Changes in the Spanish Property Market
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The Inns and Outs of the Twist in the Spanish Property MarketWe are hearing daily about the slow down in the Spanish real estate sector. There are continuous articles projecting that the property market will crash and it is unsafe to buy in Spain. There are also several real estate agents contrastingly professing that now is the best time to buy a home in Spain. But what are the facts and background of these statements? What actually happened to the market? What does this constitute? Why could now be a good time to buy? Is there an actual crash? Has it already happened?
There are a few major factors that have contributed to this hype. It started in the early 90’s when a property boom occurred in Spain with prices increasing approximate 20% per year. This lasted until 2004/2005 where due to the economic situation the European bank decided to start increasing the interest rate (note that property prices in Spain have still increased since 2005 just at a lower rate).
The increase in interest rates combined with the relatively high property prices (for the Spanish market) led to a decrease in the property demand from Spaniards, especially for new and second home buyers. Although the property prices have increased a lot over the last decade, it was predominantly expected due to the improving living standards in Spain. Conclusively, 15 years ago, Spanish prices were extremely cheap compared to northern European standards and although they have increased dramatically in Spanish terms, they are really just growing towards being on a par with northern European standards.
The articles predicting a crash in the Spanish real estate market have mainly focused on the slow down in property prices (that prices do no longer increase as much as in the 90’s) and the decrease in domestic demand for properties but also on the fact that the major real estate companies in Spain are constructing a great amount of properties. As 2006 drew to a close it was estimated that 800,000 new homes was built this year, compared to 600,000 in the previous year. Several investors became anxious regarding the weighty debt that certain developers had endured and they foresaw a plummet of shares. The prediction was right and some developers watched as the shares fell by a substantial 66%.
Consequently, nowadays, there is too much supply in the property market and not enough demand. The market has therefore taken a twist into what is technically known as a buyers market. This is when the buyer has dominance over the seller in the market, due to an oversupply of all properties (both new and second-hand homes) in the market. This is why some experts are now saying it is the best time to buy. From an objective point of view these statements have elements of truth. It is not a bad time to buy, but for the long-term buyer, it´ s especially good: There are more properties to choose from – this breeds competition, hence the reason why the estate agents and developers are focusing on quality and bonuses to ensure a sale. Also the Buyer is more powerful; therefore there is more leeway for negotiation on the price. Though, this great situation will not last for too long as property developers have already started to slow down their production and building licenses have decreased this year, which means if you are intending to buy long-term, don´ t hesitate for too long!
So what about the Crash? Let us get one thing straight; there has not been a Crash in the
Spanish property market – property prices are still increasing although at a more moderate rate. Experts have agreed that in the foreseeable future there will not be a Crash; at most just an adjustment in prices in areas with a clear oversupply of new properties.
In the long run the prices will increase because primarily the standard property prices in Spain are still lower than in Northern Europe and the Spanish economy is improving faster so eventually the property price will get closer to Northern Europe. Subsequently buyers who purchase now could make a substantial profit, if they were to sell in the distant future.
Belinda Milestone works as a content writer for oppSpain www.oppspain.com a company that is specialised in selling off plan properties in Spain.
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