Latest News and Reports on the Spanish
Property Market
SEPTEMBER 2005 REVIEW
There is still no real sign
of the expected slowdown in the Spanish property market,
at least as far as the official figures provided by the
Spanish government are concerned. Figures from the Spanish
ministry of housing for the 2nd quarter of 2005 show that
property prices increased by 4% in the quarter, which
on an annualised basis translates into an increase of
13.9%, down only slightly from the 15.7% in the 1st quarter
of the year. Indeed in its most recent bulletin the Bank
of Spain has argued that it is premature to talk of a
sustained trend towards lower levels of Spanish property
price increases, despite the fall in the annualised rate
of property inflation from 15.7% in the 1st quarter to
13.9% in the 2nd.
Foreign investment
in Spanish property down 17.2% in 2005
According to new figures from the Bank of Spain, non-residents
invested 400 million Euros in Spanish property in March,
down from 509 million during the same period in 2004 -
a drop of over 21%.
The Bank's figures show
that foreign investment in Spanish property peaked in
2003, when foreigners invested 7 billion Euros in Spanish
property. In 2004 the amount invested dropped by close
to 7%, and in the 1st half of 2005 the downward trend
has accelerated, with foreigners spending 17.2% less on
Spanish property than in the same period last year. This
contrasts with the period between 1999 and 2003, when
foreign investment in Spanish property grew by 130%. The
Bank's figures reveal that foreigners are spending less
on Spanish property than before, despite the fact that
Spanish property prices rose by over 17% in 2004. High
prices and over-development, coupled with worries about
the health of the UK economy, are likely drivers of this
trend.
Stagnating Spanish
property prices from 2006 to 2010 - new forecast
An annual report jointly published by Forcadell - a real
estate company - and the University of Barcelona, forecasts
that Spanish property inflation will fall from an annualised
rate of 15% in the first half of the year to 8% by the
end of the year, and then drift into a 4 year period of
stagnating prices lasting until 2010. The report identifies
the causes of the expected property sector slow-down as
a lower demand for properties (especially investments),
an increasing supply of properties, and a growing stock
of unsold properties.
Meanwhile a new report on
the Spanish real estate sector by Bayes Forecast finds
that only interest rates of 7% can put a stop to increasing
Spanish property prices, assuming no other external shock
to the economy. Nevertheless this study also forecasts
a slowdown in price increases to around 5% or 6% from
2006 onwards, slightly above the expected rate of Spanish
inflation (and therefore a very limited level of real
property price increases).
Also during September Caixa
Catalunya - one of Spain's biggest savings banks, and
a regular author of forecasts on the property market -
has forecast in its half-year report on the Spanish economy
that prices of newly built Spanish property will increase
by 16.2% in 2005, on a par with the average for 2003 and
2004, and slightly down on the 16.8% clocked up in the
boom year of 2002. Caixa Catalunya expects 708,000 housing
starts in 2005, beating even the all time record of 687,000
started in 2004, and much more than the 490,000 odd properties
started each year on since the mid-1990s. The report suggests
that the present level of building activity will cause
imbalances that will have to be faced at some time in
the future. The report also expects the growth in mortgage
lending to fall from 21% in 2004 to 18.7% in 2005. In
conclusion the report expects Spanish real estate prices
to continue increasing robustly in the short term, whilst
stating that such growth will be "difficult to maintain
for more than a few years".
Standard & Poor's
warns of risk of Spanish property crash
After the boom in European real estate markets over the
past decade, a coming orderly slowdown in house price
inflation in the region is forecast by Standard &
Poor's Ratings Services, in a report published on Sept.
13, 2005. Spain is most vulnerable to a hard landing in
house prices, but even in this market a gradual retreat
is the most likely scenario.
The article, entitled, "Can
Europe's Housing Markets Break Out of the Boom-Bust Cycle?",
is part of a special Standard & Poor's report in CreditWeek,
which asked seven senior Standard & Poor's analysts
to look at the global housing bubble, focusing on conditions
in the U.S., Europe, and Asia from a range of perspectives,
including homeowners, builders, lenders, investors, and
mortgage insurers. Each author was asked to consider how
a sharp home price decline could affect a particular sector
of the economy. A teleconference to discuss Standard &
Poor's outlook is scheduled for Monday, September 19,
2005 @ 10:00 AM EDT. All seven Standard & Poor's analysts
will be available to the media. Dial-in information is
below.
