Foreigners are buying almost 135,000 homes in Spain every year – twice as many as ten years ago. But amid warnings of a slow down in the property boom – and a fall in prices – could it pay to wait a while? We look at how the housing market in Spain has evolved.

You could be forgiven for thinking that the Spanish property market is glutted.

Not just with eager buyers, rather with endless articles seeking to offer more advice about buying that rundown finca near Granada or that fishermen's cottage in the Costa Daurada.

Yet one thing appears clear, the writing is on the wall: prices are going to fall.

With almost 135,000 foreigners buying second homes or permanent homes in Spain each year, the implications are twofold.

If you are about to buy, hold fire. But if you have already bought as an investment, your nest-egg may not be worth what it was.

Reports by consultancies, analysts and leading real estate firms insist a slow-down in prices is around the corner with a slump in demand not far behind.

The latest authoritative report from the Bank of Spain said the economy would hold firm, but the slow-down would start later this year.

And the equally-respected Organisation for Cooperation and Economic Development (OECD) said the Spanish economy should be wary of the risks of a "sharp and violent medium-term fall" in house prices, with all its knock-on effects.

With concern mounting, the government has promised action to stop the repercussions from being too drastic.

Housing Minister Maria Antonia Trujillo said recently: "We will try to bring some moderation to the current rate of increase and to originate stability."

Urbanizations like this on Costa del Sol have traditionally been popular

A report from the Spanish BBVA Bank published last week found that fifteen percent of all new property owners each year are foreigners.

The vast majority of those are Europeans, buying that second home on a Costa somewhere or the ramshackle farmhouse of popular myth.

Each year, at least 90,000 people who live outside Spain follow this well-worn path.

But there is also another group of  expats who like Spain so much they decided to stay. They snap up another  45,000  properties each year.

Of these, the largest number are British – or 36 percent. Second are the Germans, who make up 23 percent of the foreign property owners.

The French make up six percent, the Italians two percent and the Dutch three percent.

That leaves another thirty percent of the market which includes principally Americans, Canadians, Scandinavians and perhaps now some Eastern Europeans. 

Of Spain's 22 million home-owners, at least 3.8m are foreigners. And there are signs this figure will only get bigger.

By 2008, up to 200,000 second homes will be sold each year to foreigners, according to a report by the consultants International Financial Analysts.

For anyone planning to join the Spanish property ladder, the predictions are that house prices cannot rise higher than ten percent this year.

But already, in the first three months of 2004, prices have jumped an alarming 17 percent, so this expected down-turn does not appear to have happened so far.

Demand is also changing geographically; the coasts are still very popular, but inland homes are now the thing.

Isolated farmhouses in Murcia are all the rage

Asprima, the Madrid Association of Real Estate Promoters, said: "Although flats near the beach still account for most of the demand, especially two-bedroom apartments, there is also a strong increase in the demand for dwellings a little further away from the coasts in residential complexes.

"Prices are quite high all the way along the coast, and it's hard for them to rise much higher. Real estate investments on the coast are going to lose weight over the next five years and alternatives are starting to recover."

And though homes in the Costa del Sol and the Canary Islands are consistently the most profitable investments, the new hotspots are Murcia and Almeria, in south-east Spain.

Prices rose by only 7.5 percent last year in Murcia, making flats there a good prospect compared with the more expensive Costa del Sol or Costa Brava to the north.
 
So if you were to follow the advice the experts, you would wait until later in the year, hoping prices would fall, then snap up that dilapidated hacienda outside Murcia.

But then, when have house buyers ever listened to the experts? 

[June 2004]

Subject: The Spanish property market, Living in Spain

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