VILLA IN SPAIN
Naturally, the vital question for any Spanish property owner trying to sell his home is: how long will the Spanish property crisis last? The answer is fundamental to any attempt to sell. It will define any sale price and perhaps whether or not it is actually worth even trying to sell a property in Spain at the moment.
Of course, the future is impossible to predict with any absolute certainty – unless you have clairvoyant capabilities. Nonetheless, making some kind of prediction is essential. The alternative is to ‘bumble’ along pretending that no problem exists or, that if one does, it will go away soon – a classic case of ‘burying your head in the sand’. Whilst this is a comforting way to deal with a problem it is hardly the way to find a resolution and no way to tackle the potential difficulty of selling your Spanish property.
So, how can you possibly consider predicting the duration of the Spanish property crisis?
Well, as good a way as any to assess what is likely to happen is by looking at what occurred in the past – in which case, is there a model that can help to indicate how long the Spanish property crisis could last?
In fact, the most appropriate model that I know of is that of the UK in the 1990s. At the time, the UK experienced what was considered to be one of its worst recessions since the 1930s. Although nothing like as bad as the terrifying 1930s depression, the 1990s was a recession in the UK largely based upon the collapse of the property market after a lunatic (and, at the time, unparalleled) credit boom.
According to the Nationwide it took some nine years for average property prices in the UK to do the V (from their 1989 high point to the corresponding level finally reached again in 1998). Meanwhile, average property prices in the UK reached their low point in the 4th Quarter of 1992 and remained much the same until the 2nd Quarter of 1992 – almost five years of negligible price movement before a consistent subsequent rise.
If you accept that the UK property crash in the 1990s is a roughly acceptable approximate model for Spain in the year 2009 then the logical step is to ask three questions: is the present crisis less bad than the UK in the 1990s, much the same – or worse?
I suspect that no-one in their right mind would suggest that the present property crisis in Spain is less bad than the UK in the 1990s given the staggering personal and corporate debt in Spain – let alone the effective collapse of the world banking system and global economies. At best, the present crisis is as bad as the 1990s and there are some very good arguments to suggest that it is much worse.
If, for the sake of optimism, we accept that the present Spanish property crisis is only as bad as the UK in the 1990s then the conclusion that you may draw is that property prices in Spain, once they hit their bottom (which I suspect has yet to happen), will remain at that level for the next three years or so (two years having already passed since the highs of the Spanish property boom). Equally, any return to previous highs will probably take a further seven or so years. If the present property crisis in Spain is worse than that of the UK in the 1990s – then the length of the present crisis is something about which even I have no desire to contemplate.
One thing is for sure, though, and that is if you need to sell your property in Spain now you need everything possible on your side. This is no time to be passive or blissfully hopeful. It is a time for tight pricing, a realistic ‘call’ about the future of the market – and aggressive, knowledgable action to prevent yourself being left in ‘limbo’ for possibly years.
As a buyer, of course, matters are a little different. Obviously, there are some terrific bargains around. Indeed, this is probably as good a time to buy a Spanish property as any. However, you should recognise that the days of growth have gone for the forseeable future. So, unless you wish to develop a long term portfolio of properties in Spain then you should be buying for pleasure rather than pure investment. In a way, this may not be a bad thing at all…
RELEVANT INFORMATION
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Graham. I fear you are right but if it is spam then at least it is nicely written spam!
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Interesting hypothesis but I think there is one fundamental difference between UK 1990 and Spain 2009. The UK construction industry was and still is trying to satisfy domestic demand, whist the Spanish construction industry has been and still is trying to cater for foreign buyers mostly second homes or holiday properties.
This fundamental difference will have a significant impact on both Spanish economy and the length of construction industry downturn. Lets us forget for a moment that there are over 1 million new properties in Spain remain unsold, which in economic terms means ‘Over Supply’. Over supply or lack of demand are the same in economic terms, both of which depress the price.
The issue here is second homes or holiday homes are an elective, non-essential purchase. What you could terms as the height of luxury or over-indulgence. In the current economical climate buyers will be less willing to commit to long term loans on what is in reality a bit of over-indulgence, and banks are even less willing to lend for the same reasons. So we have the triple whammy of over-supply, lack of desire to commit and lack of financing. The unholy Trinity.
The same does not apply if you want to buy something in Inland Spain where there is shortage of properties due to years of restrictive Town Hall planning and hence an under-Supply. Where coastal property prices in the Costa del Sol have dropped by as much as 50% in some Inland areas the price has gone up. There is a gravity defying event for you.
So when will it end? When at least two of the 3 elements in the unholy trinity is broken, namely:
-Supply levels -not unlikely given that 1m unsold properties are equal to 5 years of supply at its peak (200,000 units sold in 2007).
-Credit Easing – not in the short term as banks try to fix their own balance sheets.