Historically, EU markets
have experienced a combination of short and long house
price cycles, characterized by periods of sharp growth
and declines in real house prices. These periods of boom
and bust feature uninterrupted changes of at least 10%
per annum in real house prices, of which there have been
18 country-specific booms and 10 busts since 1980. One-half
of the housing booms and busts in the past 25 years have
been concentrated in just four countries: the U.K., Sweden,
Finland, and Denmark. In the four years since the stock
market "bubble" burst in 2001, however, housing
booms have been more widely spread across the EU.
"With only a few exceptions,
EU markets have experienced a period of very strong house
price inflation in the past decade that is more widely
spread than in previous cycles," said Jean-Michel
Six, Standard & Poor's Chief Economist for Europe.
"This boom has been driven by a combination of structural
factors, namely demographics, interest rates, and easier
access to bank loans, all of which led to a dramatic expansion
in the EU mortgage market in the past 10 years."
Standard & Poor's sees
a moderate slowdown in European housing markets--including
the U.K. and France--as the most probable scenario. "Nevertheless,
double-digit house price inflation cannot be sustained
indefinitely and there are legitimate reasons to fear
that the boom may turn into a crash," said Mr. Six.
In particular, the real
estate market in Spain raises concerns, as the massive
property boom of the past five years appears far from
having run its course. At the end of the second quarter
of 2005, prices for new homes were up 17.2% year-on-year,
while prices for existing properties were up 17.3%. Moreover,
house prices have risen 140% since the market took off
in 1997. In 2004, housing starts amounted to a record
700,000.
With unemployment still
approaching 10%, the Spanish real estate markets is going
to be increasingly exposed to a fall in consumer confidence,
although the possibility of a sharp adjustment of house
prices in Spain in the near term remains low. Nevertheless,
the danger is that the crash of a large European real
estate market could also ripple through to other such
markets in the region.
Copies of CreditWeek's special
report on the housing market are available to subscribers
of RatingsDirect, Standard & Poor's Web-based credit
research and analysis system, at www.ratingsdirect.com.
Alternatively, call one of the following Standard &
Poor's numbers: Client Support Europe (44) 20-7176-176;
London Press Office Hotline (44) 20-7176-3605. Reprinted
from www.ratingsdirect.com.
Regional government
of Andalusia to make renewable energy systems compulsory
The regional government of Andalusia will make renewable
energy systems a compulsory feature of all new developments
and major refurbishment projects in future. The government
will also ensure that all it's own buildings are equipped
with renewable energy systems. The overall objectives
of these new regulations, which will also affect the present
system of grants for installing renewable energy, is to
reduce the region's energy dependency, boost local production
of renewable energy, and stimulate a successful local
industry based on local technology and energy sources.
Spain's Minister
for Housing claims soft landing in progress
María Antonia Trujillo - Spain's Minister for Housing
- has claimed that her department's policies are successfully
engineering a much needed soft landing for the Spanish
property market. Using latest government figures that
show Spanish property inflation decreasing from 19% in
the 1st quarter of this year to 13.9% in the 2nd, Trujillo
argues that government programmes to build more social
housing and stimulate the rental market are behind this
slow down in Spanish property price increases. Cooling
down the property market without damaging the wider economy
is one of the biggest challenges Spain's socialist government
faces.
Spanish economy
more dependent than ever on construction sector
New figures from the National Institute of Statistics
(NIE) show how the construction industry has been driving
the Spanish economy, accounting for 1 in every 3 new jobs
created in the Spain in the last 4 years. The construction
sector now contributes 16.2% of GDP, up from 13.3% in
the year 2000.
Spain building as
many properties as France, Germany and the UK combined
Latest figures from Spain's Architects' Association show
that the number of new housing starts in Spain have reached
all time highs. 206,611 new properties were started in
the 1st quarter of the year, up by 12.5% on the previous
year, and the first time ever that more than 200,000 new
properties have been started in a single quarter. If this
rate of housing starts is maintained throughout the year
Spain will start 800,000 properties this year, as many
as France, Germany and the UK combined. There were 761,471
new housing starts in Spain during 2004, at record at
the time. Taking into account the figures for the 1st
quarter of 2005, there were 785,000 housing starts in
the 12-month period to the end of March 2005 - a new record
for Spain.
