judgement of the situation than the Economist missive. I also feel prices to be realistically down around the 30-45% mark, depending on area and type; but putting aside the absolute rubbish which certainly exists and would be difficult to sell even at give away prices. There can be no repudiating that it will be several years before the market truly starts to climb again. And if the Spanish economy were to, heaven fordbid, go 'belly-up' then undoubtedly property prices will fall even further.Investors [in for the long-term, say 10 years] could reap some noteworthy returns if they bought wisely to-day, but purely for cash and would have to be of the kind who believe strongly in property markets. Whether or not you would be safer buying in say UK or even Croatia depends on an individual point of view. But I don't think you would have to be completely crazy to think about buying in Spain to-day. One thing that history has proven is that economies are cyclical, the only question for Spanish property and the Spanish economy is just where on that circle we are to-day......I for one, have a hope and a prayer that we are at least standing with our feet at the bottom of the pit and looking upwards!21/07/2010 12:59:00Paul Clabburn
All I can say is that the proof is in the pudding.I have friends that have houses in lovely, desirable areas and they just can not sell. One couple bought a beauty three years ago and now they can not sell for a 40% discount. Believe me, do not buy, rather rent and keep your money in the bank earning a little interest, you will be laughing in the end.21/07/2010 16:52:00Daisy
Like many others, I found last year financially draining. After 6 years of excellent exchange rates & stable interest rates, we werent prepared for the economic problems. The mortgage payments for our villa increased an extra 500 euros each month, the euribor peaked (fixed for 12 months)at one point it was crippling. Obviously we are now pleased that things have settled with the lower rates - for the time being!!!. I often contemplate how it would be more cost effective to rent a similar property to mine, without all the stress of the mortgage & constant costs involved...not to mention stress with communication when sorting out utility bills etc...BUT I think we should all live life to the full, its not just about money, investment, housing market bla bla... 'Quality of Life'... money cant buy a future! Why wait... life can end at any time for any of us! If the media announced tomorrow property prices were set to hike, Ryanairs internet site would be 'blocked' I love the UK & will never leave this country, I love every bit of it, but then I live in a beautiful country location. I also love being able to pack small hand luggage only hours before leaving for the airport. My teenage daughter takes her lap top, my husband well almost empty bag really. Everything is at our senconnd home in Spain...I wouldnt part with it for the world especially now when holdiays are so expensive 'still' & the best rentals are fully booked. Whatever the cost 20% 30% 40% less its a buyers market a chance to have a dream home... The property cycle will always be like a 'cork on the ocean. I should know I have a few properties in the UK.. Just remember... The SUN will never change in Spain & thats what draws us there... just go for it but use a bank like Halifax.. wish I had22/07/2010 00:21:00debbie
Renting has always been an alternative to buying, you could apply the same logic to the UK, the point is how long do you rent for? 6 months, 6 years, the rest of your life ? Or do you wait until the market has fully recovered, and then purchase at the going the current market price ? I think some of the contributors here are missing the point, prospective buyers of Spanish property who have the means to proceed to completion, will undoubtedly secure an absolute bargain, of this there is no doubt. If you can afford it, buy it, if not by all means pay a landlord. This has never changed. PS I am a landlord22/07/2010 11:12:00John Scott
I have to say another Spain bashing article! The housing market in the UK is over priced by more than double. What happens when and I hope note the average house frice reaches 200,000 pounds? No first time buyers will be out there, how can they afford the astronomical deposit that they will need let alone pay the Mortgage. UK needs to get real and stop being gready, it may well follow Greece, Portugal and Spain! Think about it.25/07/2010 12:42:00Paul Smith
Just to refer back to the original article that suggested that Spanish property is currently overvalued by 50%, can you imagine just how many property owners, Spanish and other foreign nationals would be queuing, leeming like, to leap off the nearest cliff, (or over valued high rise if no cliffs are available), if this rubbish were even half way true ? We all know Spain has it's economic problems, where dosen't these days ? Anyone buying in Spain will certainly still enjoy a fabulous climate and a healthier lifestyle, that has not changed, nor ever will. Surely only property speculators need concern themselves with the vagueries of fluctuating property values, permenant home owners, will see a return of previous levels of worth, they will just have to wait. Meanwhile, enjoy, life's too short. 26/07/2010 10:06:00John Scott
I don't think the article is Spain bashing, just a reflection on the lack of good data out there, similar feeelings are relayed in this comparison of property price data in Spain - http://prices.kyero.com/2010/07/11/spanish-property-market-summary/ - official data just doesn't provide a reality in Spain.10/08/2010 14:01:00Vera Jameson