-Demand for Luxury Items – There will continue to be an aspiration for second homes/holiday homes but in economic terms aspiration does not equal demand. Demand is only valid if you have the economic means of funding your purchase, so 16-year-olds day-dreaming about a Ferrari is not demand. So this aspiration will only become demand when individuals are able to fund (or borrow) their way into the market. That can be at least 5-7 years when personal debt levels fall.
Al – an excellent comment, for which many thanks! You have come at the problem from a different direction but essentially we both seem to consider 5-7 years as the potential recovery time. This, of course, is at complete variance to a lot of the views (PR?) that is currently being publicised.
Does all this matter?
Well, as a new Spanish property buyer not too much but as a seller it is absolutely critical in terms of appreciating the reality of the marketplace and thereby being able to form a realistic sales strategy. However, of course, the real long term importance of truly understanding the problems of the Spanish property market revolves around the Spanish – and anyone else working and living in Spain full time. Any solution to the dramatic downturn of the Spanish economy has to factor in the construction industry and property market.
Brilliant blog posting. I found your post very interesting, I think you are a brilliant writer. I added your blog to my bookmarks and will return in the future.
Great site!
I’m one of those strange beasts actually considering a purchase in Spain! Are there huge regional differences in terms of the ‘crash?’ I’m considering the Costa Blanca and Moraira in particular and whilst there are some bargains I don’t see the 50% declines in values I’ve read about. Any feedback / advice gratefully received.
On the point about demand, clearly the global recession took all buyers from all countries out of the market but as those countries (germany, holland, uk and France) recover is it relevant how much domestic demand there is in Spain for holiday homes on the Costas? Does anyone know what proportion of the Spanish holiday home market was driven by Spaniards?
Anthony
You are not that strange – people are still buying! However, obviously, the volumes are down greatly since the crash. I think the price declines have been pretty universal across Spain with a useful article on this topic here: http://www.spanishpropertyinsight.com/buff/2010/07/14/spanish-property-market-value-down-64pc-over-3-years/
The other problem is that the market is quite complicated, see my post: http://www.culturespain.com/property-in-spain/spanish-property-crash-%e2%80%93-the-market-is-more-complicated-than-it-looks Decent, prime property has not lost the same value as some of the real rubbish on the market that may never recover. The key, for you, of course is to buy carefully. Clearly, you should be looking for a bargain but often there is a good reason why some properties have (relatively speaking) retained their price. If you are looking for a beach side property beware the Ley de Costas (http://www.culturespain.com/property-in-spain/spanish-property-%e2%80%93-beach-apartments-in-spain)
Finally, ref. Moraira and the Costa Blanca. The Spanish are in deep financial trouble and so the demand for holiday homes from them has pretty much collapsed (not helped by massive over-building) which was always in excess of both domestic and foreign demand. Nonetheless, the Costa Blanca is well worth looking at with Moraira particularly desirable. If you are coming this way then may I also suggest (I am naturally biased!) that you give the Gandia area a look as well.
My apologies for all the Links – but I think you may find the info. helpful
NICK
Cheers Nick, I’m actually coming over next week to do some more homework so I’ll see if I can drive down and take a look @ Gandia. Thanks for the links, interesting stuff. Interesting to note the increase in activity in May over 09. Appreciate this is off a very low base but nonetheless it does suggest a bottoming of the market in terms of activity.
Anthony
Like Britt, I too, am one of those strange beasts currently considering a move to Spain, and am an even stranger creature, American, not British. Recently retired, widowed with no children, I have been in love with Spain since my first look in 1987. Have done tons of research about locations and think I want to be in the Valencia area even though I have not yet visited that region; am considering Bunol, Oliva, Gandia, La Font D’en Carros, etc. Any thoughts you might have will be most appreciated; I am coming over in October/November to get a feel as a possible resident instead of tourist. Are there communities outside of Valencia proper where owning a car is not a necessity? Many thanks.
I only found your book as well as your site today and am really enjoying your thoughts and opions.
Anthony
If you are around Gandia give me a call and we can meet up – or drop me an e-mail (casalasafor@gmail.com). It is a great area!
Canning, thank you for your kind comments and it is good to hear that someone from the States is keen on Spain! If you get it right it really is a wonderful place to live. Certainly, after 7 years living here permanentley we (all my family) have no regrets and we are endlessly charmed by our life here. Obviously, location-wise, I am totally biased as I live 15 minutes from Gandia which I adore. Gandia is a ‘Spanish’ town, vibrant and wonderfully user-friendly with, I think, some of the most beautiful commercial beaches in the world. Meanwhile, the surrounding mountains (where I live) are gorgeous. If you live in or around Gandia (the La Safor area) then you do not need a car as there is public transport between the villages and, of course, there is a direct train line from Gandia to Valencia city (and its international airport). Drop me an e-mail before you come over and, if you are heading down to Gandia, then we can meet up if you want. There are a scattering of properties on http://www.casaasafor.com which may be worth a glance.