Few things are more apt to cause stress than an attempt to ‘call’ a market. It is something that my friends at Currency Direct have to do daily and it is something for which I have nothing but admiration. They know that, one way or another, they have to make a prediction about what will happen in the future – and then act upon it - despite the real risks and difficulties of so doing.
When it comes to Spain, the vital ‘call’ for anyone interested in the country revolves around whether or not now is the right time to buy a Spanish property.
Certainly, as we all know, timing is everything. Buy at the wrong time and you can find that your new property in Spain instantly loses you money. On the other hand, if the market rises you may ‘kick’ yourself for not having taken advantage of a distressed Spanish property market offering possibly ‘once in a lifetime’ bargains. In short, do you buy now or remain watchful and wait for another year – or possibly much longer?
As always, it is hard to find meaningful guidance that will help you make an informed ‘call’.
Just as with the UK, reliable predictions in Spain about anything to do with the national economy and its related property market are hard to come by. Those that do exist are often coloured by political or vested interests so biased as to leave most observers baffled.
So, what is the reality?
Without doubt, Spain is suffering a property crash of epic proportions. The world economic crisis has hit the country very hard indeed but has been greatly exacerbated by the lunatic building programme of the past ten years. The latter resulted (between 20002 – 2007) in Spain building something like a third of all new properties constructed within the Eurozone. This was far in excess of any possible demand and has led to a massive oversupply. Indeed, it is thought (no-one knows exactly) that there are some 1 million new builds for sale and possibly much the same number of resales.
To make matters worse, new construction is somewhat like an oil tanker with building completions continuing to occur despite the brakes on the market having been applied some time ago. So, unfortunately, this year some 450,000 newly completed homes will evidently hit the marketplace - further damaging it when least needed.
The combined effect of the world recession, the collapse of the construction industry and reduced tourism means that Spain is already experiencing significant economic problems. Unemployment will almost certainly hit 20% this year (currently it is around 17%) and government debt may rise to 60%. The OECD is predicting an economic contraction of 4.2% and Standard and Poor (S&P) expect the Spanish property market not to recover until 2012.
But what does this all mean if you are a potential buyer? If there is to be no recovery until 2012 - do you have almost infinite time on your hands?
In a way. But what tends to happen in a property crash is that the weak tend to have to sell at whatever price within the first year or so of a crisis. Meanwhile, repossessions take around six months to a year to administer before they appear on the market as forced sales.
So, the first couple of years of a crisis are when you are likely to obtain the best priced quality properties for sale. After that time those property owners who have survived the worst effects of the storm tend to be able to hold onto their homes. The longer time passes the less likely they are to accept really low prices and the more determined they become not to sell at a loss. In reality, it is only at this time that a market naturally begins to stabalise.
My suspicion is that the Spanish property market may still dip down further between now and the early/mid spring of next year. However, during the same period, I think that a remarkable opportunity exists to buy some fantastic properties at genuine distress prices. The latter, for exceptional properties, may start to dry up towards the spring of next year thus making truly excellent buys increasingly hard to find. There may be a lot of ‘rubbish’ still remaining at low prices but they should be of no interest to the wise buyer (because something is cheap it does not automatically follow that it is a good buy).
Would I buy now? I think so - knowing that there will be a diminishing opportunity to buy exceptionally well.
However, I would be a tough and extremely cautious buyer looking for an absurdly good price on an objectively fine (fully legal) property that was easily resaleable and that I could pay for in cash (at whatever the relevant price range). I would also be someone who would be buying on the expectation that I would be unlikely to see any appreciable growth for another three to four years.1
When it comes to Spain, the vital ‘call’ for anyone interested in the country revolves around whether or not now is the right time to buy a Spanish property.
Certainly, as we all know, timing is everything. Buy at the wrong time and you can find that your new property in Spain instantly loses you money. On the other hand, if the market rises you may ‘kick’ yourself for not having taken advantage of a distressed Spanish property market offering possibly ‘once in a lifetime’ bargains. In short, do you buy now or remain watchful and wait for another year – or possibly much longer?
As always, it is hard to find meaningful guidance that will help you make an informed ‘call’.
Just as with the UK, reliable predictions in Spain about anything to do with the national economy and its related property market are hard to come by. Those that do exist are often coloured by political or vested interests so biased as to leave most observers baffled.
So, what is the reality?
Without doubt, Spain is suffering a property crash of epic proportions. The world economic crisis has hit the country very hard indeed but has been greatly exacerbated by the lunatic building programme of the past ten years. The latter resulted (between 20002 – 2007) in Spain building something like a third of all new properties constructed within the Eurozone. This was far in excess of any possible demand and has led to a massive oversupply. Indeed, it is thought (no-one knows exactly) that there are some 1 million new builds for sale and possibly much the same number of resales.
To make matters worse, new construction is somewhat like an oil tanker with building completions continuing to occur despite the brakes on the market having been applied some time ago. So, unfortunately, this year some 450,000 newly completed homes will evidently hit the marketplace - further damaging it when least needed.
The combined effect of the world recession, the collapse of the construction industry and reduced tourism means that Spain is already experiencing significant economic problems. Unemployment will almost certainly hit 20% this year (currently it is around 17%) and government debt may rise to 60%. The OECD is predicting an economic contraction of 4.2% and Standard and Poor (S&P) expect the Spanish property market not to recover until 2012.
But what does this all mean if you are a potential buyer? If there is to be no recovery until 2012 - do you have almost infinite time on your hands?
In a way. But what tends to happen in a property crash is that the weak tend to have to sell at whatever price within the first year or so of a crisis. Meanwhile, repossessions take around six months to a year to administer before they appear on the market as forced sales.
So, the first couple of years of a crisis are when you are likely to obtain the best priced quality properties for sale. After that time those property owners who have survived the worst effects of the storm tend to be able to hold onto their homes. The longer time passes the less likely they are to accept really low prices and the more determined they become not to sell at a loss. In reality, it is only at this time that a market naturally begins to stabalise.
My suspicion is that the Spanish property market may still dip down further between now and the early/mid spring of next year. However, during the same period, I think that a remarkable opportunity exists to buy some fantastic properties at genuine distress prices. The latter, for exceptional properties, may start to dry up towards the spring of next year thus making truly excellent buys increasingly hard to find. There may be a lot of ‘rubbish’ still remaining at low prices but they should be of no interest to the wise buyer (because something is cheap it does not automatically follow that it is a good buy).
Would I buy now? I think so - knowing that there will be a diminishing opportunity to buy exceptionally well.
However, I would be a tough and extremely cautious buyer looking for an absurdly good price on an objectively fine (fully legal) property that was easily resaleable and that I could pay for in cash (at whatever the relevant price range). I would also be someone who would be buying on the expectation that I would be unlikely to see any appreciable growth for another three to four years.1
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