Independent property expert Mark Stucklin assesses the state of the market

A perilous paradise? Concern over Marbella property scandal goes on.

Marbella

The Spanish daily ‘El Pais’ reports that political uncertainty and corruption scandals have pushed Marbella’s property market to its lowest point in five years.

The paper quotes Emilio Langle – residential property director of real estate consultants Aguirre Newman – as saying that “This Andalusian city’s property market is in recession: new developments are completed with 35 percent of units unsold, and investment potential is practically zero.”

He claims the average time to sell for new developments has risen to 32 months, up by three months compared to a year ago.

Illegal building

Operation Malaya – the police and judicial operation against illegal building and corruption centred on Marbella in the Andalusian province of Malaga – has entered a second phase with the arrest in June of 30 more individuals, including local politicians, officials, and property developers.

Most of the arrests have been made on suspicion of bribery and money laundering.

Property developers arrested to date include Fidel San Roman of the developer Cantizal, Emilio Rodriguez of Construcciones Salamanca, and Francisco Garcia of Aifos.

Meanwhile the Spanish authorities continue to stop illegal building projects in the province of Malaga.

The largest intervention to date, authorised in June by magistrates in Coin, has stopped work on some 2,000 new properties on various developments in the municipality of Tolox, located inland from Marbella.

New homes

Despite a softer market, cooling prices and lengthening sales times, Spain is still building more properties than the UK, France and Germany combined.

The latest figures released by Spain’s association of architects (el Consejo Superior de los Colegios de Arquitectos de España) show 211,556 housing starts in Spain in the first quarter of the 2006, up 1 percent on the same period last year.

However, over a 12-month period to the end of March 2006, housing starts were up by 4.1 percent compared to the same period last year, reaching 820,107 - the largest number of housing starts ever to take place in Spain during a 12-month period.

The previous 12-month record was achieved in 2005, with a total of 812,294 housing starts from January to December.

Commenting on these figures, Ricardo Vergés – the association’s chief economist – described this level of housings starts as “unsustainable”, and pointed out the risks to the Spanish economy.

By region, Andalusia continues to build the greatest number of new homes, with 45,300 housing starts in the first quarter of the year (down 6 percent on 2005), followed by Catalonia (31,975, up 1.8 percent), and the Valencian Region (26,554, down 4.1 percent).

Extremadura experienced the greatest increases in housing starts in the first quarter of the year, up by 33.5pc to 4,599, followed by La Rioja, up by 27.9 percent to 2,238, and Galicia, up by 22.6 percent to 13,890.

Excluding Ceuta and Mellia, the greatest percentage falls in housing starts by region were in Navarre, down by 36pc to 2,081, Asturias, down 30.5 percent to 3,631, and Cantabria, down 12.9 percent to 2,968.

Meanwhile, a new report from Euroconstruct reveals that Spain accounted for 28.4 percent c of all new European housing starts in 2005, while only having 9.7 percent of the EU’s population.

The report forecasts that the growth in residential construction activity in Spain will gradually decline, reaching average European levels some time after 2008.

One of the reasons for this is the withdrawal of European structural funds, which will now go to the ten new EU member states.

Slowdown in Madrid, Barcelona

A new report from Spanish real estate consultants Forcadell reveals that property sales in Barcelona and Madrid have fallen by 50 percent this year compared to 2005.

The report finds that an excess of supply over demand in Spain’s largest cities has lead to a slight fall in the prices of resale properties, and that vendors are starting to accept offers 15 percent to 20 percent below asking prices.

And the price of newly-built homes in Madrid has fallen by 7.2 percent over the last year, according to a study by the real estate consultants Aguirre Newman.

The size of the average new home sold in Madrid over the last year was 12 percent smaller than before, and more sales took place in cheaper, outlying areas, which explains why sales prices fell.

On the other hand, the price per square metre of new property rose by 5.5 percent over the period, 10 percent less than the year before, and just 1 percent more than inflation.

Dearer mortgages

Euribor - the rate used to calculate interest payments for most mortgages in Spain – started June on 3.37 percent and finished the month on 3.51 percent. The average for the month, which is the rate used to calculate mortgage repayments, was 3.4 percent (to be confirmed by the Bank of Spain), up from 3.308 percent in May. As a consequence, borrowers with variable-rate mortgages in Spain will face higher mortgage payments.

Property ladder

The Spanish Mortgage Association has warned that, due to higher Spanish property prices, rising interest rates, and tougher lending criteria, getting on the property ladder will get harder for first time buyers during 2006.

Holiday homes

A new report from Grupo I (III Estudio sobre la Vivienda Vacacional en España) estimates that 1 in 4 new properties in Spain are built as holiday homes, and 40 percent of these are bought by foreigners.

This means that 150,000 holiday homes are built a year in Spain, of which 60,000 are bought by foreigners, predominantly the British.

The report finds that demand from foreign investors has reduced drastically, largely due to high prices.

Nevertheless, the report forecasts that prices for holiday homes in Spain will increase by 9 percent in 2006, and 6 percent in 2007.

According to this report, the average Spanish holiday apartment of 2-beds and 114m2 is EUR 233,000.

Mark Stucklin runs the independent website www.spanishpropertyinsight.com and writes on Spain for The Sunday Times.

[Copyright Expatica]

[July 2006]

Subject: Spain, property news