British ‘Brickor Mortis’ Affecting Lanzarote Property

As property paralysis starts to grip the UK – with both home sales and new mortgage approvals falling by 60% plus in August – demand for property for sale in Lanzarote is showing signs of decline. Despite the fact that overseas visitor numbers to the eastern most Canary Island continue to rise.

Britain’s worsening ‘brickor mortis’ was amply illustrated yesterday by the release of new figures showing a steep decline in UK house sales and mortgage approvals during August. As HM Revenue and Customs revealed that only 62,000 homes found a buyer last month – down 60% on August 2007. Whilst only 21,086 new mortgages were approved – a fall of 63% in a year, according to the British Bankers Association.

Many overseas property markets are driven by demand from British buyers. But as confidence starts to fall along with a sagging pound is the outlook darkening for these places in the sun?

Foreign demand for property in Lanzarote has traditionally been driven by British – and more recently Irish investors. With the island welcoming just over one million tourist visitors from the UK and Eire annually. The majority of buyers seek to invest in apartments or holiday villas in Lanzarote. As the island has a clement year round clement that generates twelve months worth of rental returns.

As a result thousands of villas and apartments have been snapped up over the last decade. Whilst a further estimated 7,000 plus properties on the island are occupied by long term retirees or expatriate residents. Who comprise around 5.5% of the islands total population of 127,000 people.

Despite the credit crunch and weakening pound Lanzarote´s tourist market has proved to be extremely resilient this year. With total foreign visitor numbers up 3.4% to date versus 2007. An increase that has been led by British tourists – up by 7.9% for the period January to August end, totalling 571,851 visits.

Tourism dominates Lanzarote´s economy, accounting for around 90% of the islands GDP.

Despite these strong fundamentals rising tourist numbers have not translated into an increase in property sales. As all island based estate agents catering to the British and Irish markets have reported a decrease in transactions versus 2007, with some smaller operators even being forced to close their doors altogether.

Mortgage approvals in the Eastern Canary Island province of Las Palmas – of which Lanzarote is part – also fell by 35.8% in the first quarter of 2008. According to Spain’s National Institute of Statistics. As local banks follow the international lead by tightening their lending criteria. With the NIS figures revealing that new mortgage approvals fell from 14,456 during the first three months of 2007 to 9333 over the same period this year.

As a result of these factors property prices on the island have softened considerably and the market has become becalmed – with many local agents reporting a growing quantity of price reduced property on their books. Although price falls for the province of Las Palmas are still some way below the much bigger drops being experienced in mainland Spanish coastal areas.

Despite the growing affordability of island property and the resilience of Lanzarote´s tourist industry the outlook remains decidedly uncertain until consumer and investor confidence is restored in the UK and Ireland.