If Spanish real estate agents are to be believed, the interest in prices of Spanish homes has risen sharply since the crash in 2008. Sadly, this much talked about increase in online and telephone enquiries hasn’t translated into a rise in completed sales. As a result, one shouldn’t expect a shift into an upwards directions for Spanish home values any time soon.
In a market analysis conducted by rating agency TINSA it was revealed that, compared year on year, sales figures for April 2011 showed a slight downward trend from the close of the first quarter with the overall market showing a distinct flatness. Instituto Nacional de Estadistica (INA), the Spanish government’s own Statistics Office, reported that completed property sales transactions had risen slightly above the level of 2010. However, currently the level of sales actually going ahead has fallen.
The INA survey also revealed that the number of expats living in Spain has started to shrink. It appears that foreign home owners, no longer able to support their lifestyle in Spain, are forced to return home. Historically, overseas buyers have been the driving force of the property market, and this new development has already added a negative effect on prices.
Industry experts have remarked that the Bank of Spanish actions are largely to blame for the market conditions. As a regulator of Spanish banks, Bank of Spain forced the 23 largest banks in the country to start shedding the repossessed properties on their books. The aim is, of course, to return liquidity into the economy and return to a normal situation of the number of assets held on banks’ balance sheets. The race is on, as banks have only until September 2011 to comply with the Bank of Spain’s ruling.
This ruling has caused the Spanish real estate market to be flooded with repossessed properties at rock bottom prices. The majority of these homes appear to be new-builds, which have never been lived in. Greedy developers, unable to envisage that the property boom would ever come to an end, built far more housing units than they could hope to sell. When the property market collapsed in 2007, a large number of developers went bankrupt and Spanish banks suddenly found themselves holding vast numbers of repossessed housing units instead of receiving juicy loan repayments.
Such an over-supply of housing stock can only have a negative effect on property prices and it is already showing in many parts of Spain. This should be seen in context though – while worldwide economic downturn has certainly put a dampener on foreign investors’ enthusiasm, Spain hasn’t fared as badly as initially predicted.
So is this the right time to throw caution to the wind and invest in Spanish real estate once more? Taking a close look at the cycles that housing markets in Spain undergo, one should probably go ahead and buy now. While prices went down rapidly in 2007 and levelled out at their lowest in 2009, prices started to rise again ever so slightly, but steadily, in 2010. The aforementioned flood of new-builds released by banks has halted this upward trend, but the incentives offered by banks in the form of generous mortgage terms may well tempt more foreign investors back.
Having a look and doing a little research now to see what one can get for one’s investment money is certainly a shrewd move. Spain’s government, keen to get large scale investors on-board, are actively promoting housing stock to corporate investors and Northern European pension funds as an alternative to the usual stocks and shares.
Although these type of organisations are prone to drag their feet when it comes to making decisions, once they do, their actions can have a significant and stimulating effect on the real estate market. Large scale purchase of property by corporate investors should redress the balance, increase prices and take care of the oversupply of new housing units.
Housing units most suitable from the point of view of corporate investors are those, which can bring in a good rental income. Spain is one of the world’s most visited tourist destinations, only eclipsed by the US perhaps, and the Spanish government has wisely invested in upgrading the country’ infrastructure with new airports, roads and rail networks to lure even more tourists to Spain.
All in all, this is encouraging news for the UK’s buy-to-let investors. Current conditions then, so it seems, are ripe for taking action.
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