A Viewpoint on the Spanish Property Bust
Tuesday, May 1st, 2007 
Posted by Overseas Property Mall in 
After a fortnight of tumult for Spanish Property Developers, commentators are taking stock of the situation.
Last week news headlines were taken by the plummeting stock price of the Valencian property developer Astroc Mediterraneo, which fell 65% and reflected a now sensible price earnings ratio of approximately 19. Astroc’s recent fall is really the second part of a downturn that began with a worldwide plunge in share prices in late February when Astroc stood at approximately 70 euros a share. The price dropped to 45 euros in a single day and then stablilised until mid April when it began to fall once more.
According to Nomura, shares in Spain’s 10 top property developers have lost about 7bn euros in the second half of April. The scale of losses has prompted business and government figures to issue statements designed to reassure the markets. Such a loss naturally raises questions about the causes of the decline and how long the setback to shareholders and holiday home owners is likely to last. Property investors will want to know if the downturn is a harbinger of problems spreading to other parts of Europe or the world.
More diverse companies, such as Acciona (infrastructure, logistics, real estate and waste disposal), for example, have registered much smaller losses. Although Acciona shares have lost value since the middle of April, they are still well into positive territory compared to a year ago and the same goes for banks such as Banco Santander and BBVA.
There has been comment that the levels of corruption (in the planning process, for instance) have undermined the Spanish property market. However, corruption has been well covered in the media and it seems more likely that the uncovering of further corruption is going to result from the financial problems of developers rather than to be a cause of these problems. The basic causes of the property downturn in Spain are the oversupply of holiday properties and the rising cost of borrowing. Diana Choyleva of Lombard Street Research is quoted as saying that over-investment has reached a gigantic scale. The mortgages on Spanish properties are overwhelmingly variable rate and the cost of borrowing in the euro zone has been rising steadily with increases at roughly two monthly intervals taking the base rate from 2.5% to 3.75% in the last 12 months.
Commentators with an in-depth understanding of the Spanish market seem to be expecting stagnation or a possible drop in property prices for a period of 18 to 24 months. Martin Dell of Kyocera forecasts discounting by developers leading to weaker prices and longer for sale times for owners reselling. Areas that are likely to be affected include the Costa del Sol and the district inland around Antequera, the Costa Brava and the Costa Daurada. Estate agents and property advisers tend to agree that the best value properties are to be found in regions which have just benefited from infrastructural improvements that are bringing improved access by road and air or districts that are about to see such improvements. More competitive prices are to be found in inland Catalunya, the province of Tarragona and, in the south, around Cordoba and inland from the Gulf of Cadiz.
Although the current fears for the Spanish market will clearly be seen in the context of the sub-prime mortgage worries in the US and signs of speculation in places like Dubai, property owners and investors are really facing different sets of circumstances in different countries. Some property markets such as Australia and Northern Ireland are showing robust growth, though it remains to be seen if the Northern Irish property market is going to display the resilience of the market in London and the South of England in the longer term.
Have you invested in Spanish property? Or are you an agent or developer? Tell us about your experience and what your expectations are on recent happenings.
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This entry was posted on Tuesday, May 1st, 2007 at 8:34 pm and is filed under Property Industry News, Spanish Property. You can follow any responses to this entry through the RSS 2.0 feed.
4 Responses to “A Viewpoint on the Spanish Property Bust”
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ATLAS Says:
May 25th, 2007 at 1:01 pmDON’T FORGET OTHER INVESTMENT OPPORTUNITES
Tourist statistics proclaim that after sunbathing on the beach, the second most popular activity for visitors is shopping. There is a continual growth of retail on the Costa Blanca, with shopping malls including both international brand names and local small production fashion houses prominent among the hundreds of shops that offer just about everything under the sun. So as you can see there is plenty of room for investment here!
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Resale Centre Says:
June 25th, 2007 at 1:02 pmSpain will never crash in the property market it is way too strong for it to collapse and day by day UK residents are still coming in their hundreds to move to Spain.
Okay there has been something of a slow down in the market but that is solely down to all the bad press that the country has been receiving from the UK press.
The fall in prices and the market can only lead to a huge rise again as people look to take advantage of the fall in prices which will see a massive rise again for the property market.
Spain is far too popular to crash.
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John DeVries Says:
December 13th, 2007 at 2:24 pmWe construct bespoke property and as such have been exempt most of the panic associated with the sub-prime fiasco but one thing is certain: Spanish proprty has been over valued by as much as 50 per cent over recent years and prices simply were not sustainable. Whether or not the Sub Prime difficulties had happened, Spanish property prices had to either stop their upward spiral or fall. We believe prices are unlikely to fall much and more likely is that they stay stagnant for the next three or four years, allowing inflation to absorb the over valuation. There will be casualties and these are likely to be the little box properties in the resort areas many of which have been displaying sale signs for a long time.
A bigger threat to the Spanish property market is the simple fact that most buyers are now aware of the considerable dishonesty and risks associated with purchasing property in Spain. For too long the truth has not been allowed to spoil a good sale and whilst the market will get over the effects of the sub prime collapse, the effects of decades of dishonesty are likely to last a lot longer
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Damon Jones Says:
January 28th, 2008 at 10:34 pmI think if you are going to invest in property, there has to be more advantages in play other than the weather. Possibly the problems we see in Spain are a result of too many people making investment decisions on the amount research they would put into planning a holiday.
As for Spanish speaking nations I have been watching Panama for the past 3 years & though a little further than Spain (from the UK) it is however closer to just about everything else in the world.
The visas are not out of reach & for many nations a standard 90 day visa applies on arrival. The property is still well priced & you can be lucky to find a good rental. Currently the government is spending billions on upgrades of ports, cleaning of polution, infrastructure & the widening of the canal, while global companies are relocating to take advantage of the tax benefits associated with the countries tax system, banking center & privacy laws.The citizens are adapt to foreigners with many US & Canadian families having vacation homes or have retired in Panama already. Foreign investors have the same rights as local property owners, new construction is exempt from property tax, the weather is warm & the cost of living is low.
Be aware of ‘mega projects’ as investments & always research the history of the developer or get legal advise when buying an existing property. Overall, my experience has been good & I have not heard of one scam in my time there.
For those interested a good place to start is with a multi listing page http://www.real-estate.com.pa, but I am sure in your search you will find many corporations & articles to assist with any investment queries.
