Who will be feeling the pain in Spain?

Reports of the market’s demise are exaggerated – but some British investors could still lose out

Mark Stucklin, ‘Sunday Times’ Spanish Property Doctor

Don’t panic – the Spanish property market is not in meltdown. What sparked the recent slew of doom-laden headlines was not the housing market going into freefall, but a fall in the Spanish stock market as jittery investors dumped construction stocks in April.

Shareholders reassessed the outlook for the property market, which is largely a domestic one, catering for Spanish buyers of primary residences. Share prices have been bullish for the past three years, but, despite the booming economy, rising interest rates and evidence of a housing slowdown triggered a correction.

According to figures released by the Spanish housing ministry, average property prices rose by 9.1% during 2006, down from 12.8% in 2005 and from almost 20% annual growth in the couple of years before that. So, a market that was boiling a couple of years ago is becoming tepid. Spanish Land Register figures reveal that overall house transactions fell by 7.5% in 2006 and, for two or three years now, there has been plenty of anecdotal evidence suggesting stagnant or falling markets in some of the areas popular with Britons.

So with the good times seemingly over, what does this all mean if you own a holiday home in Spain, or want to buy one? The biggest losers are short-term speculators who over-extended to buy ‘off-plan’ in the final years of the boom, thinking they could “flip” it and make a profit. In the same boat are those who have bought an average property in an over-developed area in the past three years, and anyone who didn’t do their homework and paid over the odds.

Losses may become more widespread if Spain goes into a construction-led recession. This is not impossible, given the extent to which its economic growth depends on the housing sector. A recession would hit domestic demand for holiday homes hard, pushing prices down. Even so, good-quality properties with foreign appeal would probably get off lightly, and the market would recover in due course.

Any Briton who bought an attractive property in a good area five years ago or more should not worry. Good capital growth means these properties should still fetch a reasonable return were you to sell now.

If you are really willing to do your homework, the market ‘wobble’ could be a good time to hunt for a bargain – and now is the best time in a decade to drive a hard deal. Remember, smart buyers look at whether or not a property represents value for money, not just how cheap it is. This leaves a complex situation involving different regional markets.

For instance, on the Costa del Sol, buyer activity at the western end of the Coast peaked in 2003 and has been falling since. “Prices are back to where they were two to three years ago,” says Mark Clifton, a partner at the Marbella-based agency IPP. But the picture is starting to look less bleak. With corruption being tackled and infrastructure improved, attractive properties in better areas are selling quickly for reasonable prices. You can find a two-bed flat in Elviria for about £220,000 or a two-bed townhouse in Marbella for about £465,000.

Inland, there is even a shortage of the fincas sought by affluent Britons. “Buyers now are savvy people with money, not the deranged investors with 100% mortgages of a few years back,” explains Barbara Wood, who runs the Andalucian branch of Property Finders, a search agency.

Unfortunately, there is also a growing glut of flats in mediocre locations all along the coast. Their value is likely to fall. The same applies in all coastal areas of Spain that have been heavily over-developed.

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If you’re looking to buy a property in Spain it always pays to get some sound advice from a reputable local company. HomeCareontheWeb specialise in property management, rentals and sales, with offices covering the Costa del Sol. Whether you’re looking to invest in a holiday home or want to make a permanent move into rented accommodation or a home of your own, they offer free advice on what and where to buy and likely rental returns, as well as relocation guidance if you’re planning on a longer stay. See them at www.homecareontheweb.com.   

 May 2007