Country Guides Country Guide: Spain

Date Published:

02/06/2008

Following an unprecedented decade, where property prices increased by 195 per cent between 1997 and 2006, according to The Economist, house price inflation in Spain has begun to decline.

Depending on which statistics you read - officially, the Spanish Ministry of Housing says they increased by 4.8 per cent year-on-year to end of February 2008 - the fall in prices is anything between four per cent and 10 per cent.

Mark Stucklin, head of property resource website www.spanishpropertyinsight.com, said: 'The government's figures are notoriously unreliable. Talk to anyone in the business, and the word is that prices are falling, buy as much as 20 per cent or more in some areas'.

'A new study by IESE business school, based on the asking prices published at www.fotocasa.es,- a leading Spanish property portal - finds that average property asking prices have fallen by 4.3 per cent over 12 months to the end of February, with asking prices falling by 8.3 per cent in the Valencian region.'

Sales transactions, as well as prices, are falling. Spain's national statistics institute has revealed that residential property sales dropped by an average of 27 per cent in January compared to the previous year, with sales plummeting by more than 40 per cent in key regions like Catalonia (-42 per cent) and The Balearics (-45 per cent).

Consequently, there is a huge stock of unsold property for sale, and newly completed property - a legacy of the boom years of 2005 and 2006 when more than 850,000 starts were given the go ahead - coming onto the market.

According to a report by leading commercial property and real estate services adviser CB Richard Ellis, construction completions rose by 10 per cent in 2007, whilst sales fell by 12 per cent, inflating an already massive stock of around one million unsold properties

Stucklin says in some areas the market has been almost completely wiped out, particularly in coastal areas with a lot of holiday homes; regions popular with British buyers such as The Vega Baja in the south Costa Blanca, which includes towns like Torrevieja and Catral.

'Procosta - the developer's association of the Vega Baja region - has said that sales in the region are down by 80 per cent. Brits have been turned off Spain by stories of corruption scandals, demolition threats, land grabs, and unease about the market and prices. Now the exchange rate is doing its bit to turn British buyers away.'

The pound has fallen around 15 per cent in value against the Euro in the last year, making the price of €200,000 property approximately £20,000 more expensive than it was in early summer 2007.

For some would-be second homebuyers in Spain, the strength of the euro is the final straw. But not everyone sees it that way. Some estate agents, being ever the optimists, claim that now - when the market is falling - is actually the time to buy in order to get the best deals.