Profiling the Recovery Part III: Spain

Profiling the Recovery Part III: Spain

Knowing – or maybe believing is a better word – that property markets and economies around the world are on the way back up sure is a nice feeling. It may be a short-lived feeling, because according to some there are signs that the short-lived positivity will end as quickly as it begun.

I am not one of the people. Nor am I one of the plastic fantastic optimists that think the only way is up, and that rejoices in reports of UK mortgages doubling, and property in some areas selling for almost the same as it would have at the height of the boom.

The truth is, yes, we are making some headway against the deluge of negative financial news. In fact, a good analogy of the current recession recovery process for me, is a snow plough that has been completely submerged in snow: we have just jumped in and managed to get the engine started, the heat is slowly melting the snow, but we still have a hell of a lot of pushing to do before we clear the drifts.

As you would expect, all the countries of the world are recovering in different ways and at a different pace, depending on the makeup of their economy and the funding and direction of its government’s economic stimulation policies. Nobody knows how strong the recoveries are without the massive injection of cash and stimulation being poured into the world’s markets.

In this series of articles we will profile the G8 nations to track the progress of recovery in their housing markets so far, and attempt to map any possible deep-drifts in the road of stimulus withdrawal ahead.

Part III: Spain

Spain has been among the worst affected by the international financial crisis, both in its property market, and economically. But you wouldn’t know it if you listened to official government housing figures. According to the Housing Ministry’s index, Spanish house prices have fallen around 9.5% since the peak in the first quarter of 2008.

This is the same government index that is now indicating a Spanish market heading towards recovery: the latest report showed prices down 6.2% year on year in the fourth quarter, a food deal slower than the 7.8% year on year decline seen in the third quarter, and the 8.2% decline in the second quarter.

Even the much-revered Tinsa index says in August were only 8.9% lower than August 2008. This is also showing a slowing rate of decline since April when declines reached 10% year on year.

Fuelling the reports of recovery is the fact that sales volumes were down just 2.6% year on year in November, compared to 21% in October, and 17% in September.

The opinions of impartial sources however, point to much larger falls of between 20% and 40% since the peak, with the coastal regions being the worst hit.

To analyse these glimmers of recovery in Spain, we really need to look at the back story:

Spain has been so hard hit, for much the same reason as the UK; because both saw economic growth based almost solely on industries that collapsed in the crash. In the UK it was the financial sector, and in Spain it was construction.

Spain’s economic boom was fuelled from the fact that it was in the clutches of the biggest construction boom in Europe, which in turn was fuelled by irresponsible lending and borrowing. At the height of the boom, Spain saw more construction starts that Germany, the UK and Italy combined.

At the time all the construction seemed justified due to the unprecedented levels of foreign demand, and the continued and rapid growth thereof. Unfortunately, as we all know foreign demand pretty much disappeared in 2008, from a slow decline in the first part of the year, to a complete exodus in the final quarter.

This left Spain in a horrible position: despite the fact that the thousands of apartments and villas already on the market now had no buyer, the developers developing thousands more could do nothing but keep building, knowing that they were likely laying the bricks of their confinement to misery for the next few years.

When the building industry finally stopped building and started assessing the damage thousands of jobs were lost, and as building and property were the main drivers of growth, the economy fell into a deep recession very quickly.

So now, as the first glimmers of recovery emerge with increasing transactions. Spain has an estimated 1 million units to get through before the construction industry can start constructing properties and reconstructing the economy. The estimates for how long this will take range from 1 year to 3 years.

The real glimmer of hope lies in the fact that Spain is still the number 1 most popular tourism destination with Brits, and — as a result — still the most popular with British holiday home buyers as well.

This was proven by the recent top 10 charts of two major UK property portals; Property said Spain was the most popular for 2009 as a whole, the Move Channel said it was most popular in December, and Primelocation also named it second most popular in the second half of 2009.

Demand is unlikely to reach fever pitch levels while the UK is still reeling from the recession, but if the UK recovery goes according to plan demand could start seeing some good growth, possibly sufficient to bring an end to Spain’s recovery in the second half of 2011.

Article written by Liam Bailey of