THE SPANISH PROPERTY MARKET – WHAT NOW?

Recently an influential annual report was published by Acuna & Asociados who are highly regarded Madrid real estate analysts. Their report makes depressive reading given that they do not think the Spanish property market will recover for several years. Indeed, at current rates of demand (around 200,000 properties per year) it may take some six to seven years to clear just the existing housing stock for sale.

Certainly, there is an inordinate amount of property for sale on the Spanish marketplace. According to Acuna & Asociados there are some 1.67 million properties for sale in Spain. These comprise some 500,000 new builds, some 470,000 new builds yet to be completed and around 500,000 re-sales. It is quite likely that the estimated number of resales is very conservative given the amount of properties privately for sale that will not be registered formally anywhere.

Meanwhile the Spanish economy is in meltdown. Unemployment is currently somewhere around 19% with Citibank predicting that it will rise to 22% and Acuna & Asociados to 25%. The collapse of the Spanish construction industry has impacted not just on its associated industries but on the population at large who have been caught in a lethal vortex. As more people lose their jobs so more properties come onto the market - often with distress sale prices.

Unfortunately, there are no apparent ‘quick fixes’ for the Spanish economy which is also being hurt by the world credit crunch. Socialist Prime Minister Zapatero has tried to stimulate the economy with his much publicised Plan E (see my 14th August Blog). However, this is due to cease soon due to lack of further funds and has done little other than reduce the very short term unemployment figures. These will, obviously, rise once Plan E stops and as Spain goes into the winter period when any tourist related employment reduces radically.

So, what does all this mean for Spanish property buyers and sellers?

Well, as a seller of Spanish property, it is obviously bad news – particularly if you bought within two years or so of the boom. In this case, it is unlikely that you will recover your money for some considerable time to come. Worse still, the sheer quantity of other properties for sale (including many genuine distress sales) means that you will be entering a savagely unforgiving market place. Indeed, the only consolation (for British sellers) will be the strength of the Euro over Sterling which may mitigate any drop in their Euro sale price.

As a buyer, of course, matters are very different. Virtually everything is for sale and you can now pick up bargains throughout Spain almost everywhere you look. However, this does not mean that you can be careless. Far from it. Indeed, uppermost in your mind, at all times, should be the adage that ‘not everything that is cheap is a good buy’.

In fact, you should not even think of buying unless you know intimately how to tell whether a property is fully legal or not. Furthermore, you must be able to assess objectively what will make a long term sound investment (see my book How to Move Safely to Spain).

As always, the key to a sound investment is its ease of resaleability. However, establishing resaleability is often less easy than it sounds when you are in a foreign country with a particularly complex marketplace involving not just native buyers but also a very significant proportion of foreigners from an array of different countries.

Without doubt, the Spanish property crash has produced some excellent bargain buys. These exist now and are well worth exploiting. However, the question is whether property prices in Spain have now reached their bottom?

My own feeling is that prices still have around 10% further to drop. This will be an unpopular ‘call’ but the sheer numbers of property currently for sale together with an economy in freefall means that any optimism at the moment is hard to justify objectively. At the end of the day property, like any other commodity, is subject to supply and demand and at the moment, there is far more supply than demand. Until this readjusts, prices will continue to drop and the Spanish property market will remain very weak for the forseeable future.

Of course, if you are thinking of buying a Spanish property then your next question may be ‘when will it be a good time to buy?’

Well, I cannot help feeling that the desire to make untold money on property is somewhat distasteful. Surely, the primary aim of moving (particularly to a foreign country) and buying a property is about obtaining a better quality of life than you have currently - preferably as soon as possible? To place life ‘on hold’ whilst waiting for a market to guarantee a ‘profitable’ investment seems somewhat short sighted given life’s brevity and uncertainty.

This is not say that you should not be very careful. However, now I think the emphasis should be on buying a property that will retain its value long term – as opposed to being purely focussed on the profit that it will, or could, make. Those days, in Spain, are, for the time being, largely over. That does not, in any way, diminish the valid reasons for coming to Spain which should be about delighting in the genuinely superb quality of life still on offer. Little has changed in that regard – it is just that combining this with a guaranteed short term profitable property investment is less valid.

In short, I suspect, that the prices of Spanish property will hit their low point probably in the spring of 2010. However, that is not to say that you cannot now pick up a heavily discounted property - and one that will prove to be a good purchase for the future. If you are planning to move to Spain then, give or take, this is about as good a time as any. However, be prepared to drive a hard bargain - as I believe that the market has some time to go before it stabalises...1

DOES ‘PLAN E’ HAVE A PLAN B?

‘Plan E’ is socialist Prime Minister Jose Luis Rodriguez Zapatero’s master plan to revive the Spanish economy.

Plan E stands for Plan Espanol para el Estimulo de la Economia y el Empleo (Plan to Stimulate the Economy and Employment of Spain). It involves the Spanish government spending prodigious amounts of money primarily on construction and infrastructure (drainage, roads etc.) projects. In fact, there are supposed to be 29,200 projects involving 7, 736 town halls (local governments). 14,000 businesses are allegedly involved and ‘Plan E’ is supposed to provide employment for some 400,000 people.

By anyone’s standards ‘Plan E’ is a brave undertaking and a bold attempt to prevent economic meltdown within Spain.

Certainly, something needs to be done. Most commentators think that unemployment, now standing at almost 18%, will climb to 20% by the end of 2009 with Citibank forecasting that Spain’s unemployment could reach an appalling 22% in 2010.

The question is whether ‘Plan E’ will work - or prove to be a disastrous waste of precious resources.

Obviously, only time will tell - but spending on infrastructure projects tends to be short term and not something that generates continued future employment and wealth. Once a road or new drainage system has been constructed, all employment related to it, obviously, ceases. Generally, the chances of an infrastructure project producing further work (and non-governmental money) over the forseeable future is tiny.

Regeneration projects, therefore, need to be planned, analysed and undertaken with great care and sensitivity. If they are not then their chances of providing a long term solution are probably no better than someone placing a temporary (and extremely expensive) bandage over a deep wound that will continue to bleed dangerously until stitched properly.

Of course Spain, (like the UK), has the present management of their economy in the hands of the very people in government who were negligent in allowing the crisis to occur in the first place.

So, expecting Prime Minister Zapertero to get any solution to the crisis right, on the basis of past performance, is a long shot indeed. Like UK Prime Minister Brown, Zapertero comes from the ‘spend come what may’ philosophy. When times are good, he spends as if there is no tomorrow. However, when ‘tomorrow’ and a predictable crisis arrives his answer is – to spend more. These are hardly the actions of a prudent housewife and are more akin to those of a multiply divorced harlot...

Does this matter to North Europeans coming to Spain? To some extent it does.

Naturally, the majority of foreigners coming to Spain have their own incomes (pensions etc.) so any Spanish economic troubles are largely academic. There are others, though, who have come to Spain to work who will suffer should ‘Plan E’ not function as intended. However, importantly, few people enjoy living in any country when economic hardship occurs and brings with it sustained pain and depression to the daily lives of its people.

Finally, there are ‘Plan E’ signs everywhere! These are impressive in size and design and anecdotally are said to cost around 2,000 Euros by the time they are erected and in place. With some projects supposedly costing less than that figure (and yet evidentally still accompanied by their signs!), it is hard not to suspect that, at heart, ‘Plan E’ is probably flawed.1