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Spanish Property Market - An Insight
The world changed on 9th August 2007 when bad news from BNP Paribas, one of France's leading banking institutions, triggered a sharp rise in the cost of credit and made the financial world sit up and realise that we were all heading for serious trouble. From that point, the well-worn buzz phrase 'credit crunch' was used and as a result of the ensuing panic and contraction of the markets, several major western economies plunged into recession.
With Spain relying predominantly on its construction sector to prop up its economy, the country fared worse than most. Almost overnight, from a burgeoning housing market in which developers simply couldn't keep up with the supply of overseas interest and investment, the whole thing began to crash around us. We had become accustomed to an environment of cheap and easily accessible credit (bank managers in Spain would often laugh off any suggestion that a buyer may not be suitable for one of their mortgages), and everyone seemed to want a piece of the action, to the extent that many investors, particularly from the UK and Ireland, proceeded to buy up off-plan developments at any price, sometimes without even seeing what they were buying. Imagine that happening now!!
Now we are dealing with a very different Spanish property market. Many of those buyers who were promised 100% mortgages by the Spanish banks, were unable to complete their off-plan purchases as the funds simply weren't there to complete - the banks wouldn't provide the mortgage and the buyer was unable to find the cash. And so, we saw the first round of develper discounts. Major housebuilders such as Polaris World were left exposed, owning vast tracts of land on which they had planned to develop large-scale golf resorts, and hundreds of staff to employ. Luckily for some developers, they had collected 40% in deposits on incomplete units and were therefore able to re-sell the same properties with an equivalent discount. But sometimes, even this wasn't enough.
Of course, as the lending banks reacted to the credit crunch by virtually wiping out over 80% of its mortgage products overnight, so any interested buyers found it almost impossible to secure finance, whathever their circumstances. The nightmare scenario was becoming a reality - an oversupply of stock and a dearth of buyers. Although this fatal combination saw the demise of many developers, builders and property professionals in Spain, few were surprised. After all, most overseas buyers of Spanish property would usually buy for 2 reasons - as a 2nd home (or holiday home), and/or for rental income.
Naturally, the last thing on anyone's minds in 2008 and 2009 was that dream home in the Spanish sun. Most people were just concentrating on trying to pay their own mortgage and meet their own everyday bills back at home, rather than having to worry about funding yet another property, no matter how idyllic the idea may seem. And of course, with the Spanish property market seemingly in freefall, the vast majority of people were scared into holding off to see if they could call the bottom of the market.
Yet another complication in trying to rejuvenate the property market here in Spain was the collapse of the pound against the euro. This had a dramatic effect on sales volumes as the market had previously been dominated by UK buyers, keen to invest in the traditional British love affair with the Costas. At that stage, with the pound at near parity with the euro, any Brits with any spare change were far more inclined to invest at home, although it did serve to help UK-based sellers of Spanish properties, in that it meant they were able to slash their asking prices by 30%-40% here in Spain, knowing that their repatriated funds would be making them a similar profit on the way back to Blighty.
2010 saw the first signs of recovery for most Spanish estate agents, but the British buyers continued to be noticeably absent. Of course, the most common property transactions in Spain last year would normally feature a British seller (often desperate to dispose of an unwanted holiday home at a massive discount), together with a buyer from the Euro-zone, with the advantage of a comparatively strong currency and keen to profit from the seller's distress. So 2010 saw an influx of buyers from continental Europe and the wealthy Spaniards from Madrid and the north of the country.
And so it has continued into 2011. The market in the most popular and most exclusive areas seems stable. It seems that 80% of the buyers are chasing 20% of the stock, and properties in the best locations sometimes end up being fought over by several interested parties. The flip-side to this is that in the less popular areas, the places where infrastructure and local amenities are lacking, interest is virtually non-existent. The 'skew' in the market is that these sub-standard, often incomplete, under-populated developments represent the aforementioned over-supply of properties - the 'glut' that is often gleefully mentioned in the British media. Yes, these properties need to be sold, and unless the Spanish government comes up with a plan to utilise the excess stock by way of social housing projects, these units will indeed take years to sell. But (and it is a BIG 'but') these are the properties that no savvy buyer currently wants. So rather than dragging down the prices of properties in the popular and highly-regarded coastal resorts of exclusive villa enclaves of the rich and famous, these ghost-towns and unwanted units are just being left to one side. Unloved and unwanted. But of course, it doesn't stop the Daily Mail advising prospective buyers to use this oversupply of stock as a reason to make offers of 50% of the advertised price on any property, no matter its location.
And of course, this is where many buyers do become unstuck. They assume that every vendor is absolutely desperate to sell, and they also assume that they should negotiate at least a fixed percentage discount from the asking price in order to secure a 'good' deal. What they often fail to accept is that a property is priced to sell at a bottom-line figure and that very little further discount is available. So the market in 2011 is maybe best described as a tug of war between the buyers' perception that every vendor should be slashing already discounted prices, and sellers who are hanging out for the best deal possible, hoping that the bottom of the market has been reached and that the increasing volume of buyers means that the corner has been turned.
We expect 2011 to continue to resemble a battle of wits beteeen buyers and sellers, particularly in the well-renowned areas, where determined vendors are becoming more resilient. Of course, everyone is keeping one eye on the UK and the exchange rate between the pound and the euro. If sterling were ever to rise to a psychologically more appealing rate of 1.20 - 1.25 and if the mortgage market were to ease (even a little), the Brits could be back. With the return of historically the largest group of buyers along the Spanish costas, we would undoubtedly see a rise in sales volumes and a natural stabilisation (and even a rise) in prices.
It's a complicated picture, with no clarity in sight just yet. But one thing seems certain. Britain.....Spain needs you!