Sales of Spain's
coastal properties slow after 6 boom years
The Spanish financial newspaper "Cinco Días"
reports that sales of holiday homes on the Spanish costas
have peaked after 6 years of record growth. High prices
and over-development in some areas - a regrettable consequence
of the boom - appear to have taken their toll on the demand
for Spanish holiday homes. The article goes on to say
that Spanish promoters report weaker demand, though it
is too early to talk of a recession, as demand is still
reasonably strong. According to José Luis Marcos
- director of Roan, a Spanish real estate company - the
only coast that has suffered a significant drop in sales
is the Costa del Sol, principally Marbella and Sotogrande.
"The prices in those areas was excessive and an adjustment
was needed", explains Marcos. The article also quotes
Chus de Miguel - managing director of the Spanish developer
Lar Sol - as saying "Prices are continuing to rise,
but at a much slower rate than in previous years".
35.2% of all properties
in Spain are holiday homes or stand empty
In its latest report on the Spanish property market, Metrovacesa
- one of Spain's biggest developers - reveals that 35.2%
of Spain's residential properties are second homes or
stand empty, up from 32.2% in 2001. According to the report
this demonstrates that "a substantial part of present
demand is driven by investors".
In absolute terms the report
finds that almost 8 million of Spain's 23 million residential
properties are not used as principal homes, up from 6.7
million 4 years ago. On present trends there will be close
to13 million Spanish properties that are either empty
or used as holiday homes by the year 2011.
Spanish mortgage
defaults rise for 1st time in 30 months
Spanish Mortgage defaults have risen for the 1st time
since September 2002, according to the Spanish Mortgage
Association. Nevertheless the rise represents a modest
increase to 0.451% from what was a historic low of 0.441%.
Spanish are the
biggest buyers of holiday homes in Spain, obviously
Inmueble Magazine reports that the Spanish are the biggest
buyers of holiday homes in Spain, contrary to the widely
held belief that foreigners buy the majority of Spain's
holiday homes. 16% of all Spain's housing stock is used
as second homes, with an average price of 210,000 Euros,
rising to 350,000 Euros in the case of detached properties.
Prices for holiday homes are expected to increase by 15%
to 16% this year, and 12% to 13% in 2006.
Mortgages to eat
up 46.7% of average salary in 2005
A new study by Metrovacesa - one of Spain's biggest developers
- reveals that mortgage payments for the average 20-year
mortgage eat up 46.7% of the average Spanish salary, the
highest level since the recession of 1993, and 5 percentage
points higher than 2004. The study finds that average
Spanish property prices are between 20% and 30% overvalued
when considered in relation to what average Spanish salaries
can afford. Levels of overvaluation are even higher in
areas where property prices are above the national average.
Despite evidence that Spanish
property is overvalued in relation to incomes the study
nevertheless forecasts that Spanish property prices will
increase by between 10% and 15% this year, a slowdown
from the 17.2% achieved in 2004. If this forecast plays
out it will likely mean that Spain has the highest level
of real estate inflation in the West in 2005.
The experts at Metrovacesa
expect the Spanish property market to continue cooling
down, and warn of the risk of possible "situations
of excess supply in some local markets, especially in
the holiday home market".
Metrovacesa also expects
the number of housing starts to increase by 5% in 2005,
with more than 700,000 new properties started, whilst
sales are expected to increase by 3%.
Euribor rises, but
monthly mortgage payments fall
Euribor - the rate used to calculate mortgage interest
payments in Spain - rose for the 2nd month running, from
2.168% in July to 2.223% in August. Despite the increase
Euribor is still below the rate in August 2004 (2.302%),
meaning that mortgages coming up for annual review will
enjoy a fall in monthly mortgage payments. A fall of 0.079
basis points over the last 12 months will lead to a saving
of 4.60 Euros per month for the average 20-year mortgage
of 120,000 Euros. This means that average monthly mortgage
payments will fall to just under 620 Euros.
Spanish families
sinking into debt with property.
Latest figures from the Bank of Spain reveal that Spanish
families borrowed 24.3% more in the first 6 months of
the year to finance house purchases, with Spanish household
indebtedness now reaching historic highs.
At the same time figures
from the National Statistics Institute show that the value
of the average Spanish mortgage increased by 19.2% between
May 2004 and May 2005, reaching 135,646 Euros.
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