Spanish Property Prices

Property prices in Spain fell 6.8% in the first quarter of 2009, the fastest rate of decline since records began, despite the fact that sales volumes dropped 39% over the preceding year. No surprises there – it is fair to say the data has been lagging well behind the figures for the last year or so. With unemployment in Spain pushing 20% and an average Spanish home costing around 7 times the average annual salary, we obviously have a ways to go before this correction is over.

Bargains in Benidorm?

Although the Spanish banks managed to avoid the US subprime mess, they are still heavily exposed to the Spanish property market crash and will almost certainly require government assistance to survive. The Bank of Spain took over Caja Castillo in March with E9 billion of government guarantees and they will not be the last.

The consensus amongst the “experts” is that Spanish home prices will decline 32% from their 2007 peaks. This is way out of kilter with the figures. There is an estimated 1.5 – 2 million properties sitting empty and Banco Santander is already starting to sell off some of  the E4 billion worth of property it repossessed last year.

Most of the Spanish banks are holding on to huge and growing quantities of repossessed property in the hope of waiting out the recession and avoiding making a sale in this market.  The recession looks like it will be long and drawn out in Spain, so it really is a matter of out waiting the banks if you are looking for a bargain.

Our advice –

If you are a seller and have a buyer who will pay 32% off the 2007 peak price of your property – take it. If you are British and are converting back to UK pounds – you will just about break even.

If you are a buyer looking for a bargain -

Wait until the banks crack and are forced to recapitalize by selling off their housing stocks. The maintenance costs and further loan defaults will eventually force them to. Delinquency rates are on the rise, up to 3.8% in January; the number of new business starts is down 45%; tourist numbers to Spain and Lanzarote are way down; and the official unemployment figure is 17.4%. Just a matter of time.