Spanish property boom or bust? You decide!

Consolidating the collective knowledge and experience of three top Spanish property experts, Overseas Property Hub Nubricks.com launches The Great Spanish Property Debate, its most informative overseas property podcast to date designed to put the record straight on what the future holds for potential buyers and sellers of property in Spain.

As part of Nubricks second overseas property podcast series, this hour long Spanish podcast contains essential information that buyers and owners of Spanish property both need to hear. “Our podcastees are professionals who have an impartial, bird’s eye view of the Spanish property market” explained host Adam Samuel Nubricks resident podcaster. “the Sunday Times resident ‘Spanish Property Doctor’ Mark Stucklin’s wealth of Spanish property knowledge, Kyero.com Martin Dell’s attention to Spanish property search and statistical detail and the weight of Aguirre Newmans Wynn Williamson’s market analyst forecasts, combine to offer three unique perspectives on the business of Spanish property and whether Spanish property will boom or bust in 2007.

There is no disputing that the recent media coverage on the Spanish market along with longer standing issues such as Costa del Sol corruption and the land-grab issues has seriously dented property buyers’ confidence and indeed the sellers. However we need to be realistic about the property market, how it has got to where it is and potentially what will happen in the future?

The number of people searching for their dream home in the sun in Spain has been decreasing over the last few years. At a basic level this can be seen by looking at internet statistics on what people are searching for, although this is not a fool proof indicator. Google Trends allows you to search volume trends for phrases like "property in Spain" and from looking at these trends it is noticeable that the Spanish property search volume has halved just about every year since 2004 and this looks set to continue. Martin Dell, from the Spanish property portal kyero.com comments “This downturn in volume could be purely down to the ‘dreamers’, after all it costs nothing to do a Google search, and from word from the agents itself, it would seem that the number of people looking to buy not for speculative reasons or for investment, but just for utility reasons - to have a home to use, in the sun – has stayed constant over the last year to two”. Another reason for the down turn in interest could be that Spain itself is now having to compete with other property markets each offering a sunshine coast and a cheap beer or two; in many cases high profit margins on ‘flipping’ and short term investments are being publicised in these alternative ‘emerging markets’.

Sales rates have been declining in Spain since 2003 meaning that fewer new units sell per year and it is taking longer to sell a property. According to Wynn Williamson of Aguirre Newman based in Madrid, “In 2003, it would take about 23 months to sell an apartment, however recent 2007 studies indicate that sales can take up to 35 months and it could be even longer for resale properties.”

“As for price per square meter of a property, we are still seeing increases across Spain, but the increases just aren't as much as they were previously.”

The media coverage on corruption is nothing new. The reigniting of this issue seems to have happened in the ‘Spanish Bubble’ hype, however for many, the recent press on corruption has been very much welcomed as it has given the market a chance to air out and address the issues. The new Ley del Suelo, will add a level of transparency to all these processes. The new legislation will establish an obligation for opening all planning and development projects up to public consultation; it will also bring land valuations and expropriation rights into the public arena.

When looking at the Spanish property market it would be hard not to mention off-plan property and the alleged over supply of new property up and down the coast. “The Spanish College of Architects talks of 920,000 planning approvals in 2006, with a smaller figure, 800,000, quoted for 2007 so there are fewer housing starts”, comments Wynn. And although not all planning approvals result in a housing start, of course many do. But this is an issue specific to certain markets, in Barcelona, for example, there is not a new build ‘problem’, all the building was finished at the end of the 19th Century, these issues have been generalised across Spain but really we are talking about isolated areas like the Costa del Sol.

There are very different markets in Spain and probably even more micro markets; where Barcelona differs from Malaga, so does the coast from inland property. According to Kyero.com’s new popularity indicator it can be seen that over the last 9 weeks Almeria, Tarragona, Albacete and Valencia have all gained in popularity with property hunters; and those losing in the stakes are Granada, Malaga and Alicante.

Whereas Malaga is feeling the effects of negative publicity and the recent plummeting stock price of the Valencian property developer Astroc Mediterraneo which has filled our media headlines. Other markets for example, the capital Madrid, are seeing an increase in property interest and a rise in prices which has been spurred on by influential factors such as the expansion of the AVE train system. There is a plan, by 2020, that all of Spain will be connected by these high-speed trains and some of the areas which are set to receive these AVEs in the near future have certainly seen increases in prices such as Avila, Segovia, Guadalajara, Toledo. Valencia too is enjoying a period of world attention for the famous Americas Cup generating renewed interest in the region.

