What's In Store For Spanish Property In 2011?

Published on 18/01/2011 in Buying Process

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.

Crystal ballThe 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.

Written by: Mark Burns

About the author:

Mark Burns works for Property-spain.tv, a UK based news and information resource specialising in overseas property and who offer a wide selection of property in Spain.




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Comments:

Terry said:
03 March 2012 @ 10:02

Agree with all the comments my own story is a case of lies from the builder and English estate agents broken promises all am mounting to being told anything to get our cash. Resulting in a sub standard property that will never sell and a very bad taste in the mouth and that we will never come back to Spain again and have had to give up our house.


Patricia said:
21 January 2011 @ 12:34

What with all the bad publicity re the appalling corruption, that is so common here in Spain, it's a wonder that anybody would consider purchasing here.Had I known what I know now I would have bought in a safe country and just rented here. Also, another downside is the inheritance tax situation.Apart from the climate, there seems to be little to recommend.


robert said:
19 January 2011 @ 23:42

what you do not mention is the land grab the illegal properties
the fact that local corruption has not yet been dealt with
regardless of EU human rights legislation this does not seem to apply to Spain
also property deteriorates faster in spain due to building methods therefore if a property is empty for a while it can take a lot of work before it is fit to move into even if it is sold
until people can buy property with confidence that the property will not be declared illegal in a year or so /or a demand will be made for money for local infrastructure or most of your garden people will not buy /because most people who buy in Spain are not wealthy enough to loose the money they invest whether as a holiday home or to live in Spain



midasgold said:
19 January 2011 @ 13:20

If your casa/flat is an investment you will have to wait a VERY
LONG TIME to break even, never mind make any profit.
If your casa/flat is your HOME, enjoy your life, you are already
in profit .But take care, use any spare cash/euros you MAY have and invest in GOLD /SILVER as this (now)will look very cheap.
You have been warned !




Jack D said:
19 January 2011 @ 09:45

Oversupply mat be an issue in those areas highlighted but I cannot believe the author has missed out Orihuela Costa and Torrevieja. There are whole urbs of empty properties and yes, they are still building! There is no cause for optimism around there, believe me.


Paul said:
19 January 2011 @ 08:34

Hi

Yes interesting. But you don't mention the very real risks ahead for Spain that would cause another lurch downwards. Economic reforms and fiscal consolidation that have happened have been far too meek. Spain is still spending more than it makes meaning it has to keep borrowing more and more from international markets. Add to this the huge debt it has to refinance this year and a default becomes a real possibility (all it would take is for some investors to stop buying bonds). The true nightmare scenario however for investors in Spain (as of this week, I am one) is ejection from the euro. Property in sterling terms would plunge. Unlikely sure but Germany won't and cannot keep bailing out it's weaker cousins. Spain may not ever chose to leave but a German based block might leave it behind. The road ahead is very uncertain. And therefore potentially an excellent time to buy and drive a great bargain! But the risks of further significant falls remain very real.

Paul



John Geffreys said:
19 January 2011 @ 00:00

The article makes some interesting points, and without doubt this is what a large number of people are debating at the moment, especially as the real impacts of the sovereign debt crisis begin to roll out over the course of the next six months.

We own a property in Valencia, and whilst we are not really looking to sell at the moment, we are obviously concerned at the impact this will all have on our main asset.

Interesting, and slightly concerning time ahead.


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