Each market in each area responds to local factors - the usual factors of supply, demand, and prices. Mark Stucklin who writes The Spanish Property Doctor column in The Sunday Times adds “What we are starting to realise is that it isn’t a case of how much property is ultimately built in an area; it’s how much is built at the same time which has the greatest effect on the market.”

So prices are not dropping across the board in Spain, they appear to be going down in some places and not in others, and for certain types of properties, and not for others. In some highly developed areas, such as the Costa del Sol, prices are likely to have a shake out and drop to reflect demand but it will take longer for the new build prices to impact on the resale market. Problems will only occur for investors looking for short term profits by flipping their off-plan purchases; they may find themselves in situations where they are competing with the developer on the cost for the same product.

This situation has been exacerbated by numerous internal factors in Spain and in Wynn’s opinion “It is not just a case that they are building too much, they are also building the wrong type of property, using the wrong type of urban planning model”. There is an over supply of the type of property that suits a peak time holiday maker. A lot of the municipal authorities up and down the Spanish coast need to rethink what they are trying to achieve with their urban planning, and focus more on the type of property which would attract people to live in the area for a majority of the year. That is much better for building business and local community, and raising wealth for those municipalities.

There are signs that people are starting to plan differently, thinking about what they want to achieve with urbanisation in the future. Now that a development doesn't sell itself quite so quickly there has been an increased focus on marketing, and increased research, especially for analysts to examine various developments, and to see what is in demand and what sells well.

In addition to smarter urban planning you are also seeing more and more golf developments, you are seeing developments with activities for families, you are seeing spas, integrations with hotels and developments trying to offer something extra or something interesting.

Overall, it's neither a booming market - the boom's clearly over - but there is no disaster either. Quality property in all areas sells very quickly when it's priced reasonably, at a price to sell.

There has been a couple of big voices that have all chimed in and have said the same thing, that's it's going to be a soft landing. Among them J.P. Morgan, Banco Santander, the Bank of Spain. The recent effect on the Spanish market is an adjustment and it's a needed adjustment because the Spanish economy has been growing very strong, well above the European average. What we are seeing is a "construction-led recession," which is likely to last for a few years whilst the sector calms. There has been a lot of easy money made in Spanish construction and property for the last ten years. Unfortunately it has encouraged the wrong kind of people to get into the business, people who are just looking for a fast buck so a clean-out is not so much of a bad thing.

In the long run, meaning five to ten years, we are very likely to see prices in the hard hit areas in Spain start to rise again. Spain is still held dearly in the hearts of the summer holiday maker, not just in the UK but across northern Europe also.

The people who may lose out in the short term are the people that were making short term investment decisions, but that doesn't represent all of the people buying in Spain. It is now a buyers market and those looking for a ‘utility purchase’, a home that will be used for many years for holidays giving enjoyment value and quality of life, will be sure to find a bargain.

Mark offers a valid observation “Bargains are not at all about being cheap. Cheap is sometimes just cheap; it is not a bargain. A bargain is about getting great value at a price. That might even cost you two million euros, but it is still a bargain.” And this is a good time because the heat has gone out of the market. You can take your time identifying the property, and there is no rush. That also helps people buy safely, doing all the appropriate legal searches. It is up to the buyer to do their due diligence and make the effort to identify quality within the market and there’s no better way than actually visiting Spain to look around and see what happening.

If your goal is to make capital appreciation, if you are looking at this as a pure investment, you might want to consider some other markets, markets outside of Spain but also markets within Spain other than residential property.

So we’ll conclude with an alternative solution to property investment in Spain… garages. They can be very profitable in major cities like Madrid and Barcelona, even some smaller places like Salamanca and Tarragona. With a little bit of research you’ll find that there is a lack of parking and ‘car-homing’ space comes at a premium!

So, boom or bust in 2007?? The Spanish property market may no longer be booming but neither is it about to go bust, now is the time for buyers to watch the cash and invest sensibly into the ever popular Spanish market.

For more information download and listen to the Nubricks.com property podcast on The Great Spanish Property Debate at nubricks.com/archives/351/spanish-property-podcast-2/ or simply visit nubricks.com.